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 the Holding Company, 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 Trust Shares for the benefit of the Trust Eligible Policyholders and permitted transferees (collectively, the “Beneficiaries”).
Year ended December 31, 2009 compared with the year ended December 31, 2008
Trust Interests in connection with issuances and redemptions under the Purchase and Sale Program. The Trust Interests withdrawn primarily reflects the escheatment of unclaimed cash and shares of Common Stock. As part of Metropolitan Life’s demutualization and the Holding Company’s initial public offering, the Holding Company issued shares of its Common Stock to certain eligible policyholders of Metropolitan Life. Any unclaimed cash and Common Stock become property of the state of last known residence, as is the case with other types of unclaimed property. The schedule by which unclaimed property is escheated varies by state, but is generally within three to five years of abandonment. It is anticipated that the number of Trust Interests will continue to decrease over time as state dormancy periods expire. Beginning on April 7, 2001, Beneficiaries were able to withdraw all, but generally, not less than all, of their allocated shares of Common Stock in the Trust at any time by providing written notice to the Custodian. Net redemptions by Beneficiaries through the Purchase and Sale Program, and withdrawals by Beneficiaries from the Trust resulted in a $71 million and $64 million decrease in net assets, respectively, for the year ended December 31, 2009. Net investment income of $173 million, which consists of dividends received from the Holding Company on its Common Stock, and net realized investment gains recognized on the sale of Trust Shares sold in the Purchase and Sale Program of $91 million, were fully distributed to Beneficiaries.
Net assets in the Trust decreased $7,601 million, or 47%, to $8,461 million for the year ended December 31, 2008 from $16,062 million for the comparable 2007 period. This decrease is primarily due to a change in net unrealized investment gains on the Trust Shares, partially offset by (i) the impact of withdrawals by Beneficiaries from the Trust, (ii) activity under the Purchase and Sale Program, and (iii) the impact of tenders by Beneficiaries of Trust Shares pursuant to the Holding Company’s split-off of its majority-owned subsidiary, Reinsurance Group of America, Incorporated (“RGA”), in September 2008. Net unrealized investment gains, which represent the difference between the fair value and the cost basis of the Trust Shares, decreased $7,348 million from the prior year. A net reduction of 17,931,217 Trust Interests resulted from a decrease of 7,983,526 Trust Interests due to withdrawals by Beneficiaries from the Trust, a net decrease of 9,947,691 Trust Interests in connection with issuances and redemptions under the Purchase and Sale Program and a net decrease of 1,781,272 Trust Interests in connection with tenders by Beneficiaries of Trust Shares pursuant to the Holding Company’s split-off of RGA. The Trust Interests withdrawn primarily reflects the escheatment of unclaimed cash and shares of Common Stock. As part of Metropolitan Life’s demutualization and the Holding Company’s initial public offering, the Holding Company issued shares of its Common Stock to certain eligible policyholders of Metropolitan Life. Any unclaimed cash and Common Stock become property of the state of last known residence, as is the case with other types of unclaimed property. The schedule by which unclaimed property is escheated varies by state, but is generally within three to five years of abandonment. It is anticipated that the number of Trust Interests will continue to decrease over time as state dormancy periods expire. Beginning on April 7, 2001, Beneficiaries were able to withdraw all, but generally, not less than all, of their allocated shares of Common Stock in the Trust at any time by providing written notice to the Custodian. Net redemptions by Beneficiaries through the Purchase and Sale Program, withdrawals by Beneficiaries from the Trust and tenders by Beneficiaries of Trust Shares pursuant to the Holding Company’s split-off of RGA resulted in a $138 million, $114 million and $25 million decrease in net assets, respectively, for the year ended December 31, 2008. Net investment income of $180 million, which consists of dividends received from the Holding Company on its Common Stock, and net realized investment gains recognized on the sale of Trust Shares sold in the Purchase and Sale Program of $394 million, were fully distributed to Beneficiaries.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the MetLife Policyholder Trust as of December 31, 2009 and 2008, and the results of its operations and changes in its net assets for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
Equity securities are reported at their estimated fair value based on the quoted prices in active markets that are readily and regularly obtainable. As such, these securities are categorized as Level 1 in three-level fair value hierarchy in accordance with fair value measurement guidance. Unrealized investment gains and losses on securities are recorded in the Statements of Operations. Realized gains and losses on sales of securities are determined on a first-in first-out basis. The Trust Agreement provides that regular cash dividends, if any, collected or received by the Trustee with respect to the Trust Shares are to be distributed by the Custodian semi-annually to the Beneficiaries within 90 days after receipt by the Trustee. Distributions of all other cash dividends are to be made by the Custodian to the Beneficiaries on the first business day following the 30th day after the Trust receives the dividends. Alternatively, the Trust Agreement provides that the Trustee may arrange with the Holding Company for the direct payment by the Holding Company of such cash dividends to the Beneficiaries. Historically, the Holding Company has used the latter method. See “-Receivable from MetLife, Inc. and Liability for Dividends Payable to Trust Beneficiaries.” All security transactions are recorded on a trade date basis.
The Trust considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents.
Receivable from MetLife, Inc. and Liability for Dividends Payable to Trust 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 5,196,811, 10,064,054 and 10,337,547 for the years ended December 31, 2009, 2008 and 2007, respectively, were redeemed for this purpose. 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 114,850, 116,363 and 100,817 for the years ended December 31, 2009, 2008 and 2007, 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.
The Trust evaluated the recognition and disclosure of subsequent events for its December 31, 2009 financial statements.