MetLife 2013 Annual Report Download - page 68

See “Risk Factors — Capital-Related Risks — We Have Been, and May Continue to be, Prevented from Repurchasing Our Stock and Paying
Dividends at the Level We Wish as a Result of Regulatory Restrictions and Restrictions Under the Terms of Certain of Our Securities” in the 2013 Form
10-K and Note 16 of the Notes to the Consolidated Financial Statements elsewhere herein for information regarding restrictions on payment of
dividends and stock repurchases.
The Company
Liquidity
Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We determine our liquidity needs based on a rolling
six-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling six-month
forecast. To support this forecast, we conduct cash flow and stress testing, which include various scenarios of the potential risk of early contractholder
and policyholder withdrawal. We include provisions limiting withdrawal rights on many of our products, including general account pension products
sold to employee benefit plan sponsors. Certain of these provisions prevent the customer from making withdrawals prior to the maturity date of the
product. In the event of significant cash requirements beyond anticipated liquidity needs, we have various alternatives available depending on market
conditions and the amount and timing of the liquidity need. These available alternatives include cash flows from operations, the sale of liquid assets,
global funding sources and various credit facilities.
Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. If we
require significant amounts of cash on short notice in excess of anticipated cash requirements or if we are required to post or return cash collateral in
connection with derivatives or our securities lending program, we may have difficulty selling investments in a timely manner, be forced to sell them for
less than we otherwise would have been able to realize, or both. In addition, in the event of such forced sale, accounting guidance requires the
recognition of a loss for certain securities in an unrealized loss position and may require the impairment of other securities if there is a need to sell such
securities, which may negatively impact our financial condition. See “Risk Factors — Investment-Related Risks — Should the Need Arise, We May
Have Difficulty Selling Certain Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner and Realizing Full Value
Given Their Illiquid Nature” in the 2013 Form 10-K.
In extreme circumstances, all general account assets within a particular legal entity — other than those which may have been pledged to a specific
purpose — are available to fund obligations of the general account of that legal entity.
Capital
We manage our capital position to maintain our financial strength and credit ratings. Our capital position is supported by our ability to generate
strong cash flows within our operating companies and borrow funds at competitive rates, as well as by our demonstrated ability to raise additional
capital to meet operating and growth needs despite adverse market and economic conditions.
Rating Agencies
Rating agencies assign insurer financial strength ratings to MetLife, Inc.’s domestic life insurance subsidiaries and credit ratings to MetLife, Inc.
and certain of its subsidiaries. Financial strength ratings indicate the rating agency’s opinion regarding an insurance company’s ability to meet
contractholder and policyholder obligations. Credit ratings indicate the rating agency’s opinion regarding a debt issuer’s ability to meet the terms of
debt obligations in a timely manner. They are important factors in our overall funding profile and ability to access certain types of liquidity. The level and
composition of regulatory capital at the subsidiary level and our equity capital are among the many factors considered in determining our insurer
financial strength ratings and credit ratings. Each agency has its own capital adequacy evaluation methodology, and assessments are generally
based on a combination of factors. In addition to heightening the level of scrutiny that they apply to insurance companies, rating agencies have
increased and may continue to increase the frequency and scope of their credit reviews, may request additional information from the companies that
they rate and may adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.
See “Business — Company Ratings” in the 2013 Form 10-K.
Downgrades in our financial strength ratings could have a material adverse effect on our financial condition and results of operations in many
ways, including:
‰reducing new sales of insurance products, annuities and investment products;
‰adversely affecting our relationships with our sales force and independent sales intermediaries;
‰materially increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders;
‰requiring us to post additional collateral under certain of our financing and derivative transactions;
‰requiring us to reduce prices for our products and services to remain competitive; and
‰adversely affecting our ability to obtain reinsurance at reasonable prices or at all.
A downgrade in the credit ratings or insurer financial strength ratings of MetLife, Inc. or its subsidiaries would likely impact us in the following ways:
‰impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our Corporate Benefit
Funding segment;
‰impact the cost and availability of financing for MetLife, Inc. and its subsidiaries; and
‰result in additional collateral requirements or other required payments under certain agreements, which are eligible to be satisfied in cash or by
posting investments held by the subsidiaries subject to the agreements. See “— Liquidity and Capital Uses — Pledged Collateral.”
Statutory Capital and Dividends
Our insurance subsidiaries have statutory surplus well above levels to meet current regulatory requirements.
Except for American Life and Exeter, risk-based capital (“RBC”) requirements are used as minimum capital requirements by the NAIC and the state
insurance departments to identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset,
premium and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest
rate risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible
inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These rules apply to each
of our domestic insurance subsidiaries. State insurance laws grant insurance regulators the authority to require various actions by, or take various
actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. At the date of the most recent annual statutory
financial statements filed with insurance regulators, the total adjusted capital of each of these subsidiaries was in excess of each of those RBC levels.
60 MetLife, Inc.