This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will be,” “will not” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements may turn out to be wrong. Actual results could differ materially from those expressed or implied in the forward-looking statements. See “Note Regarding Forward-Looking Statements.”
Year ended December 31, 2017 compared with the year ended December 31, 2016
Net assets in the Trust decreased $952 million, or 11%, to $7.8 billion at December 31, 2017 from $8.8 billion at December 31, 2016. This decrease was primarily due to a decrease in net unrealized investment gains on the Trust Shares, as well as (i) net activity under the Purchase and Sale Program; (ii) the impact of withdrawals by Beneficiaries from the Trust; (iii) the impact of escheatment of unclaimed cash and Trust Shares; and (iv) the impact of the allocation of a portion of the cost basis of the Trust Shares to shares of Brighthouse Financial, Inc. common stock received by Beneficiaries as a result of the separation of Brighthouse. Net unrealized investment gains, which represent the difference between the estimated fair value and the cost basis of the Trust Shares, decreased $603 million from the prior year. A net reduction of 8,080,369 Trust Interests resulted from (i) a net decrease of 5,634,791 Trust Interests in connection with redemptions and issuances under the Purchase and Sale Program, (ii) a decrease of 1,276,085 Trust Interests due to withdrawals by Beneficiaries from the Trust, and (iii) a decrease of 1,169,493 Trust Interests due to escheatment of Trust Shares. The net reduction of Trust Interests through the Purchase and Sale Program, withdrawals by Beneficiaries from the Trust and escheatment of unclaimed cash and Trust Shares, resulted in decreases in net assets for the year ended December 31, 2017 of $74 million, $18 million and $16 million, respectively. In addition, in connection with the separation of Brighthouse, net assets in the Trust decreased by $217 million and $24 million as a result of the distribution to Beneficiaries of (i) shares of Brighthouse Financial, Inc. common stock and (ii) cash in lieu of fractional shares of Brighthouse Financial, Inc. common stock, respectively. Net investment income of $255 million, which consisted of Common Stock dividends received from MetLife, Inc., and net realized investment gains of $220 million recognized on the sale of Trust Shares sold in the Purchase and Sale Program, were fully allocated to Beneficiaries. In addition, net realized investment gains included $59 million of gains related to the distribution to Beneficiaries of cash in lieu of fractional shares of Brighthouse Financial, Inc. common stock.
Year ended December 31, 2016 compared with the year ended December 31, 2015
Net assets in the Trust increased $558 million, or 7%, to $8.8 billion at December 31, 2016 from $8.2 billion at December 31, 2015. This increase was primarily due to an increase in net unrealized investment gains on the Trust Shares partially offset by (i) net activity under the Purchase and Sale Program; (ii) the impact of withdrawals by Beneficiaries from the Trust; and (iii) the impact of escheatment of unclaimed cash and Trust Shares. Net unrealized investment gains, which represent the difference between the estimated fair value and the cost basis of the Trust Shares, increased $665 million from the prior year. A net reduction of 7,660,847 Trust Interests resulted from (i) a net decrease of 5,316,774 Trust Interests in connection with redemptions and issuances under the Purchase and Sale Program, (ii) a decrease of 992,368 Trust Interests due to withdrawals by Beneficiaries from the Trust, and (iii) a decrease of 1,351,705 Trust Interests due to escheatment of Trust Shares. The net reduction of Trust Interests through the Purchase and Sale Program, withdrawals by Beneficiaries from the Trust and escheatment of unclaimed cash and Trust Shares, resulted in decreases in net assets for the year ended December 31, 2016 of $73 million, $14 million and $19 million, respectively. Net investment income of $264 million, which consisted of Common Stock dividends received from MetLife, Inc., and net realized investment gains of $167 million recognized on the sale of Trust Shares sold in the Purchase and Sale Program, were fully allocated to Beneficiaries.
Under the Plan and the Trust Agreement, each policyholder’s membership interest was extinguished and certain eligible policyholders of Metropolitan Life (the “Trust Eligible Policyholders”) received, in exchange for that interest, a number of interests in the Trust (“Trust Interests”) equal to the number of shares of common stock of MetLife, Inc., par value $0.01 per share (the “Common Stock”), allocated to them in accordance with the Plan. The assets of the Trust consist principally of the shares of Common Stock issued to the Trust (the “Trust Shares”) for the benefit of the Trust Eligible Policyholders and permitted transferees (collectively, the “Beneficiaries”). The Trust Shares are held in the name of the Trustee, on behalf of the Trust, which has legal title over the Trust Shares. The Beneficiaries do not have legal title to any part of the assets of the Trust. The Trust Interests represent undivided fractional interests in the Trust Shares and other assets of the Trust beneficially owned by a Trust Beneficiary through the Custodian. On April 7, 2000, the date of demutualization of Metropolitan Life, MetLife, Inc. distributed to the Trust 494,466,664 shares of Common Stock for the benefit of policyholders of Metropolitan Life. Withdrawals by Beneficiaries of Trust Shares, transactions by Beneficiaries under the Purchase and Sale Program (as defined below), and escheatment of unclaimed Trust Shares resulted in a net decrease in the number of Trust Shares from 163,327,290 at December 31, 2016 to 155,246,921 at December 31, 2017. See “- Termination of the Trust.”
The Trust Agreement provides that MetLife, Inc. shall pay, or reimburse directly, each of the Trustee and the Custodian for, all costs and expenses relating to the Trust, in the case of the Trustee, and relating to the holding of Trust Interests, in the case of the Custodian, including, but not limited to, the fees and expenses as provided in the Trust Agreement. MetLife, Inc. pays the Trustee an annual fee of $50 thousand. MetLife, Inc. paid to the Trustee $39 thousand, $32 thousand and $23 thousand for out-of-pocket expenses for the years ended December 31, 2017, 2016 and 2015, respectively. MetLife, Inc. paid to the Trust’s independent auditors $59 thousand, $59 thousand and $68 thousand for audit fees for the years ended December 31, 2017, 2016 and 2015, respectively. None of the aforementioned fees and expenses is included in the Trust’s financial statements. MetLife, Inc. also provides the Trustee with certain management and administrative services.
The accompanying financial statements of the Trust have been prepared in conformity with accounting principles generally accepted in the United States of America.
Pursuant to the Trust Agreement, the Trust is eligible to be terminated at MetLife, Inc.’s discretion, as the Trust Shares constituted less than 25% of the number of issued and outstanding shares of Common Stock at December 31, 2017. As of December 31, 2017, MetLife, Inc. had not advised the Trustee of any intention to voluntarily terminate the Trust.
In accordance with the Trust Agreement, MetLife, Inc. distributes cash dividends directly to the Beneficiaries at the same time as the payment of dividends to MetLife, Inc.’s stockholders. In the event that dividends are undeliverable to the Beneficiaries, MetLife, Inc. retains such dividends until they are claimed by such Beneficiaries or escheated in accordance with applicable state law. Cash dividends that have been declared but are undeliverable to the Beneficiaries and the cash amounts of dividend checks that have not been cashed by the Beneficiaries have been recorded as a receivable from MetLife, Inc. and a liability of the Trust to such Beneficiaries.
Beneficiaries may instruct the program agent for the Purchase and Sale Program to withdraw their allocated shares from the Trust for sale through the Purchase and Sale Program. Trust Interests of 5,693,260, 5,409,612 and 5,950,881 were redeemed for this purpose, which generated net realized investment gains of $279,435 thousand, $167,262 thousand and $222,943 thousand for the years ended December 31, 2017, 2016 and 2015, respectively. Beneficiaries allocated less than 1,000 shares of Common Stock under the Plan are also entitled to purchase in the Purchase and Sale Program additional shares to bring their Trust Interests up to 1,000 shares, subject to a minimum of $250 per purchase (or such lesser amount that would cause the Beneficiary to hold the 1,000 maximum number of Trust Interests). Trust Interests of 58,469, 92,838 and 96,882 for the years ended December 31, 2017, 2016 and 2015, respectively, were issued for this purpose. The number of Trust Interests allocated to Beneficiaries will be adjusted for any shares of Common Stock purchased or sold in the Purchase and Sale Program such that the Trust Interests held by a Beneficiary will always equal the number of shares of Common Stock allocated to the Beneficiary.
In 2018, through February 16, 2018, MetLife, Inc. repurchased 7,499,116 shares of Common Stock in the open market for $392 million.