MetLife 2013 Annual Report Download - page 38

On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC.
The combined impact of the 2013 and 2012 annual updates resulted in a net operating earnings decrease of $55 million. This unfavorable impact
was primarily related to 2012 DAC unlockings in the variable annuity business, partially offset by less unfavorable life business unlockings in 2013.In
addition to our annual updates, certain insurance-related liabilities and DAC refinements recorded in both 2013 and 2012 resulted in a $76 million
increase in operating earnings.
Also contributing to the increase in operating earnings was a decline in expenses of $30 million, primarily driven by $100 million of savings from
the Company’s enterprise-wide strategic initiative, partially offset by an increase of $61 million related to increases in litigation reserves and
postretirement benefit obligations.
Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011
Unless otherwise stated, all amounts (with the exception of sales data) discussed below are net of income tax.
We implemented extensive changes to product pricing and variable annuity guarantee features as we continued to manage sales volume,
focusing on pricing discipline and risk management in this challenging economic environment. These actions resulted in a net decrease in the overall
segment sales in 2012, most notably a $10.7 billion, or 38% decrease in variable annuity sales which were $17.7 billion in 2012. Consistent with the
decrease in sales, retail life and annuity net flows were down $12.2 billion compared to 2011.
Stronger sales of variable annuities in 2011 increased our average separate account assets and, as a result, generated higher asset-based fee
revenues, partially offset by increases in non-deferrable expenses, increases in GMDB liabilities and higher DAC amortization related to the strong
2011 sales. Positive net flows from life products, as well as higher allocated equity for annuities increased net investment income. These positive net
flows also contributed to higher DAC amortization. Business growth, mainly in our traditional life products, generated higher interest credited expense;
however, this was somewhat mitigated by a decrease in interest credited on deferred annuities where normal surrenders and withdrawals were
greater than sales for the year, resulting in negative net flows. In our property & casualty business, the increase in average premium per policy in both
auto and homeowners businesses improved operating earnings, but was partially offset by a decrease in exposures. We experienced a decrease in
exposures as the negative impact from lower premiums exceeded the positive impact from lower claims. The net impact of these items resulted in a
$198 million increase in operating earnings.
The improving equity market resulted in higher fee income from increased separate account balances, a decrease in variable annuity GMDB
liabilities and lower DAC amortization. In addition, the low interest rate environment continued to result in lower interest credited expense, as we
reduced interest credited rates on contracts with discretionary rate reset provisions. Higher derivatives income from interest rate floors purchased
prior to the onset of the low interest rate environment and higher returns on our private equity investments more than offset the decrease in yields on
other invested asset classes. The net impact of these items resulted in a $174 million increase in operating earnings. Also, the impact of the low
interest rate environment contributed to less favorable experience resulting in a reduction to our dividend scale, mainly within the closed block, which
was announced in the fourth quarter of 2011. This dividend action favorably impacted operating earnings by $19 million, net of DAC amortization.
With respect to the results of the closed block, the impact of this dividend action was offset by other earnings drivers of the closed block, including
net investment income, which were unfavorable and have been incorporated in the respective discussions herein.
In our property & casualty business, catastrophe-related losses decreased $74 million compared to 2011 mainly due to the severe storm activity
during the second and third quarters of 2011, which were greater than the impact of severe storm activity in the fourth quarter of 2012, primarily the
result of Superstorm Sandy. Non-catastrophe claim costs in 2012 decreased $17 million as a result of lower claim frequencies in our homeowners
businesses. Higher severities in both our auto and homeowners business resulted in a $23 million increase in claims. The impact of this can be seen
in the favorable change in the combined ratio, including catastrophes, to 97.9% in 2012 from 107.3% in 2011. The combined ratio, excluding
catastrophes, was 85.8% in 2012, compared to 88.2% in 2011. Favorable mortality experience in the traditional life business was partially offset by
unfavorable mortality experience in the variable and universal life and income annuities businesses resulting in a $21 million increase in operating
earnings. Our 2012 results included a charge of $26 million for the expected acceleration of benefit payments to policyholders under a multi-state
examination related to unclaimed property. The 2011 results included a charge of $28 million, in connection with the Company’s use of the U.S.
Social Security Administration’s Death Master File.
On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC.
This annual update resulted in a net operating earnings increase of $43 million. This favorable adjustment was primarily related to DAC unlockings in
the variable annuities business, partially offset by an increase in the liability for the secondary guarantees in the universal life business. In addition to
our annual updates, certain insurance-related liability and DAC refinements were recorded in both 2012 and 2011. The net impact of these
refinements was a $113 million increase in operating earnings.
30 MetLife, Inc.