MetLife 2013 Annual Report Download - page 41

our U.K. closeout business. We expect that customers may choose to close out portions of pension plans over time, at costs reflecting current
interest rates and availability of capital. In addition, higher structured settlement sales of $56 million, before income tax, resulted from fewer
competitors in the market in 2013. Changes in premiums for these businesses were almost entirely offset by the related changes in policyholder
benefits.
The impact of 2013 deposits and funding agreement issuances contributed to an increase in invested assets, resulting in an increase of $183
million in operating earnings. Growth in deposits and funding agreement issuances generally results in a corresponding increase in interest credited
on certain insurance liabilities; this decreased operating earnings by $149 million compared to 2012.
The sustained low interest rate environment continued to impact our investment returns, as well as interest credited on certain insurance liabilities.
Lower investment returns on our fixed maturity securities, mortgage loans and real estate joint ventures were partially offset by increased earningson
interest rate derivatives and our securities lending program. Many of our funding agreement and guaranteed interest contract liabilities have interest
credited rates that are contractually tied to external indices and, as a result, we set lower interest credited rates on new business, as well as on
existing business with terms that can fluctuate. The impact of lower interest credited expense was partially offset by lower investment returns and
resulted in a net increase in operating earnings of $90 million.
Mortality results were mixed across our products and resulted in a slight increase in operating earnings. The net impact of insurance liability
refinements in both 2013 and 2012 decreased operating earnings by $25 million.
Higher costs associated with technology initiatives and pension and postretirement benefit plans, as well as an increase in litigation reserves, were
partially offset by lower employee-related expenses realized through operating efficiencies. This increase in operating expenses was slightly offset by
higher fees earned on our separate account balances, which grew during 2013 as a result of an increase in average separate account deposits. The
net impact of these items was a $15 million decrease in operating earnings.
Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011
Unless otherwise stated, all amounts discussed below are net of income tax.
The sustained low interest rate environment has resulted in underfunded pension plans, which limits our customers’ ability to engage in full
pension plan closeout terminations. However, we expect that customers may choose to close out portions of pension plans over time, at costs
reflecting current interest rates and availability of capital. During 2012, the conversion of an existing contract involving the transfer of funds from the
separate account to the general account resulted in a significant increase in premiums in our domestic closeout business. Structured settlement sales
have decreased $463 million, before income tax, reflecting a more competitive market and a decrease in demand due to the low interest rate
environment. Changes in premiums for these businesses were almost entirely offset by the related changes in policyholder benefits. The impact of
2012 premiums, deposits, funding agreement issuances, and increased participation in the securities lending program, contributed to an increase in
invested assets, resulting in an increase of $179 million in operating earnings. The growth in premiums, deposits and funding agreement issuances
generally result in a corresponding increase in interest credited on certain insurance liabilities; this decreased operating earnings by $158 million in
2012 as compared to 2011.
Expenses declined largely as a result of disciplined spending and a decrease in sales volume-related costs, such as commissions and premium
taxes. A decrease in structured settlement commissions was partially offset by an increase in commissions from sales of funding agreements, which
improved operating earnings by $23 million.
The low interest rate environment continued to impact our investment returns, as well as interest credited on certain insurance liabilities. Lower
investment returns on our fixed maturity securities and securities lending program were partially offset by increased earnings on interest rate
derivatives and on private equity investments from improved equity markets. Many of our funding agreement and guaranteed interest contract liabilities
have interest credited rates that are contractually tied to external indices and, as a result, we set lower interest credited rates on new business, as well
as on existing business with terms that can fluctuate. The positive impact of lower interest credited rates was partially offset by an increase in interest
credited expense resulting from the impact of derivatives that are used to hedge certain liabilities. The net impact of lower interest credited expense
and lower investment returns resulted in an increase in operating earnings of $43 million.
The net impact of insurance liability refinements in both 2012 and 2011 coupled with a 2011 charge in connection with our use of the U.S. Social
Security Administration’s Death Master File in our postretirement benefit business increased operating earnings by $31 million. This increase was
partially offset by unfavorable mortality experience in the pension closeout businesses which resulted in an $8 million decrease in operating earnings.
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