EDGAR 10-K Filing

Company CIK: 1099219
Filing Year: 2022
Filename: 1099219_10-K_2022_0001099219-22-000014.json

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ITEM 1. BUSINESS
Item 1. Business
Index to Business
Page
Business Overview & Strategy
Segments and Corporate & Other
Policyholder Liabilities
Underwriting and Pricing
Reinsurance Activity
Regulation
Competition
Human Capital Resources
Information About Our Executive Officers
Trademarks
Available Information
Business Overview & Strategy
As used in this Form 10-K, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.
MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management. We hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. We are also one of the largest institutional investors in the United States with a general account portfolio invested primarily in fixed income securities (corporate, structured products, municipals, and government and agency) and mortgage loans, as well as real estate, real estate joint ventures, other limited partnerships and equity securities.
Our well-recognized brand, globally diversified and market-leading businesses, competitive and innovative product offerings and financial strength and expertise should help drive future growth and enhance shareholder value. We will continue to execute on our Next Horizon strategy, creating value focusing on the following three pillars:
● Focus
- Generate strong free cash flow by deploying capital and resources to the highest value opportunities.
● Simplify
- Simplify our business to deliver operational efficiency and an outstanding customer experience.
● Differentiate
- Drive competitive advantage through our brand, scale, talent, and innovation.
MetLife is organized into five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa (“EMEA”); and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See “- Segments and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.
In the United States, we provide a variety of insurance and financial services products, including life, dental, disability, vision, accident & health, capital market investment, guaranteed interest, stable value and annuities.
Outside the United States, we provide life, medical, dental, credit and other accident & health insurance, as well as annuities, endowment and retirement & savings products. We believe these businesses will generally continue to grow more quickly than our United States businesses.
Segments and Corporate & Other
U.S.
Our businesses in the U.S. segment offer a broad range of protection products and services aimed at serving the financial needs of our customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. Our U.S. segment is organized into two businesses: Group Benefits and Retirement and Income Solutions (“RIS”). Prior to its disposition in April 2021, our former Property & Casualty business was included in the U.S. segment. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company's disposition of MetLife Property and Casualty Insurance Company and certain of its wholly-owned subsidiaries (collectively, “MetLife P&C”).
Group Benefits
We have built a leading position in the United States group insurance market through long-standing relationships with many of the largest corporate employers in the United States.
Our Group Benefits business offers life insurance, dental, group short- and long-term disability (“LTD”), individual disability, accidental death and dismemberment (“AD&D”) insurance, vision, and accident & health insurance, as well as prepaid legal plans, and has recently introduced pet insurance. We also sell administrative services-only (“ASO”) arrangements to some employers.
We distribute Group Benefits products and services through a sales force primarily comprised of MetLife employees that is segmented by the size of the target customer. Account executives sell either directly to corporate and other group customers or through an intermediary, such as a broker or consultant. Employers have been emphasizing voluntary products and, as a result, we have increased our focus on communicating and marketing to employees in order to further foster sales of those products.
We have entered into several operating joint ventures and other arrangements with third parties to expand opportunities to market and distribute Group Benefits products and services. We also sell our Group Benefits products and services through sponsoring associations and affinity groups and provide life, dental, accident & health, and vision coverage to certain employees of the U.S. Government. We have longstanding relationships with these employees and continue to cultivate and expand them through additional product offerings.
Group Benefits business quarterly claims experience may vary, as seasonal illnesses effect mortality and morbidity and due to utilization rate fluctuation in our non-medical health businesses. Annual benefit renewal implementation, enrollment, and marketing costs normally elevate Group Benefits business’ expenses in the fourth quarter.
Major Products
Term Life Insurance A guaranteed benefit upon the death of the insured for a specified time period in return for the periodic payment of premiums. Premiums may be guaranteed at a level amount for the coverage period or may be non-level and non-guaranteed. Term contracts expire without value at the end of the coverage period when the insured party is still living.
Variable Life Insurance Insurance coverage through a contract that gives the policyholder flexibility in investment choices and, depending on the product, in premium payments and coverage amounts, with certain guarantees. Premiums and account balances can be directed by the policyholder into a variety of separate account investment options or directed to the Company’s general account. In the separate account investment options, the policyholder bears the entire risk of the investment results. With some products, by maintaining certain premium level, policyholders may have the advantage of various guarantees that may protect the death benefit from adverse investment experience.
Universal Life Insurance Insurance coverage on the same basis as variable life, except that premiums, and the resulting accumulated balances, are allocated only to the Company’s general account. With some products, by maintaining a certain premium level, policyholders may have the advantage of various guarantees that may protect the death benefit from adverse investment experience.
Dental Insurance and ASO arrangements that assist employees, retirees and their families in maintaining oral health while reducing out-of-pocket expenses.
Disability Insurance and ASO arrangements for groups and individuals to provide benefits for income replacement, payment of business overhead expenses or mortgage protection, in the event of the disability of the insured.
Accident & Health Insurance Accident, critical illness or hospital indemnity coverage to the insured.
Vision Insurance, ASO arrangements, and managed eye health and vision care solutions to assist employees, retirees and their families in maintaining vision health while reducing out-of-pocket expenses. Offered to commercial groups, individuals, health plans and government sponsored programs through a nationwide provider network, retail optical chains and online eyewear providers.
Retirement and Income Solutions
Our RIS business provides funding and financing solutions that help institutional customers mitigate and manage liabilities primarily associated with their employee benefit programs using a spectrum of life and annuity-based insurance and investment products.
We distribute RIS products and services through dedicated sales teams and relationship managers primarily comprised of MetLife employees. We may sell products directly to benefit plan sponsors and advisors or through brokers, consultants or other intermediaries. In addition, these sales professionals work with individual, group and global distribution areas to better reach and service customers, brokers, consultants and other intermediaries.
Major Products
Stable Value Products • General account guaranteed interest contracts (“GICs”) are designed to provide stable value investment options within tax-qualified defined contribution plans by offering a fixed maturity investment with a guarantee of liquidity at contract value for participant transactions.
• Separate account GICs are available to defined contribution plan sponsors by offering market value returns on separate account investments with a general account guarantee of liquidity at contract value.
•Synthetic GICs or “wraps” are contracts available only to the sponsor of a participant-directed defined contribution plan. The contract “wraps” a portfolio of investments owned by the plan to provide a guarantee that plan participants will always be able to transact in their accounts at contract value. Generally, a wrap contract means that participants will not experience negative returns.
• Private floating rate funding agreements are generally privately-placed, unregistered investment contracts issued as general account obligations with interest credited based on a specified rate, such as the three-month London Interbank Offered Rate (“LIBOR”) or other agreed upon short-term benchmark rate. These agreements are used for money market funds, securities lending cash collateral portfolios and short-term investment funds.
Annuities Pension Risk Transfers General account and separate account annuities are offered in connection with defined benefit pension plans which include single premium buyouts allowing for full or partial transfers of pension liabilities.
• General account annuities include nonparticipating group contract benefits purchased for retired employees or active employees covered under terminating or ongoing pension plans.
• Separate account annuities include both participating and non-participating group contract benefits. Participating contract benefits are purchased for retired, terminated, or active employees covered under active or terminated pension plans. The assets supporting the guaranteed benefits for each contract are held in a separate account, however, the Company fully guarantees all benefit payments. Non-participating contracts have economic features similar to our general account product, but offer the added protection of an insulated separate account. Under accounting principles generally accepted in the United States of America (“GAAP”), these annuity contracts are treated as general account products.
Institutional Income Annuities General account contracts that are guaranteed payout annuities purchased for employees upon retirement or termination of employment. Contracts can be life or non-life contingent non-participating contracts which do not provide for any loan or cash surrender value and, with few exceptions, do not permit future considerations.
Structured Settlements Customized annuities designed to serve as an alternative to a lump sum payment in a lawsuit initiated because of personal injury, wrongful death, or a workers’ compensation claim or other claim for damages. Surrenders are generally not allowed, although commutations are permitted in certain circumstances. Guaranteed payments consist of life contingent annuities, term certain annuities and lump sums.
Risk Solutions Longevity Reinsurance Solutions
Longevity reinsurance is a risk mitigation solution for United Kingdom (“U.K.”) pension plan sponsors and U.K. insurance companies that write pension risk transfer business, converting uncertain future pension benefit obligations into a fixed stream of payments to MetLife over the duration of the contract as opposed to a lump sum at inception in typical pension risk transfer transactions.
Benefit Funding Solutions Specialized life insurance products and funding agreements designed specifically to provide solutions for funding postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.
Capital Markets Investment Products • Funding agreement-backed notes are offered in medium term note programs, under which funding agreements are issued to special-purpose trusts that issue marketable notes in U.S. dollars or foreign currencies. The proceeds of these note issuances are used to acquire funding agreements with matching interest and maturity payment terms from certain subsidiaries of MetLife, Inc. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors.
• Funding agreement-backed commercial paper is issued by a special-purpose limited liability company which deposits the proceeds under a master funding agreement issued to it by Metropolitan Life Insurance Company (“MLIC”). The commercial paper is issued in U.S. dollars or foreign currencies, receives the same short-term credit rating as MLIC and is marketed by major investment banks’ broker-dealer operations.
• Funding agreements are issued by certain of our insurance subsidiaries to regional Federal Home Loan Banks (“FHLB”) and to a subsidiary of the Federal Agricultural Mortgage Corporation (“Farmer Mac.”)
Asia
Our Asia segment offers a broad range of products and services to both individuals and corporations, as well as to other institutions, and their respective employees.
Our Asia operations are geographically diverse encompassing both developed and emerging markets. We operate in nine jurisdictions throughout Asia, with our largest operation in Japan. We market our products and services through a range of proprietary and third-party distribution channels.
In Japan, our digitally-enabled face-to-face channels, along with bancassurance and direct marketing, continue to be critical to our overall distribution strategy. Our competitive advantage in bancassurance is based on robust distribution relationships with Japan’s very large banks, trust banks and various regional banks. Outside of Japan, our distribution strategies vary by market and leverage a combination of career and independent agencies, bancassurance and direct marketing. In select markets, we also use independent brokers and our employee sales force to sell group products.
Major Products
Life Insurance Whole and term life, endowments, universal and variable life, as well as group life products.
Accident & Health Insurance Full range of accident & health products, including medical reimbursement, hospitalization, cancer, critical illness, disability, income protection, personal accident coverage and group health products.
Retirement and Savings Fixed and variable annuities, as well as regular savings products.
Latin America
Our Latin America segment offers a broad range of products to both individuals and corporations and other institutions (including local, state and federal governments) and their respective employees. We offer government employees life, medical insurance, as well as retirement and savings, and other products, and periodically submit bids to do so.
Our largest operations are in Mexico and Chile. We market our products and services through a multi-channel distribution strategy which varies by geographic region and stage of market development.
We have an exclusive and captive agency distribution network which sells a variety of individual life, accident & health, and pension products. Our direct marketing channel includes sponsors and telesales representatives selling mainly accident & health and individual life products directly to consumers. We also work with brokers and independent agents on sales of group and individual life, accident & health, group medical, dental and pension products, and worksite marketing.
Major Products
Life Insurance Whole and term life, endowments, universal and variable life, as well as group life products.
Retirement and Savings Fixed annuities and pension products. Fixed income annuities provide for both asset accumulation and asset distribution needs. Our savings-oriented pension products are primarily offered in Chile under a mandatory privatized social security system. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company's September 2021 disposition of its wholly-owned Argentinian subsidiary, MetLife Seguros S.A. (“MetLife Seguros”).
Accident & Health Insurance Group and individual major medical, accidental, and supplemental health products, including AD&D, hospital indemnity, medical reimbursement, and medical coverage for serious medical conditions, as well as dental products.
Credit Insurance Policies designed to fulfill certain loan obligations in the event of the policyholder’s death.
EMEA
Our EMEA segment offers products to individuals, corporations, other institutions, and their respective employees. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company's disposition of (i) Joint-stock Company MetLife Insurance Company (“MetLife Russia”) and (ii) its wholly-owned subsidiaries in Greece (“MetLife Greece”), as well as the pending disposition of its wholly-owned subsidiaries in Poland (“MetLife Poland”) (MetLife Poland and MetLife Greece, collectively, “MetLife Poland and Greece”).
We operate across EMEA in both developed (Western Europe) and emerging (Central and Eastern Europe, Middle East and Africa) markets. Our largest operations are in the U.K., Turkey and the Gulf region. In more mature markets, we focus our strategy on our preferred market segments to play a “niche” role. We also have a strong market presence in emerging markets leveraging a multi-channel distribution strategy.
Our businesses in EMEA use captive and independent agency, independent brokerage, bancassurance, corporate solutions and direct-to-consumer distribution channels.
Major Products
Life Insurance Traditional and non-traditional life insurance products, such as whole and term life, endowments and variable life products, as well as group term life programs in most markets.
Accident & Health Insurance Individual and group personal accident and supplemental health products, including AD&D, hospital indemnity, scheduled medical reimbursement plans, and coverage for serious medical conditions. In addition, we provide individual and group major medical coverage in select markets.
Retirement and Savings Fixed annuities and pension products, including group pension programs in select markets.
Credit Insurance Policies designed to fulfill certain loan obligations in the event of the policyholder’s death.
MetLife Holdings
This segment consists of operations relating to products and businesses that we no longer actively market in the United States. These include variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, and long-term care insurance. It also includes assumed variable annuity guarantees from our former operating joint venture in Japan.
Major Products
Variable, Universal and Term Life Insurance Similar to products offered by our Group Benefits business, except that these products were historically marketed to individuals through various retail distribution channels. For a description of these products, see “- U.S. - Group Benefits.”
Whole Life Insurance A benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Whole life insurance includes policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash, or apply them to increase death benefits, increase cash values available upon surrender or reduce the premiums required to maintain the contract in-force.
Variable Annuities Asset accumulation and asset distribution needs. Variable annuities allow the contractholder to allocate deposits into various investment options in a separate account, as determined by the contractholder. In certain variable annuity products, contractholders may also choose to allocate all or a portion of their account to the Company’s general account and are credited with interest at rates we determine, subject to specified minimums. Contractholders may also elect certain minimum death benefit and minimum living benefit guarantees for which additional fees are charged and where asset allocation restrictions may apply.
Fixed and Indexed-Linked Annuities
Fixed annuities provide for asset accumulation and asset distribution needs. Deposits made into deferred annuity contracts are allocated to the Company’s general account and are credited with interest at rates we determine, subject to specified minimums. Fixed income annuities provide a guaranteed monthly income for a specified period of years and/or for the life of the annuitant. Additionally, the Company has issued indexed-linked annuities which allow the contractholder to participate in returns from equity indices.
Long-term Care Protection against the potentially high costs of long-term health care services. Generally pay benefits to insureds who need assistance with activities of daily living or have a cognitive impairment.
Corporate & Other
Corporate & Other contains various start-up, developing and run-off businesses. Also included in Corporate & Other are: the excess capital, as well as certain charges and activities, not allocated to the segments (including external integration and disposition costs, internal resource costs for associates committed to acquisitions and dispositions and enterprise-wide strategic initiative restructuring charges), interest expense related to the majority of the Company’s outstanding debt, expenses associated with certain legal proceedings and income tax audit issues, the elimination of intersegment amounts (which generally relate to affiliated reinsurance, investment expenses and intersegment loans, bearing interest rates commensurate with related borrowings), and the Company’s investment management business (through which the Company provides public fixed income, private capital and real estate investment solutions to institutional investors worldwide).
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations when a policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to provide for future annuity payments. Our liabilities for future policy benefits and claims are established based on estimates by actuaries of how much we will need to pay for future benefits and claims. For life insurance and annuity products, we calculate these liabilities based on assumptions and estimates, including estimated premiums to be received over the assumed life of the policy, the timing of the event covered by the insurance policy, the amount of benefits or claims to be paid and the investment returns on the investments we make with the premiums we receive. We establish liabilities for claims and benefits based on assumptions and estimates of losses and liabilities incurred. Amounts for actuarial liabilities are computed and reported on the consolidated financial statements in conformity with GAAP. For more details on policyholder liabilities see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Summary of Critical Accounting Estimates - Liability for Future Policy Benefits” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Policyholder Liabilities.”
MetLife, Inc.’s insurance subsidiaries, including affiliated captive reinsurers, establish statutory reserves under methods prescribed by insurance laws. These reserves are reported as liabilities, and we expect them to be sufficient to meet policy and contract obligations, when taken together with expected future premiums and interest at assumed rates. Statutory reserves and actuarial liabilities for future policy benefits reported under GAAP generally differ due to the difference in accounting requirements.
U.S. state insurance laws and regulations require certain MetLife entities to submit an annual opinion and memorandum of a qualified actuary. In it, the qualified actuary states that the statutory reserves and related actuarial amounts recorded in support of specified policies and contracts, and the assets supporting such statutory reserves and related actuarial amounts, adequately provide for the anticipated cash flow required to meet contractual obligations and related expenses.
Insurance regulators in many of the non-U.S. jurisdictions in which we operate require certain MetLife entities to prepare and submit a sufficiency analysis of the reserves presented in the locally required regulatory financial statements. See “- Regulation - Insurance Regulation - Policy and Contract Reserve Adequacy Analysis.”
Underwriting and Pricing
We use a variety of underwriting and pricing management controls. Our Global Risk Management Department develops product pricing standards and oversees underwriting practices in MetLife’s insurance businesses. We also regularly conduct experience studies to monitor assumptions against expectations, impose formal new product approval processes, periodically update product profitability studies, and use reinsurance to manage our exposures, as appropriate. See “- Reinsurance Activity.”
Underwriting
Our underwriters and actuaries use detailed underwriting policies, guidelines and procedures to assess and quantify insurance risks, and determine the type and the amount of risk we are willing to accept.
Insurance underwriters consider an applicant’s medical history and other factors such as financial profile, foreign travel, vocations and alcohol, drug and tobacco use. Group insurance underwriters generally evaluate the risk characteristics of the prospective insured group, but may underwrite members of a group on an individual basis for certain voluntary products and coverages. Our own employees generally perform our underwriting, but intermediaries review certain policies under guidelines established by us. Generally, we are not obligated to accept any risk or group of risks from, or to issue a policy or group of policies to, any employer or intermediary. We review requests for coverage on their merits and issue policies only after we have examined and approved the particular risk or group under our underwriting guidelines.
We periodically review all our underwriting to maintain high standards of quality and consistency. Our reinsurers generally have the right to audit our underwriting.
We use underwriting policies, guidelines, philosophies, and strategies that we intend to be competitive and suitable for the customer, the agent and us, to facilitate quality sales, and to serve our customers’ needs while supporting our financial strength and business objectives. We aim to ensure that underwriting risk levels are appropriately reflected in our product pricing.
We continually review our underwriting policies, guidelines, philosophies, and strategies in light of applicable regulations and to ensure that our policies remain competitive, support our marketing strategies and profitability goals, and otherwise remain appropriate.
Pricing
Product pricing reflects our globally-consistent standards. Global Risk Management and regional finance and product teams price and oversee all of our insurance businesses. We base our pricing on the expected benefits payout which we calculate through the use of assumptions for mortality, morbidity, expenses, persistency and investment returns and macroeconomic factors such as inflation. We price investment-oriented products based on factors such as investment returns, expenses, persistency, optionality, and possible variability of results.
Our pricing of certain products may include prospective and retrospective experience rating features. For prospective experience rating, we evaluate past experience to determine future premium rates and we bear all prior year gains and losses. For retrospective experience rating, we evaluate past experience to determine our cost of providing insurance for the customer in light of any features that allow us to recoup certain losses or distribute certain gains back to the policyholder based on prior years’ experience.
We base our rates for group benefit products on anticipated earnings and expenses for the book of business. We generally re-evaluate renewals annually or biannually and re-price products to reflect our experience on such products.
We generally price many of our RIS products on demand. Our pricing reflects our expected investment returns, as well as mortality, longevity and expense assumptions. RIS business is generally nonparticipating and illiquid, as policyholders have few or no options or contractual rights to cash values. However, for products with liquidity provisions, such as stable value, pricing reflects the contractholders’ ability to withdraw at book value over a period of time, as well as our ability to reset rates periodically.
We generally must receive regulatory approval of rates for individual life insurance products. Such rates are highly regulated, even where we are not required to obtain advance regulatory approval. We generally renew such products annually, and they may include pricing terms that are guaranteed for a certain period of time.
We price individual disability income products based on anticipated results by occupation.
Our rates for fixed and variable annuity products are also highly regulated, and we also generally must receive regulatory approval of them. Such products generally include penalties for early withdrawals and policyholder benefit elections to tailor benefits to policyholder needs. We periodically reevaluate the costs of such options and adjust pricing levels on our guarantees. We may also reevaluate the type and level of guarantee features we offer.
We continually review our pricing guidelines in light of applicable regulations and to ensure that our policies remain competitive, support our marketing strategies and profitability goals, and otherwise remain appropriate.
Reinsurance Activity
We enter into reinsurance agreements primarily as a purchaser of reinsurance for our various insurance products. We also provide reinsurance for some third parties’ insurance products. We participate in reinsurance in order to limit losses, minimize exposure to significant risks, and provide additional capacity for future growth. Our reinsurance covers individual risks, group risks, or defined blocks of business, primarily on a coinsurance, yearly renewable term, excess, or catastrophe excess basis. The extent of our retained risks depends on our risk evaluation, subject, in certain circumstances, to maximum retention limits based on our risk appetite. We also cede first dollar mortality risk under certain contracts. We reinsure both mortality and other risks. We obtain reinsurance for capital requirement purposes and when its economic impact makes it appropriate to do so.
We also reinsure for risk and capital management purposes among affiliates, including affiliated captive reinsurers and affiliated offshore insurance companies. Captive reinsurers are affiliated insurance companies licensed as such under the Special Purpose Financial Captive law adopted by several states, including Vermont and South Carolina. Captive insurers’ very narrow business plans restrict most or all of their activity to reinsuring business from their affiliates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - The Company - Capital - Affiliated Captive Reinsurance Transactions.”
For information regarding reinsurance by segment, our catastrophic coverage, and ceded reinsurance recoverable balances, included in premiums, reinsurance and other receivables on the consolidated balance sheets, see Note 6 of the Notes to the Consolidated Financial Statements.
Regulation
Overview
In the United States (“U.S.”), state regulators primarily regulate our life insurance companies, with additional federal regulation of some products and services. The insurance holding company laws of various U.S. jurisdictions apply to MetLife, Inc. and its U.S. insurance subsidiaries. Furthermore, consumer protection laws, privacy, anti-money laundering, securities, commodities, broker-dealer and investment adviser regulations, environmental and unclaimed property laws and regulations, and the Employee Retirement Income Security Act of 1974 (“ERISA”) also apply to some of MetLife’s operations, products and services.
Outside of the U.S., insurance regulatory authorities in the jurisdictions in which our insurance businesses are located or operate principally regulate those businesses. In addition, securities, pension, and other authorities oversee our investment and pension companies where they operate. Regulators also subject our non-U.S. insurance businesses to current and developing solvency regimes, which impose various capital and other requirements. Additionally, regulators may enhance their capital standards and supervision, and impose additional non-U.S. and global regulatory initiatives.
We expect the scope and extent of regulation and regulatory oversight generally to continue to increase. The regulatory environment and changes in laws in the jurisdictions in which we operate could materially harm our results of operations.
Insurance Regulation
Insurance regulation generally aims to protect policyholders and ensure insurance company solvency. Insurance regulators increasingly seek information about the potential impact of activities on holding company systems as a whole, and some jurisdictions have asserted “group-wide” supervision, including model laws and regulations developed through the National Association of Insurance Commissioners’ (“NAIC”) Solvency Modernization Initiative. See “- National Association of Insurance Commissioners” regarding group-wide supervision.
Each of MetLife’s insurance subsidiaries is licensed and regulated in each jurisdiction where it conducts insurance business. The extent of such regulation varies, but most jurisdictions regulate the financial aspects and business conduct of insurers through broad administrative powers with respect to, among other things:
•licensing companies and agents to transact business;
•calculating the value of assets to determine compliance with statutory requirements;
•mandating certain insurance benefits;
•regulating certain premium rates;
•reviewing and approving certain policy forms, including required policyholder disclosures;
•regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements, and identifying and paying to the states or local authorities benefits and other property that is not claimed by the owners;
•regulating advertising;
•protecting and safeguarding personal information and other sensitive data, including through cybersecurity standards;
•establishing statutory capital and reserve requirements and solvency standards;
•specifying the conditions under which a ceding company can take credit for reinsurance in its statutory financial statements (i.e., reduce its reserves by the amount of reserves ceded to a reinsurer);
•fixing maximum interest rates on insurance policy loans and minimum guaranteed crediting rates on life insurance policies and annuity contracts;
•adopting and enforcing standards with respect to the sale of annuities and other insurance products;
•approving changes in control of insurance companies;
•restricting the payment of dividends and other transactions between affiliates; and
•regulating the types and amounts of investments.
Each insurance subsidiary must file reports, generally including detailed annual financial statements, with insurance regulatory authorities in each of the jurisdictions in which it does business. Such authorities also periodically examine its operations and accounts. These subsidiaries must also file, and in many jurisdictions and in some lines of insurance obtain regulatory approval of, rules, rates, and policy forms relating to the insurance written in the jurisdictions in which they operate.
Insurance, securities, and other regulatory authorities, other law enforcement agencies, and attorneys general, review MetLife, Inc. and its insurance subsidiaries for compliance with laws and regulations regarding the conduct of our insurance and securities businesses. We cooperate with such inquiries and take corrective action when warranted. See Note 21 of the Notes to the Consolidated Financial Statements.
U.S. Federal Initiatives
U.S. federal initiatives can affect our business in a variety of ways, including regulation of financial services, securities, derivatives, pensions, health care, money laundering, foreign sanctions and corrupt practices, and taxation. For instance, legislators and policymakers have proposed various forms of direct and indirect federal regulation of insurance from time to time, such as proposals for the establishment of an optional federal charter for insurance companies. See “Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) increased the potential federal role in regulating businesses such as ours, including in the following ways:
•The Financial Stability Oversight Council may designate certain financial companies as non-bank systemically important financial institutions (“non-bank SIFI”) subject to supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and the Federal Reserve Bank of New York (collectively with the Federal Reserve Board, the “Federal Reserve”).
•The Federal Insurance Office (“FIO”) within the Department of the Treasury may participate in the negotiations of international insurance agreements with foreign regulators for the U.S., collect information about the insurance industry, and recommend prudential standards.
•If an insurance holding company such as MetLife, Inc. or another non-insurance financial institution were to become insolvent or were in danger of defaulting on its obligations, and regulators determined that this would have serious adverse effects on financial stability in the U.S., then the Federal Deposit Insurance Corporation (“FDIC”) may liquidate such a company as receiver. In that case, the Bankruptcy Code, which ordinarily governs liquidations, would not apply. The FDIC’s purpose would be to mitigate the systemic risks the institution’s failure poses. This is a different objective from that of a bankruptcy trustee under the Bankruptcy Code. In such a liquidation, the holders of such company’s debt could in certain respects be treated differently than under the Bankruptcy Code. The FDIC has established rules relating to the priority of creditors’ claims and the potentially dissimilar treatment of similarly situated creditors. These provisions could apply to some financial institutions whose outstanding debt securities we hold in our investment portfolios. However, state insurance laws would continue to apply to an insurance company resolution.
•Dodd-Frank provisions may also affect the investments and investment activities of MetLife, Inc. and its subsidiaries, including imposing federal regulation of such activities.
Dodd-Frank and its implementing regulations have changed since the law was adopted. As a result of these changes, and potential changes, we cannot identify all the risks posed and opportunities presented, if any, to our businesses. See “Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
Until January 2021, the McCarran-Ferguson Act largely exempted insurance from U.S. antitrust laws. At that time, the Competitive Health Insurance Reform Act applied U.S. antitrust laws to the “business of health insurance” and expanded U.S. regulatory authority accordingly. We expect regulatory oversight and litigation risk for U.S. products, including dental and vision, to increase.
Health Care Regulation
The U.S. excise tax known as the “health insurer fee” was in force for the 2020 calendar year. The health insurer fee no longer applies for calendar years beginning after December 31, 2020. However, demand for and pricing of products remain subject to tax uncertainty. Federal health care statutes and related regulation have imposed increased and unpredictable costs on certain products and may have additional adverse effects. They have also harmed our competitive position, as these rules have a disparate impact on our products compared to products offered by our not-for-profit competitors. See “Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
Guaranty Associations and Similar Arrangements
Many jurisdictions in which our insurance subsidiaries transact business require life and health insurers to participate in guaranty or similar associations. These arrangements pay certain insurance benefits owed by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular jurisdiction on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. In addition, certain jurisdictions have government owned or controlled organizations providing life and health insurance to their citizens, whose activities could place additional stress on the adequacy of guaranty fund assessments. Many of these organizations have the power to levy assessments similar to those of the guaranty associations. Some jurisdictions permit member insurers to recover assessments paid through full or partial premium tax offsets. We have established liabilities for guaranty fund assessments that we consider adequate.
Insurance Regulatory Examinations and Other Activities
U.S. state insurance departments periodically examine the books, records, accounts, and business practices of their domiciled insurers. State insurance departments may also conduct examinations of non-domiciliary insurers licensed in their states.
In 2019, MetLife entered into a consent order with the New York State Department of Financial Services (“NYDFS”) relating to the open market conduct quinquennial exam and paid a fine and customer restitution and submitted remediation plans for approval. Except for this consent order or as described in Note 21 of the Notes to the Consolidated Financial Statements, during the years ended December 31, 2021, 2020 and 2019, MetLife did not receive any material adverse findings resulting from state insurance department examinations of its insurance subsidiaries.
In 2018, Pennsylvania, California, Florida, North Dakota and New Hampshire insurance regulators scheduled a multistate re-examination of MetLife and its affiliates relating to compliance with a regulatory settlement agreement relating to unclaimed property. This examination is ongoing.
Regulatory authorities in a small number of states, the Financial Industry Regulatory Authority (“FINRA”) and, occasionally, the U.S. Securities and Exchange Commission (the “SEC”) have conducted investigations or made inquiries relating to sales of individual life insurance policies, annuities or other products written by our insurance or broker-dealer subsidiaries. These investigations often focus on the conduct and/or supervision of particular financial services representatives, the sale of unregistered or unsuitable products, the misuse of client assets, or sales and replacements of annuities and certain riders on such annuities. Over the past several years, we resolved these (and a number of investigations by other regulators) for monetary payments and certain other relief, including restitution payments. We may continue to receive notice of, and may resolve, further investigations and actions on these matters in a similar manner.
Insurance standard-setting and regulatory support organizations, including the NAIC, encourage insurance supervisors to establish Supervisory Colleges. These organizations facilitate cooperation and coordination among insurance supervisors to enhance their understanding of the risk profile of U.S.-based insurance groups with international operations. MetLife’s lead state regulator, the NYDFS, annually chairs Supervisory College meetings that MetLife’s key U.S. and non-U.S. regulators attend.
Regulators supervise our non-U.S. insurance and pension businesses through periodic examinations of insurance company books and records, financial reporting requirements, market conduct examinations and policy filing requirements. The European Insurance and Occupational Pensions Authority (“EIOPA”), along with European legislation, requires European regulators, such as the Central Bank of Ireland, to establish Supervisory Colleges for European Economic Area (“EEA”)-based insurance groups with significant European operations, including MetLife. These colleges facilitate cooperation and coordination among European supervisors to enhance their understanding of an insurance group’s risk profile.
In addition, regulators have scrutinized insurers’ claims payment practices. See Note 21 of the Notes to the Consolidated Financial Statements for further information regarding group annuity benefits and unclaimed property inquiries.
Policy and Contract Reserve Adequacy Analysis
Our U.S. insurance subsidiaries, including affiliated captive reinsurers, must annually analyze their statutory reserves adequacy. In each case, a qualified actuary must submit an opinion that states that the statutory reserves make adequate provision, according to accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the U.S. insurance subsidiary. The actuary considers the adequacy of the statutory reserves in light of the assets held by the insurer with respect to such reserves and related actuarial items, such as the investment earnings on such assets and the consideration the insurer anticipates receiving and retaining under the related policies and contracts. We may increase reserves in order to submit such an opinion without qualification. Our U.S. insurance subsidiaries that must provide these opinions have done so without qualifications since this requirement began.
Many of our non-U.S. insurance operations must also analyze the adequacy of their statutory reserves. In most of those cases, a locally qualified actuary must submit an analysis of the likelihood that the reserves make adequate provision for the insurer’s associated contractual obligations and related expenses. Regulatory and actuarial analytic standards vary widely.
National Association of Insurance Commissioners
The NAIC assists U.S. state insurance regulatory authorities to serve the public interest and achieve their regulatory goals. State insurance regulators may act independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC regularly re-examine existing insurance laws and regulations. State insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight through the NAIC. The NAIC also provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”), which states have largely adopted by regulation. However, individual states establish statutory accounting principles, which may differ from the Manual. Changes to the Manual or modifications by the various state insurance departments may affect the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries.
U.S. state insurance holding company laws and regulations are generally based on the NAIC’s Insurance Holding Company System Regulatory Act and Regulation (“Model Holding Company Act and Regulation”). These vary from jurisdiction to jurisdiction, but generally require a controlled insurance company (i.e., insurers that are subsidiaries of insurance holding companies) to register and file reports with state regulatory authorities on its capital structure, ownership, financial condition, intercompany transactions and general business operations. They require the ultimate controlling person of a U.S. insurer to file an annual enterprise risk report with the lead state of the insurance holding company system. This report identifies risks likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. Each of our insurance subsidiaries’ domiciliary states has enacted laws to implement these requirements, including the enterprise risk reporting requirement. The holding company laws also authorize state insurance commissioners to act as global group-wide supervisors for internationally active insurance groups (“IAIGs”), as well as other insurers that choose to opt in for the group-wide supervision. These laws provide confidentiality protection for communications with the group-wide supervisor. All states have adopted laws and regulations enhancing group-wide supervision. In 2020, the NYDFS amended its laws to permit the New York Superintendent of Financial Services (“Superintendent”) to act as a group-wide supervisor for IAIGs.
In furtherance of the NAIC’s “Solvency Modernization Initiative,” the NAIC has updated model acts and regulations to address insurance company financial regulation, as discussed below, and, in particular, capital requirements; corporate governance and risk management practices; group supervision; liquidity stress testing, statutory accounting and financial reporting; and reinsurance.
The NAIC’s Corporate Governance Annual Disclosure Model Act, which all states have adopted, requires insurers to annually file detailed information regarding their corporate governance policies.
All states have also adopted the NAIC’s Risk Management and Own Risk and Solvency Assessment Model Act, which requires insurers to maintain a risk management framework and to document an internal own risk and solvency assessment (“ORSA”) of its material risks in normal and stressed environments. MetLife, Inc. has submitted on behalf of the enterprise an ORSA summary report to the NYDFS annually since this requirement became effective.
The NAIC has also approved a valuation manual containing a principle-based approach to the calculation of life insurance reserves (the “Valuation Manual”). Principle-based reserving (“PBR”) is designed to better address reserving for life insurance and annuity products, and it has been adopted by all of our U.S. insurance subsidiaries’ domiciliary states. The NYDFS promulgated a regulation in 2019 that affirms the Superintendent’s authority to deviate from the Valuation Manual to adjust the reserves of a New York domestic life insurance company, such as MLIC, if the NYDFS determines that an alternative requirement would be in the best interest of New York policyholders. The NYDFS subsequently amended the regulation, as a result of which we increased our statutory reserves by approximately $700 million and our statutory capital requirements by approximately $300 million over the prior reserve and capital requirements. We fully graded these impacts into our statutory financial statements over a one-year period ending December 31, 2020.
The NAIC has been focused on a macro-prudential initiative since 2017, which is intended to enhance risk identification efforts by building on the state-based regulation system. In furtherance of this initiative, the NAIC adopted changes to its Statutory Annual Statement reporting, effective for year-end 2019, to improve liquidity risk monitoring. The NAIC also adopted amendments to the Model Holding Company Act and Regulation that implement requirements related to a liquidity stress-testing framework for certain large U.S. life insurers and insurance groups. The applicability of the framework is based on amounts of certain types of business written or material exposure to certain investment transactions, such as derivatives and securities lending. The framework is consistent with MetLife’s liquidity risks policies and procedures, and it will be used as a regulatory tool once the holding company act amendments have been adopted by state legislatures. As of January 1, 2022, the amendments have been adopted by two of our domiciliary states, California and Rhode Island.
We use capital markets solutions to finance a portion of our statutory reserve requirements for several products. These include level premium term life products subject to the NAIC’s Valuation of Life Insurance Policies Model Regulation (commonly referred to as Regulation XXX), universal and variable life policies with secondary guarantees (“ULSG”) subject to NAIC Actuarial Guideline 38 (commonly referred to as Guideline AXXX), and MLIC’s closed block. In order to address the use of captives for policies covered by Regulation XXX and Guideline AXXX, the NAIC adopted Actuarial Guideline 48 (“AG 48”). This guideline has enhanced the statutory financial statement disclosure of an insurer's use of captives and has narrowed the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations.
AG 48 also requires the actuary of a ceding insurer to opine on the assuming insurer’s collateral associated with the treaty and to issue a qualified opinion if the assuming entity is not complying with the requirements of AG 48. The NAIC’s Term and Universal Life Insurance Reserve Financing Model Regulation codifies the same substantive requirements as AG 48, as amended by the NAIC in 2016, and establishes uniform, national standards governing reserve financing arrangements pertaining to the term life and universal life insurance policies with secondary guarantees. This model regulation has only been adopted by a few states, although it is expected to be broadly adopted in the near term since it will become an NAIC accreditation standard on September 1, 2022.
We cannot predict the capital and reserve impacts, compliance costs, or other effects these initiatives will have on our business, financial condition or results of operations.
Surplus and Capital
Insurers must maintain their capital and surplus at or above minimum levels prescribed by the laws of their respective jurisdictions. Regulators generally have discretionary authority to limit or prohibit an insurer’s sales to policyholders if the insurer has not maintained a minimum surplus or capital or if they find that the further transaction of business will be hazardous to policyholders.
State insurance statutes also typically restrict the dividends or other distributions an insurance company subsidiary may pay to its parent companies and limit the transactions between an insurer and its affiliates. Dividends in excess of prescribed limits and transactions above a specified size between an insurer and its affiliates require the approval of the insurance regulator in the insurer’s state of domicile. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - MetLife, Inc. - Liquidity and Capital Sources - Dividends from Subsidiaries.” See also “Dividend Restrictions” in Note 16 of the Notes to the Consolidated Financial Statements for further information regarding such limitations.
Non-U.S. jurisdictions also restrict the amount of such dividends and other distributions. For example, a portion of the annual earnings of our Japan operations may be repatriated each year, and may further be distributed to MetLife, Inc. as a dividend. We may determine not to repatriate profits from the Japan operations or to repatriate a reduced amount in order to maintain or improve the solvency of the Japan operations or for other reasons. In addition, the Financial Services Agency in Japan (“FSA”) may limit or not permit profit repatriations or other transfers of funds to the U.S. if such transfers would be detrimental to the solvency or financial strength of our Japan operations or for other reasons.
Several non-U.S. insurance regulators urged insurance companies to preserve funds during the COVID-19 pandemic. For example, EIOPA had suggested that insurance companies temporarily suspend discretionary dividends during the COVID-19 pandemic.
For developments that could affect our ratio of free cash flow to adjusted earnings results, and thus our surplus and capital, see “Risk Factors.”
Risk-Based Capital
Most of our U.S. insurance subsidiaries are subject to risk-based capital (“RBC”) requirements developed by the NAIC and adopted by their respective domiciliary states. Insurers calculate RBC annually based on a formula that applies factors to various asset, premium, claim, expense and statutory reserve items, taking into account asset, insurance, interest rate, and market and business risk characteristics. Regulators use the formula as an early warning tool to identify insurers that may be inadequately capitalized for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide 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. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of our subsidiaries subject to these requirements was in excess of each of these RBC levels. See “Statutory Equity and Income” in Note 16 of the Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - The Company - Capital - Statutory Capital and Dividends.”
The NYDFS issues annual letters on Special Considerations (each, an “SCL”) to New York-licensed insurance companies, including MLIC, that affect year-end asset adequacy testing. An SCL could mandate assumption changes, which would require us to increase or release certain asset adequacy reserves, which could materially impact our statutory capital and surplus. No changes were made to asset adequacy reserves in either 2021 or 2020 as a result of the SCL. See “Statutory Equity and Income” in Note 16 of the Notes to the Consolidated Financial Statements.
We calculate our internally-defined “Statement-Based Combined RBC Ratio” by dividing the sum of total adjusted capital for MetLife, Inc.’s principal U.S. insurance subsidiaries, excluding American Life Insurance Company (“American Life”), by the sum of company action level RBC for such subsidiaries, including SCL considerations. Our Statement-Based Combined RBC Ratio was in excess of 360% and in excess of 350% at December 31, 2021 and 2020, respectively. By contrast, we calculate an “NAIC-Based Combined RBC Ratio” based on such subsidiaries’ statutory-based filed financial statements and NAIC capital and reserving standards. This NAIC-Based Combined RBC Ratio was in excess of 380% at both December 31, 2021 and 2020. We are not aware of any upcoming NAIC adoptions or state insurance department regulation changes that would have a material impact on our NAIC-Based Combined RBC Ratio.
The NAIC adopted revisions to certain factors used to calculate Life RBC, which is the denominator of the RBC ratios, in light of changes to U.S. tax laws in recent years. These revisions have resulted in increased RBC charges and reduced the RBC ratios of our insurance subsidiaries. The NAIC has approved RBC revisions for corporate bonds, real estate equity and longevity risk that took effect at year-end 2021 and we expect these revisions to have a modest net positive RBC impact on us.
The NAIC developed a group capital calculation (“GCC”) tool using an RBC aggregation methodology for all entities within the insurance holding company system, including non-U.S. entities. The NAIC amended the Model Holding Company Act and Regulation to adopt the GCC Template and Instructions and to implement the annual GCC filing requirement with an insurance group’s lead state regulator. As noted above, the filing requirement will not become effective until the holding company act amendments are adopted by the states. We cannot predict what impact such regulatory tool may have on our business.
In 2020, the NAIC issued guidance on RBC addressing debt restructuring due to the economic impact of the COVID-19 pandemic, where a counterparty might seek concessions. The guidance provides that an insurer does not need to reclassify the RBC category of some loans or other assets on which it has granted a concession. This may avoid a higher capital charge for the asset. The NAIC extended this guidance through January 1, 2022 in further support of the use of prudent loan modifications to mitigate the impact of the COVID-19 pandemic. Following the expiration of the guidance on January 1, 2022, an insurer should rely upon existing accounting guidance regarding the impact of a debt restructuring on the insurer’s RBC.
Solvency Regimes
Our insurance business throughout the EEA is subject to the Solvency II Directive and its implementing rules. These cover the capital adequacy, risk management and regulatory reporting for insurers and reinsurers. Solvency II harmonizes insurance regulation across the European Union (“EU”). Each EEA member state has transposed the Solvency II Directive into its regulatory architecture. Its capital requirements are forward-looking and based on the risk profile of each individual insurance company in order to promote comparability, transparency and competitiveness. In line with the requirements, impacted MetLife entities calculate and report their solvency capital requirement using a standard formula prescribed by the Solvency II Directive and further regulation by the European Commission.
The U.K. ceased to be a member of the EU in January 2020 and, following the expiry of a transition period on December 31, 2020, the U.K. is no longer subject to EU law. The relationship between the U.K. and the EU is now governed by the terms and conditions of a Trade and Cooperation Agreement (the “Trade Agreement”). The Trade Agreement does not contain many substantive provisions relating to financial services. Similarly, it is not expected that the Memorandum of Understanding (“MoU”) relating to financial services that has been concluded by the U.K. and the EU, and which may in the future be entered into between them, will contain many (if any) further substantive provisions. The MoU is, instead, expected to establish a Joint U.K.-EU Regulatory Forum that will serve as a platform to facilitate dialogue between the parties on financial issues. Accordingly, there is currently no change to capital adequacy, risk management and regulatory reporting requirements for U.K. authorized insurers and reinsurers. However, it is possible that the U.K.’s domestic prudential regime may begin to diverge from the Solvency II Directive over time. The U.K. has undertaken a review of the Solvency II Directive and of the regulatory regime that is applicable to U.K. authorized insurers and reinsurers. The U.K.’s HM Treasury is working alongside the Prudential Regulation Authority to prepare a package of proposed reforms to the U.K.’s domestic regulatory regime for consultation in early 2022. The timeframe within which any such proposed reforms will be implemented into U.K. law and regulation is currently unclear, and will depend upon the nature and extent of the proposed changes to the domestic regime, as well as the U.K. insurance industry’s responses to them. Similarly, the European Commission has undertaken its own review of Solvency II and, on September 22, 2021, published a package of proposed legislative reforms for amending the existing regulatory framework. This proposed legislation is being discussed by the European Parliament and Council. While there can be no certainty around the timing of this legislative process, we do not expect any changes to Solvency II resulting from this legislative process to be finalized and transposed into EEA member states’ respective domestic legislation prior to 2024.
Mexico has adopted a Solvency II-type regulatory framework which imposes reserve and capital requirements and corporate governance to foster transparency. In line with the requirements of the local Solvency II, insurance companies calculate and report their capital requirement using a standard formula designed by the local regulators (“CNSF”). In addition, as required, certain MetLife entities must submit annual ORSA reports to the CNSF on an ongoing basis.
In Chile, the law implementing Solvency II-like regulation continues in the studies stage. The implementation date for the new solvency regime has not yet been set; however, it could be in force within four years after the final regulation is published. MetLife Chile implemented governance changes and risk policies to comply with prior regulatory changes. MetLife Chile also submitted its ORSA report to the regulator in September 2021.
The Superintendence of Private Insurance, the Brazilian insurance regulator, has established an insurance framework for minimum capital requirements based on risk, criteria for investment activities, a formal risk management function, and a formal enterprise risk management framework. MetLife Brazil has formalized the designation of a local risk manager and implemented governance structures and risk management framework components in accordance with local regulatory requirements.
Japanese law requires insurers to maintain solvency standards to protect policyholders and to support their own financial strength. Most Japanese life insurers maintain a solvency margin ratio well in excess of the legally mandated minimum. In addition, we expect Japan to introduce an economic value-based solvency regime within the next few years.
In China, the business of our joint venture (as well as the industry) has implemented China Risk Oriented Solvency System (“C-ROSS”), a risk-based solvency regime. Like Solvency II, C-ROSS focuses on risk management and has three pillars (strengthen quantitative capital requirements, enhance qualitative supervision and establish a governance and market discipline process). On December 30, 2021, the China Banking and Insurance Regulatory Commission (“CBIRC”) issued the Regulatory Rules for the Solvency of Insurance Companies (II) (“Rules II”), marking completion of the buildout of C-ROSS Phase II. CBIRC will determine a transition period policy based on actual circumstances, allowing for a step-by-step implementation of some of the regulatory rules, with full implementation to be in place by no later than 2025. Our joint venture will continue strengthening its solvency management in accordance with the revised rules.
The Korea Financial Supervisory Service plans to implement a new solvency system, Korean Insurance Capital Standards, by 2023. We expect this system to reflect the International Association of Insurance Supervisors (“IAIS”) global Insurance Capital Standard and incorporate certain product portfolio and other features specific to the Korean market and include mark-to-market valuation.
IAIS
The IAIS is an association of insurance supervisors and regulators and a member of the Financial Stability Board (“FSB”), an international entity established to coordinate, develop and promote regulatory, supervisory and other financial sector policies in the interest of financial stability. The IAIS participates in the FSB’s initiative to identify and manage systemic risk globally. The IAIS has adopted a holistic framework for the assessment and mitigation of systemic risk in the global insurance sector (the “Holistic Framework”). The framework monitors the build-up of vulnerabilities at jurisdictional and global levels to address any such risk through the application of enhanced supervisory measures based on existing insurance core principles and the common framework for supervision of IAIGs. The FSB annually designated MetLife, Inc. a globally systemically important insurer (“G-SII”) from 2013 to 2016, but suspended all G-SII identifications beginning in 2017 pending completion and implementation of the Holistic Framework, which began in 2020. In 2022, the FSB may decide to discontinue or re-establish the G-SII designation system based on the implementation results of the Holistic Framework.
An IAIS proposal becomes effective when it is enacted through legislation or regulation in the applicable jurisdiction. As MetLife, Inc. is not a U.S. non-bank SIFI, the impact on MetLife, Inc. of the IAIS’s global proposals is uncertain.
NYDFS Guidance on Diversity and Corporate Governance
On March 16, 2021, the NYDFS stated that it expects the insurers it regulates to make diversity of their leadership a business priority and a key element of their corporate governance. The NYDFS collected data from insurers that met certain New York premium thresholds, including MetLife, Inc. and certain of its subsidiaries, regarding the diversity of their corporate boards and management. The NYDFS plans to publish such data on an aggregate basis to measure progress in the industry, and it will include diversity-related questions in its examination process starting in 2022. The NAIC is also evaluating issues related to race, diversity and inclusion, and it is examining practices in the insurance industry in order to determine how barriers are created that disadvantage people of color or historically underrepresented groups.
New York Insurance Regulation 210
Insurance Regulation 210 establishes standards for the determination and any readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer’s discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York. NGEs include cost of insurance for universal life insurance policies, as well as interest crediting rates for annuities and universal life insurance policies. The regulation requires insurers to notify policyholders at least 60 days in advance of any change in NGEs that is adverse to policyholders and, with respect to life insurance, to notify the NYDFS at least 120 days prior to any such changes. The regulation also requires insurers to inform the NYDFS annually of any changes adverse to policyholders made in the prior year. The regulation generally prohibits insurers from increasing profit margins for in-force policies or adjusting NGEs in order to recoup past losses.
Cybersecurity and Data Protection Regulation
We are subject to a variety of laws and regulations at the local, state, federal and international level regarding the collection, storage, use, processing, disclosure, protection and security of personal information, including health-related and customer information and employee data. Various local, state and federal laws in the U.S. and around the world require companies such as ours to inform consumers of data collection and processing practices and further dictate whether, how, and under what circumstances we can transfer, process or receive personal information, the interpretation and scope of which are constantly evolving and vary significantly from jurisdiction to jurisdiction. We are also subject to laws and regulations governing the security and integrity of our information systems and the non-public information stored therein, many of which require the implementation of comprehensive information security policies and procedures, and require notification to affected individuals and regulators of security breaches and other cyber incidents. Given growing cybersecurity risks and threats posed to information and financial systems by nation-states, terrorist organizations and independent criminal actors in recent years, insurance and other regulators have increased focus on cybersecurity practices, and regulatory and legislative activity in the areas of privacy, data protection and cybersecurity continues to increase worldwide. Below, we highlight some of the key data protection and cybersecurity laws and regulations to which we are subject.
Cybersecurity
The New York Cybersecurity Requirements for Financial Services Companies (the “Regulation”) were promulgated by NYDFS in March 2017 to promote the protection of customer information and information technology systems by establishing and regulating cybersecurity requirements for financial services entities under NYDFS’s jurisdiction. In general, the Regulation requires covered entities, including banking and insurance entities under its jurisdiction, to assess risks associated with their information systems and establish and maintain a cybersecurity program designed to assess those risks and protect the confidentiality, integrity and availability of such systems and data. Specifically, the Regulation provides for, among other things: (i) technical safeguards and controls relating to the governance framework for a cybersecurity program; (ii) risk-based policies, procedures and minimum standards for technology systems for data protection; (iii) minimum standards for cyber breach responses, including notice to NYDFS of certain material events; (iv) designation of a chief information security officer and other qualified cybersecurity personnel; (v) oversight of third party service providers with access to the information systems and nonpublic personal information of covered entities, including via implementation of written policies and procedures to evaluate the third party service provider’s cybersecurity practices; and (vi) identification and documentation of material deficiencies, remediation plans and annual certifications of regulatory compliance to NYDFS. Covered entities who fail to comply with the Regulation may be subject to enforcement actions brought by NYDFS, the result of which could lead to civil penalties, and other legal and reputational costs.
In 2017, the NAIC introduced the Insurance Data Security Model Law (the “Cybersecurity Model Law”). The Cybersecurity Model Law requires insurers and other entities licensed by a state department of insurance to develop, implement and maintain a risk-based information security program and establishes standards for data security and for the investigation of and notification to insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. Over the past few years, several states have adopted the Cybersecurity Model Law, including two of our insurance subsidiaries’ domiciliary states, Delaware and South Carolina, and more may adopt it in the future, requiring further compliance and oversight efforts. Such compliance efforts may present an increasing demand on our systems and resources, and require significant new and ongoing investments, including investments in compliance processes, personnel, and technical infrastructure.
On May 12, 2021, President Biden signed Executive Order 14028 on Improving the Nation’s Cybersecurity (the “Order”) to strengthen the U.S. federal government’s cybersecurity defenses and that of its vendors. The Office of Management and Budget (“OMB”) has released several memos expounding on various aspects of the Order; for example, OMB released the federal government’s strategy to move towards Zero Trust cybersecurity principles on January 26, 2022. While MetLife provides employee benefits to several of the agencies that are subject to the Order, it is not directly subject to the new requirements at this time, based on the scope of the Order. While the Order is primarily aimed at technology and software providers and suppliers, there are efforts underway within a whole-of-government approach to combat cyber-attacks and ransomware attacks, which could potentially impose additional cybersecurity requirements on MetLife and other federal contractors over time.
Privacy and Data Protection
In the United States, we are subject to state laws, which impose certain obligations on the processing of personal information and provide consumers specific rights to control their personal information. For instance, the California Consumer Privacy Act (“CCPA”), which applies to certain portions of our business, requires covered companies to provide disclosures to California consumers about such companies’ data collection, use and sharing practices and gives California residents expanded rights with respect to the processing of their personal information. In November 2020, the CCPA was amended by the California Privacy Rights Act (“CPRA”), which will take effect in most material respects on January 1, 2023. The CPRA expands the CCPA, including with respect to certain sensitive personal information, and establishes a regulatory agency dedicated to enforcing those requirements. Regulators may impose fines for violations, and individuals have a private right of action for the unauthorized disclosure of personal information as a result of a failure to maintain reasonable security procedures. The CCPA has not been subject to significant litigation and judicial interpretation and it remains unclear how various provisions of the CCPA will be interpreted and enforced. While a significant portion of our business is exempted from the CCPA’s specific requirements, the Health Insurance Portability and Accountability Act and the insurance laws of several states to which we are subject grant similar rights to insureds, including the right to request copies of their personal information that a company has collected.
Several other states either have proposed or adopted new privacy laws similar to CCPA and CPRA (i.e., Virginia and Colorado enacted laws in 2021 which will come into effect in 2023) which would apply to certain portions of our business. Adapting our practices to comply with these laws and regulations may increase compliance costs and potentially change our business practices.
Outside of the U.S., our subsidiaries are subject to various data protection regimes, including the General Data Protection Regulation (EU) 2016/679 (“GDPR”), which became effective on May 25, 2018 and applies to entities established in the EU, as well as entities not established in the EU, that offer goods or services to EU data subjects, or that monitor consumer behavior that takes place in the EU. The GDPR imposes strict requirements for controllers and processors of personal information, including, for example, more robust disclosures to individuals and a strengthened individual data rights regime, specific timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of information, such as health information, and additional obligations when contracting with third-party processors in connection with the processing of the personal information. The GDPR also imposes strict requirements on transfers of personal information outside of the European Economic Area to countries which have not been deemed “adequate” by the European Commission. (In this regard, the U.K. has been deemed “adequate” and the United States has not been deemed “adequate”). We are also subject to similar restrictive laws in other jurisdictions that address and impose strict requirements on cross-border data transfers, including, for example, the People’s Republic of China’s Personal Information Protection Law and Brazil’s General Data Protection Law.
While the GDPR provides a more harmonized approach to data protection regulation across the EU member states, it also gives EU member states certain areas of discretion and therefore laws and regulations in relation to certain data processing activities may differ on a member state by member state basis, which could further limit our data collection and processing abilities and could require localized changes to our operating model. Relatedly, following the U.K.’s exit from the EU, data privacy law in the U.K. includes the GDPR as retained in U.K. law by virtue of the European Union (Withdrawal) Act 2018 and the Data Protection Act of 2018, both as amended by the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (together “U.K. GDPR”). The relationship between the U.K. and the EU in relation to certain aspects of data protection law remains unclear, which exposes us to further compliance risk. Further, the interpretation of the U.K. GDPR may eventually start to differ from the GDPR, and ensuring compliance with each is and will remain an ongoing commitment that involves substantial costs.
The above laws, and other similar laws that may be passed, may require us to adapt our practices and divert resources from other initiatives and projects to address such evolving compliance and operational requirements. Moreover, despite our efforts, governmental authorities or others may assert that our business practices fail to comply with such requirements, and if we are found to violate any such laws, we may incur substantial fines or damages, have to change our business practices, or face reputational harm, any of which could have an adverse effect on our business.
ERISA, Fiduciary Considerations, and Other Pension and Retirement Regulation
We provide products and services to certain employee benefit plans that are subject to ERISA and/or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”). ERISA and the Code impose restrictions, including fiduciary duties to perform solely in the interests of ERISA plan participants and beneficiaries, and to avoid prohibited non-exempt transactions. The applicable provisions of ERISA and the Code are subject to enforcement by the U.S. Department of Labor (“DOL”), the Internal Revenue Service (“IRS”) and the Pension Benefit Guaranty Corporation.
The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA plans and participants and to Individual Retirement Accounts (“IRAs”) (and certain other arrangements) if the investment recommendation results in fees paid to an individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment recommendation chosen, unless an exemption or exception is available. Similarly, without an exemption or exception, fiduciary advisors are prohibited from receiving compensation from third parties in connection with their advice. ERISA also affects certain of our in-force insurance policies and annuity contracts, as well as insurance policies and annuity contracts we may sell in the future.
The SEC adopted Regulation Best Interest in 2019, and compliance was required beginning on June 30, 2020. Regulation Best Interest requires broker-dealers to act in the best interest of individual investor retail customers when recommending securities transactions or investment strategies involving securities, including recommendations to IRA owners, as well as non-benefit plan retail customers. In addition, other SEC rules require broker-dealers and investment advisers to retail customers to describe their services and conflicts of interest to their retail customers in client relationship summary disclosure and deliver a copy to their retail customers. In December 2020, the DOL released the final version of the prohibited transaction exemption (“PTE”) 2020-02 to allow investment advice fiduciaries to receive compensation without violating ERISA, subject to impartial conduct standards and disclosure obligations aligned with the new SEC rules. In the preamble to PTE 2020-02, the DOL also provided its interpretation of the five-part test used to determine whether a person is acting as an ERISA investment advice fiduciary. PTE 2020-02 became effective on February 16, 2021. In April 2021, the DOL published additional guidance indicating that it may amend or add to this rule.
State regulators and legislatures in Nevada, New Jersey, Maryland and New York have proposed measures that would make broker-dealers, sales agents, and investment advisers and their representatives subject to a fiduciary duty when providing products and services to customers, including pension plans and IRAs, and Massachusetts has enacted a law to that effect. The NYDFS’s annuity suitability regulation incorporates the “best interest” standard and expands the scope of the regulation beyond annuity transactions to include sales of life insurance policies to consumers. In April 2021, the Appellate Division of the New York Supreme Court overturned the regulation for being unconstitutionally vague, and the NYDFS has appealed the decision. Regulation Best Interest under the Securities Exchange Act of 1934, as amended (“Exchange Act”) does not include a private right of action, although the SEC did not indicate an intent to pre-empt state regulation in this area, and some of the state proposals and adopted regulations would allow for a private right of action. As a result of these developments, it is possible that it may become more costly to provide our products and services in the states subject to the new rules.
In 2020, the Chilean Congress approved two bills, each of which allowed individuals to withdraw up to 10% of pension accounts or the account balance if it is below a certain amount. In April 2021, the Chilean Congress approved a third bill allowing for additional withdrawals of pension funds which could deplete approximately one third of pension accounts. The bill also requires insurance companies to advance payments of up to 10% of the reserves allocated to a customer’s annuity. ProVida S.A., MetLife Chile and other companies in the industry continue to process such payments. On December 3, 2021, the bill to allow a fourth withdrawal of pensions and a second advance payment of annuities was rejected by the lower Chamber, thus ending its discussion in Congress. Additional major pension reform in Chile is possible in the future. The impact of any such pension reforms will depend on the final measures adopted, and in some cases could have an adverse effect on our Chilean pension business. We have initiated a formal consultation process with the Chilean government to seek a resolution of our concerns regarding these developments.
Consumer Protection Laws
Numerous federal and state laws affect our earnings and activities, including federal and state consumer protection laws. As part of Dodd-Frank, Congress established the Consumer Financial Protection Bureau (“CFPB”) to supervise and regulate institutions that provide certain financial products and services to consumers. Although the consumer financial services subject to the CFPB’s jurisdiction generally exclude insurance business of the kind in which we engage, the CFPB does have authority to regulate non-insurance consumer services we provide. Consumer protection laws in non-U.S. jurisdictions may also affect us.
Investments Regulation
State insurance laws and regulations limit the amount of investments that our U.S. insurance subsidiaries may have in certain asset categories, such as below investment grade fixed income securities, real estate equity, other equity investments, and derivatives, and require diversification of investment portfolios. Investments exceeding regulatory limitations are not admitted for purposes of measuring surplus. In some instances, laws require us to divest any non-qualifying investments. In addition, many of our non-U.S. insurance subsidiaries and pension companies are subject to other investment laws and regulations.
Changing global financial and economic environments, and the fiscal and monetary policy of governments and central banks around the world, continue to affect our global insurance business. These may affect interest rates, and thereby the pricing levels of risk-bearing investments, as well as our business operations, investment portfolio, and derivatives.
Derivatives Regulation
Dodd-Frank includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets requiring clearing of certain types of interest rate and credit default swap transactions and imposes additional costs, including reporting and margin requirements. Our costs of risk mitigation are increasing under Dodd-Frank. For example, Dodd-Frank imposes requirements to pledge variation and/or initial margin (i) for “OTC-cleared” transactions (OTC derivatives that are cleared and settled through central clearing counterparties), and (ii) for “OTC-bilateral” transactions (OTC derivatives that are bilateral contracts between two counterparties).
We expect increased margin requirements, and capital charges for our counterparties and central clearinghouses related to holding non-cash collateral, to continue to increase our required holdings of cash and government securities. This may cause lower yields and reduce our income due to less favorable pricing for OTC-cleared and OTC-bilateral transactions. Centralized clearing of certain OTC derivatives exposes us to the risk of a default by a clearing member or clearinghouse with respect to our cleared derivative transactions. We use derivatives to mitigate a wide range of risks in connection with our businesses, including the impact of increased benefit exposures from certain of our annuity products that offer guaranteed benefits. We have always been subject to the risk that hedging and other management procedures might prove ineffective in reducing the risks to which insurance policies expose us, or that unanticipated policyholder behavior or mortality, combined with adverse market events, could produce economic losses beyond the scope of the risk management techniques employed. Any such losses could be increased by higher costs of writing derivatives (including customized derivatives) and the reduced availability of customized derivatives that might result from the implementation of Dodd-Frank and comparable international derivatives regulations.
Dodd-Frank also expanded the definition of “swap” and mandated the SEC and U.S. Commodity Futures Trading Commission (“CFTC”) to study whether “stable value contracts” should be treated as swaps. Pursuant to the new definition and the SEC’s and CFTC’s interpretive regulations, products offered by our insurance subsidiaries other than stable value contracts might also be treated as swaps. Should such products become regulated as swaps, we cannot predict how the rules would be applied to them or the effect on such products’ profitability or attractiveness to our clients. Special federal banking rules apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with banking institutions and certain of their affiliates. These rules generally require the banking institutions and their applicable affiliates to limit or delay their counterparties default rights (such as the right to terminate the contracts or foreclose on collateral) and restrict assignments and transfers of credit enhancements (such as guarantees) in connection with the banking institution or affiliate bankruptcy, insolvency, resolution or similar proceeding. These rules could limit our recovery in the event of a default, limit our ability to close-out transactions upon the bankruptcy of an affiliate of our counterparty, and increase our counterparty risk.
We expect the amount of collateral we are required to pledge and the payments we are required to make under our OTC swaps transactions to increase as a result of the requirement to pledge initial margin for OTC-bilateral transactions, based on the final margin requirements for non-centrally cleared derivatives.
Securities, Broker-Dealer and Investment Adviser Regulation
U.S. federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable annuity contracts and variable life insurance policies, and certain fixed interest rate or index-linked contracts with features that require them to be deemed as securities or sold through private placement issuances. As a result, some of our subsidiaries and their activities in offering and selling variable insurance contracts and policies are subject to extensive regulation under these securities laws.
Federal and state securities laws and regulations generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting new or existing products, regulate the issuance, sale and distribution of our products and limit or restrict the conduct of business for failure to comply with such laws and regulations. In some non-U.S. jurisdictions, some of our insurance products are considered “securities” under local law, and we may be subject to local securities regulations and oversight by local securities regulators.
Some of our subsidiaries and their activities in offering and selling variable insurance products are subject to extensive regulation under the federal securities laws and regulations administered by the SEC. These subsidiaries issue variable annuity contracts and variable life insurance policies through separate accounts that are registered with the SEC as investment companies under the Investment Company Act of 1940, as amended (the “Investment Company Act”) or are exempt from registration under the Investment Company Act. Such separate accounts are generally divided into sub-accounts, each of which invests in an underlying mutual fund which is itself a registered investment company under the Investment Company Act. In addition, the variable annuity contracts and variable life insurance policies associated with these registered separate accounts are registered with the SEC under the Securities Act of 1933, as amended (the “Securities Act”) or are exempt from registration under the Securities Act. One insurance subsidiary issues a fixed interest rate contract with features that require it to be registered under the Securities Act.
Certain variable contract separate accounts sponsored by our subsidiaries are exempt from registration but may be subject to other provisions of the federal securities laws.
Two of our subsidiaries are registered with the SEC as broker-dealers under the Exchange Act and are members of, and subject to regulation by, FINRA. The SEC, CFTC and FINRA from time to time propose and adopt rules and regulations that impact broker-dealers and products deemed to be securities.
One of our U.S. subsidiaries is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended, and is also registered or licensed in various non-U.S. jurisdictions, as applicable. In addition, we have non-U.S. subsidiaries that are registered or licensed in non-U.S. jurisdictions to conduct our investment management business. We may also be subject to similar laws and regulations in non-U.S. jurisdictions with respect to the provision of investment advisory services or the conducting of other activities.
Under SEC rules, broker-dealers recommending our variable products and other securities offerings to retail customers are required to comply with a “best interest” standard. SEC rules also require broker-dealers to disclose the nature of services, their standard of conduct, and their conflicts of interest to their retail customers. With regard to insurance products, the NAIC revised its Suitability in Annuity Transactions Model Regulation to add a “best interest” standard for the sale of annuities, which several of our insurance subsidiaries’ domiciliary states adopted and others may consider. In April 2021, as noted above, the Appellate Division of the New York State Supreme Court overturned NYDFS Regulation 187 - Suitability and Best Interests in Life Insurance and Annuity Transactions for being unconstitutionally vague. The NYDFS has appealed the decision.
Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations regarding compliance by MetLife, Inc. and its subsidiaries with securities and other laws and regulations. We cooperate with such inquiries and examinations and take corrective action when warranted.
Environmental Laws and Regulations
As an owner and operator of real property in many jurisdictions, we are subject to extensive environmental laws and regulations in such jurisdictions. Inherent in such ownership and operation is also the risk that there may be environmental liabilities and costs in connection with any required remediation of such properties. In addition, we hold equity interests in companies that could potentially be subject to environmental liabilities. We routinely have environmental assessments performed with respect to real estate being acquired for investment and real property to be acquired through foreclosure. Unexpected environmental liabilities may arise. However, based on information currently available to us, we believe that any costs associated with compliance with environmental laws and regulations or any remediation of such properties will not have a material adverse effect on our business, results of operations or financial condition.
The topic of climate risk has come under increased scrutiny by insurance regulators. In September 2020, the NYDFS issued a circular letter to New York domestic and foreign authorized insurers stating that the NYDFS expects insurers to start integrating financial risks related to climate change into their governance frameworks, risk management processes, business strategies and scenario analysis, and developing their approach to climate related financial disclosure.
On November 15, 2021, the NYDFS issued guidance for New York domestic insurers, such as MLIC, stating that insurers are expected to manage financial risks from climate change by taking actions that are proportionate to the nature, scale and complexity of their businesses. For instance, insurers should incorporate climate risk into their financial risk management and manage this risk through their enterprise risk management functions. Insurers must have an implementation plan in place by August 15, 2022 with respect to the NYDFS’s expectations for corporate governance and organizational structure changes (e.g., defining roles and responsibilities related to managing climate risk). With respect to implementing additional changes (e.g., reflecting climate risks in the ORSA and using scenario analysis when developing business strategies), insurers are encouraged to start working on these changes, although the NYDFS plans to issue further guidance with more specific timing information.
The NYDFS also adopted an amendment to the regulation governing enterprise risk management, effective August 13, 2021, that requires certain additional risks, including climate change risk, to be specifically included in an insurance group's enterprise risk management function.
In addition, the FIO has been instructed by President Biden’s Executive Order on Climate-Related Financial Risk, dated May 20, 2021, to seek public comment on climate-related financial risks in the insurance industry. The FIO’s request for information notes that it will work on assessing how the insurance sector may mitigate climate change impacts and help achieve national climate-related goals. The comment period ended in November 2021.
The SEC is continuing its focus on climate, and environmental, social and governance (“ESG”) risks and opportunities, and has published its rulemaking list which contains several ESG-related rulemakings that the SEC is considering.
Unclaimed Property
We are subject to the laws and regulations of states and other jurisdictions concerning identification, reporting and escheatment of unclaimed or abandoned funds, and are subject to audit and examination for compliance with these requirements. See “- Insurance Regulation - Insurance Regulatory Examinations and Other Activities,” which references the regulatory settlement agreement relating to unclaimed property. See also Note 21 of the Notes to the Consolidated Financial Statements.
Brighthouse Separation Tax Treatment
Prior to the spin-off distribution of Brighthouse Financial, Inc. (together with its subsidiaries, “Brighthouse”) common stock in 2017, we received a private letter ruling from the IRS regarding certain significant issues under the Code, as well as an opinion from tax counsel that the distribution qualified for non-recognition of gain or loss to us and our shareholders pursuant to Sections 355 and 361 of the Code, except to the extent of cash received in lieu of fractional shares, each subject to the accuracy of and compliance with certain representations, assumptions and covenants therein.
Notwithstanding the receipt of the private letter ruling and the tax opinion, the IRS could determine that the distribution should be treated as a taxable transaction, for example, if it determines that any of the representations, assumptions or covenants on which the private letter ruling is based are untrue or have been violated. Similarly, the IRS could determine that our disposal of the fair value option of Brighthouse Financial, Inc.’s common stock in the debt-for-equity exchange should be treated as a taxable transaction to MetLife, Inc. Furthermore, as part of the IRS’s policy, the IRS did not determine whether the distribution or the debt-for-equity exchange satisfies certain conditions that are necessary to qualify for non-recognition treatment. Rather, the private letter ruling is based on representations by us and Brighthouse that these conditions have been satisfied. The tax opinion addressed the satisfaction of these conditions. The tax opinion is not binding on the IRS or the courts, and the IRS or a court may take a contrary position. In addition, the tax counsel relied on certain representations and covenants delivered by us and Brighthouse.
If the IRS ultimately determines that the distribution is taxable, the distribution could be treated as a taxable dividend or capital gain to MetLife shareholders who received shares of Brighthouse Financial, Inc. common stock in the distribution for U.S. federal income tax purposes, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, if the IRS ultimately determines that the distribution is taxable, we and Brighthouse could incur significant U.S. federal income tax liabilities, and either we or Brighthouse could have an indemnification obligation to the other, depending on the circumstances.
Even if the spin-off distribution otherwise qualifies for non-recognition of gain or loss under Section 355 of the Code, it may be taxable to us, but not our shareholders, under Section 355(e) of the Code if 50% or more (by vote or value) of our common stock or Brighthouse Financial, Inc.’s common stock is acquired as part of a plan or series of related transactions that include the distribution.
Cross-Border Trade and Investments
Our U.K. business model utilizes certain rights to operate cross-border insurance and investment operations, which were eliminated as a result of the U.K. exiting the EU. In particular, our EEA insurance entities have lost the right to “passport” insurance services into the U.K. Nevertheless, MetLife expects to maintain its existing operating model as an inbound EEA-insurer under the U.K.’s Temporary Permissions Regime, which is due to last for at least three years from January 1, 2021. This will permit MetLife to carry on its insurance business in the U.K. during that period while it discusses its future operating model with the relevant insurance regulators. Operating expenses within our businesses could increase as a result of such changes.
Further, MetLife Investment Management Limited, our investment manager in the U.K., has lost its passporting rights in the EU as a result of Brexit. In order to continue our investment management business in the EU, we have applied to the Central Bank of Ireland for authorization of a new entity under the Undertakings for the Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive with the Markets in Financial Instruments Directive top-up permissions.
U.S. sanctions impose restrictions with respect to certain activity involving China. A series of U.S. presidential executive orders imposes prohibitions on engaging in certain transactions involving the purchase or sale of publicly traded securities, or any publicly traded securities that are derivative of, or are designed to provide investment exposure to such securities, of any listed Chinese Military-Industrial Complex Companies. In addition, the Biden administration issued an executive order directing a review of foreign adversary connected software applications to review transactions that risk sabotage of U.S. information and communications technology or services, critical infrastructure, digital economy, national security, or the security and safety of U.S. persons. This review and other legislative processes could result in new actions to restrict U.S. persons from engaging in certain transactions with any identified foreign parties.
London Interbank Offered Rate
The Financial Conduct Authority (“FCA”), the U.K. regulator of LIBOR, previously indicated that it intends to stop persuading or compelling panel banks to submit quotes used to determine LIBOR after 2021. On March 5, 2021, the Intercontinental Exchange (“ICE”) Benchmark Administration, the administrator of LIBOR, announced that it will cease the publication of one week and two-month U.S. Dollar LIBOR and all non-USD (GBP, EUR, CHF and JPY) LIBOR settings at the end of December 2021, but will extend the publication of the remaining U.S. Dollar LIBOR settings (overnight and one-, three-, six- and 12-month U.S. Dollar LIBOR) until the end of June 2023. U.S. bank regulators advised banks to cease writing, subject to certain limited exceptions, new U.S. Dollar LIBOR contracts by the end of 2021.
We use LIBOR and other interbank offered rates as interest reference rates in many of our financial instruments. The transition of our existing LIBOR contracts to alternative reference rates, including the adequacy of LIBOR fallback provisions in such contracts, and whether, how, and when we and others develop and adopt alternative reference rates, will influence the effect of any changes to or discontinuation of LIBOR on us. We continue to identify, assess and monitor market and regulatory developments, assess agreement terms, and evaluate operational readiness related to the transition. The SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations) expects to assess registrants’ efforts to prepare for LIBOR discontinuation and their transition to alternatives. We actively participate in the New York Federal Reserve Bank convened Alternative Reference Rate Committee (“ARRC”) and other industry association efforts on the transition to alternative reference rates. The Company utilized the International Swaps and Derivatives Association, Inc. (“ISDA”) 2020 IBOR Fallbacks Protocol to address the transition from LIBOR and other interbank offered rates to other risk-free rates in its OTC bilateral ISDA derivatives contracts. We also monitor the Financial Accounting Standards Board’s, International Accounting Standards Board’s, and U.S. Treasury Department’s updates on the accounting and tax implications of reference rate reform. In April 2021, the State of New York enacted legislation to address the transition from U.S. Dollar LIBOR for certain New York law governed agreements, which is generally consistent with the ARRC’s recommendations to facilitate the transition. Federal legislation intended to address the transition from U.S. Dollar LIBOR to alternative reference rates for all U.S. law governed contracts with inadequate LIBOR fallback provisions is pending in Congress. There can be no assurance that such federal legislation will be enacted or enacted in a form sufficient to address the LIBOR transition risk for such contracts. We continue to assess current and alternative reference rates’ merits, limitations, risks and suitability for our investment and insurance processes.
Competition
The life insurance industry remains highly competitive. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Industry Trends - Competitive Pressures.” We face competition based on factors such as service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition. We compete globally with a large number of insurance companies and non-insurance financial services companies such as banks, broker-dealers and asset managers. We compete for individual consumers, employer and other group customers, as well as agents and other distributors of insurance and investment products. Some of our competitors offer a broader array of products, have more competitive pricing or, with respect to other insurance companies, have higher claims paying ability ratings. In the United States and Japan, we compete with a large number of domestic and foreign-owned life insurance companies, many of which offer products in categories on which we focus. Elsewhere, we compete with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies. Because we and others underwrite many group insurance products annually, our group purchasers may be able to obtain more favorable terms from competitors rather than renewing coverage with us.
Insurers are focused on their core businesses, specifically in markets where they can achieve scale. They are increasingly seeking alternative sources of revenue focusing on monetization of assets, and fee-based services. They are also looking for opportunities to offer comprehensive solutions which include value-added services along with traditional products.
Financial market volatility will impact insurers’ capital positions, which may strain the competitive environment and lead to industry consolidation. We believe adaptability to market changes (such as those from pandemics), as well as financial strength, technological efficiency and organizational agility, will most significantly differentiate competitors in our industry. We believe we are well positioned to succeed in any environment.
The Company distributes many of its products through a variety of third-party distribution channels, including banks and broker-dealers. We believe potential distribution partners carefully consider the financial strength of the company whose products they sell. Bank and broker-dealer consolidation could increase competition for access to distributors.
We face intense competition for employees. We must attract and retain highly skilled people with knowledge of our business and industry experience to support our business. See “- Human Capital Resources.” We continue to seek to grow our career agency forces in selected global markets. We also continue efforts to enhance the efficiency and production of our sales representatives. These initiatives may not succeed in attracting and retaining productive agents. See “- Segments and Corporate & Other” for information on sales distribution.
Numerous aspects of our business are heavily regulated. Legislative and other changes affecting the regulatory environment can affect our competitive position within the life insurance industry and within the broader financial services industry.
Human Capital Resources
At December 31, 2021, we had approximately 43,000 employees.
We strive to build a purpose-driven and inclusive culture where our employees are energized to make a difference. As a financial services company, we rely significantly on our global workforce, leveraging a wide variety of professional, scientific, management, business, and other skills and expertise, to create value for all of our stakeholders. To continue strengthening and cultivating a diverse workforce that can thrive now and, in the future, we focus on the following:
•Talent attraction and retention: We strive to attract and retain a talented, motivated and diverse workforce to execute our business objectives, delivering excellence for all of our stakeholders. In addition to offering a competitive total rewards package and a variety of learning and development opportunities as detailed below, we endeavor to create and articulate an employee value proposition based on inclusivity, empathy, and professional growth. Through these efforts, we aim to attract and retain employees who share our commitment to building a more confident future for all.
•Health and safety: We encourage our employees to prioritize health by connecting our purpose, our work, and the importance of overall well-being. We will continue to apply these principles to meet our employees’ needs during the COVID-19 pandemic and beyond. MetLife places the highest value on protecting our employees' health and safety. In response to the COVID-19 pandemic, we have provided our employees with resources for working from home, managing dispersed teams and for parents and caregivers. We have also launched a global platform known as BeWell, providing resources to help employees with resilience and coping, staying balanced, maintaining physical and financial wellbeing, and building healthy relationships.
•Diversity, equity and inclusion (“DEI”): We aspire to cultivate an inclusive culture where our diversity of talent positions us to meet the needs of our employees, our customers, our shareholders, and the global communities we serve. We have deepened our DEI commitment and accountability to our employees with our new Global Diversity, Equity and Inclusion Leadership Council led by MetLife’s President and Chief Executive Officer (“CEO”), Michel Khalaf. On workforce diversity, our goal is to be a leading financial company with top-quartile performance as measured against best-in-class industry benchmarks. We measure ourselves against these benchmarks to monitor our progress and effectiveness, including tracking gender, ethnic, and racial diversity representation across seniority levels. Globally, women now represent 25% of our Executive Leadership Team and 33% of our Board of Directors. In the U.S., ethnic and racially diverse employees represent 20% of our Executive Leadership Team and 16% of our Board of Directors. We are committed to fostering an environment where every employee feels a sense of belonging and can bring their best self to their teams and contribute their perspectives to strengthen our business and our culture.
•Talent and skill development: Our success as a company begins with our employees. We aim to create a culture of continuous learning through a variety of opportunities for professional development, building a future forward workforce to deliver on our strategic goals. Employees leverage our digitally enabled learning platform known as MyLearning to continuously develop and build the core skills they need in a dynamic environment. Additionally, employees can enhance and expand their skills through experiential learning through our internal talent marketplace known as MyPath, enabling cross-functional learning through hands-on project work. We are focusing on skills development at scale for capabilities critical to successfully serving our customers, specifically in the areas of distribution, leadership and agility. Through this holistic approach to development, we continue to prepare our workforce for the future. We monitor our progress through ongoing tracking of employee participation in our robust learning opportunities and in key areas through the building of capability against skills gap analysis.
•Compensation and benefits: We recognize the importance of providing market-aligned compensation opportunities and comprehensive, cost-effective benefits to attract, retain, engage, and motivate talented employees. We use a competitive total compensation framework that consists of base salary, as well as annual and long-term incentive opportunities. Our benefits offerings prioritize holistic well-being, encouraging and equipping all employees globally to sustain and improve their physical, mental, financial and social wellness. Company-paid and company-subsidized healthcare, disability, and life insurance and retirement benefits are market-aligned, and competitive paid time off and parental leave programs are provided in all markets. We regularly review our compensation and benefits programs and consider employee input, as well as market developments when making updates. By designing these programs to enable our employees to build a more confident future, we live our purpose, promote our business objectives, align management’s interests with those of our many stakeholders and underscore our focus on long-term shareholder value.
In addition to the measurement tools referenced above, we monitor our progress on the foregoing initiatives, which are overseen by the MetLife, Inc. Board of Directors, by our employee survey program, through which we gain valuable insights into our employees’ sense of purpose, engagement, and satisfaction. See the MetLife 2020 Sustainability Report (the “Sustainability Report”) at www.metlife.com/sustainability for further detail on how our actions strengthen our workforce. The Sustainability Report, or any other information from the MetLife website, is not a part of or incorporated by reference into this Annual Report on Form 10-K.
Information About Our Executive Officers
Set forth below is information regarding the executive officers of MetLife, Inc. MLIC and MetLife Group, Inc. are affiliates of MetLife, Inc.:
Name Age Position with MetLife and Business Experience
Michel A. Khalaf 58 • President, Chief Executive Officer and Director of MetLife, Inc. (May 2019 - present)
• President, U.S. Business, of MetLife, Inc. (July 2017 - April 2019)
• President, EMEA, of MetLife, Inc. (November 2011 - July 2017)
John D. McCallion 48 • Executive Vice President and Chief Financial Officer of MetLife, Inc. (August 2018 - July 2019) (November 2019 - present)
• Executive Vice President and Chief Financial Officer and Treasurer of MetLife, Inc. (May 2018 - August 2018) (July 2019 - November 2019)
• Executive Vice President and Treasurer of MetLife, Inc. (July 2016 - May 2018)
Marlene Debel 55 • Executive Vice President and Chief Risk Officer of MetLife, Inc. (May 2019 - present)
• Executive Vice President and Head of Retirement & Income Solutions of MetLife, Inc. (March 2018 - May 2019)
• Executive Vice President and Chief Financial Officer, U.S. Business, of MetLife, Inc. (July 2016 - March 2018)
Stephen W. Gauster 51 • Executive Vice President and General Counsel of MetLife, Inc. (May 2018 - present)
• Senior Vice President and Interim General Counsel of MetLife, Inc. (July 2017 - May 2018)
• Senior Vice President and Chief Counsel, General Corporate Section of the Law Department of MetLife Group, Inc. (January 2016 - June 2017)
Steven J. Goulart 63 • Executive Vice President and Chief Investment Officer of MetLife, Inc. (May 2011 - present)
• Head of the Portfolio Management Unit as Senior Managing Director of MLIC (January 2011 - April 2011)
Bill Pappas 52 • Executive Vice President, Global Technology and Operations, of MetLife, Inc. (November 2019 - present)
• Head of Global Operations, Bank of America, a financial services company (February 2016 - November 2019)
Susan M. Podlogar 58 • Executive Vice President and Chief Human Resources Officer of MetLife, Inc. (July 2017 - present)
• Vice President, Human Resources, Global Medical Devices, Johnson & Johnson, a medical devices, pharmaceutical and consumer products company (May 2016 - June 2017)
Kishore Ponnavolu 57 • President, Asia, of MetLife, Inc. (September 2018 - present)
• Executive Vice President, Property & Casualty, of MetLife Group, Inc (November 2013 - August 2018)
Ramy Tadros 46 • President, U.S. Business, of MetLife, Inc. (May 2019 - present)
• Executive Vice President and Chief Risk Officer of MetLife, Inc. (September 2017 - April 2019)
• Management Consultant, Oliver Wyman, Inc., a consulting company (September 1997 - July 2017)
Trademarks
We have a worldwide trademark portfolio that we consider important in the marketing of our products and services, including, among others, the trademark “MetLife.” We also have trademarks, such as the “PROVIDA” trademark, we have acquired with businesses. We believe that our rights in our trademarks are well protected.
Available Information
MetLife encourages investors and others to frequently visit its website (www.metlife.com), including its Investor Relations web pages (https://investor.metlife.com). MetLife announces significant financial and other information to its investors and the public on its Investor Relations web pages in news releases, public conference calls and webcasts, fact sheets, and other documents and media. MetLife, Inc. makes available free of charge on its Investor Relations web pages the reports and other information it publicly discloses with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, any amendments to each of those reports, proxy statements, and other disclosure. The SEC maintains an internet website (https://www.sec.gov) that contains this and other information regarding issuers that file electronically with the SEC, including MetLife, Inc.
The information on MetLife’s website, including MetLife’s Sustainability Report, is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document MetLife submits to the SEC, and any references to MetLife’s website are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Any or each of the events described below may (or may continue to) adversely affect the global economy, global financial markets, our reputation, our regulatory, customer, or other relationships, our results of operations, our liquidity or cash flows, our statutory capital position, our ability to meet our obligations, our credit and financial strength ratings, our financial condition, or the market price of our common stock. The effects may vary depending on timing, product, market, region or segment.
Many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of any of them may cause others to emerge or worsen. Such combinations could materially increase the severity of the cumulative or separate impact of these risks.
These risk factors are not a complete set of all potential risks that could affect MetLife. You should carefully consider the risk factors together with other information contained in this Annual Report on Form 10-K, including “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in “Financial Statements and Supplementary Data,” and other reports and materials MetLife submits to the SEC.
Economic Environment and Capital Markets Risks
We May Face Difficult Economic Conditions
Market factors, including interest rates, credit spreads, equity prices, derivative prices and availability, real estate conditions, foreign currency exchange rates, consumer and government spending, business investment, volatility, disruptions and strength of the capital markets, deflation and inflation, and government actions in response thereto may inhibit revenue growth, reduce investment opportunities and result in investment losses, derivative losses, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves, reduced net investment income and changes in unrealized gain or loss positions.
Higher unemployment, changes to inflation, lower family income, lower corporate earnings, lower business investment, lower consumer spending, elevated incidence of claims, adverse utilization of benefits relative to our best estimate expectations, lapses or surrenders of policies, reduced demand for our products, and deferred or canceled payments of insurance premiums may negatively affect our earnings and capitalization.
Declining equity markets may decrease the account value of our products, reducing certain fees generated by these products, which may increase the level of insurance liabilities we carry, accelerate the amortization of deferred policy acquisition costs (“DAC”), and require us to increase funding to our captive reinsurers. Additionally, lower interest rates may reduce returns in fixed income investments.
Public Health Risks
Pandemics and other public health issues, and governmental, business, and consumer reactions to them, have affected and may continue to affect economic conditions. They have and may continue to cause illnesses and deaths, changes in consumer or business confidence, behavior and activity, changes to interest rates and other market risk factors, and governmental or other restrictions on economic activity for prolonged periods. Any of these issues may cause or exacerbate any of the difficult economic conditions we describe in these risk factors.
Interest Rate Risks
Some of our products and investments expose us to interest rate risks, including changes in the difference between short-term and long-term interest rates, which may reduce or eliminate our investment spread and net income.
Low interest rates and risk asset returns may reduce income from our investment portfolio, increase our liabilities for claims and future benefits, and increase the cost of risk transfer measures, decreasing our profit margins. During certain market events, such as a global credit crisis, a market downturn, or sustained low market returns, we may incur significant losses due to, among other reasons, losses incurred in our general account and the impact of guarantees, including increases in liabilities, capital maintenance obligations and collateral requirements. In addition, during periods of sustained lower interest rates, we may need to reinvest proceeds from certain investments at lower yields, reducing our investment spread. Moreover, borrowers may prepay or redeem the fixed income securities and loans in our investment portfolio with greater frequency. Although we may be able to lower interest crediting rates to help offset decreases in spreads, our ability to lower these rates is limited to our products that have adjustable interest crediting rates, which could be limited by competition or contractually guaranteed minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our investment spread may decrease or become negative.
Lower spreads may accelerate the amortization of DAC, reducing net income and in turn, harming our credit instrument covenants or rating agency assessment of our financial condition. During periods of declining interest rates, life insurance and annuity products may be more attractive investments to consumers, resulting in increased premium payments on certain products, repayment of policy loans and increased persistency, while our new investments carry lower returns. A market interest rate decline could also reduce our return on investments that do not support particular policy obligations. During periods of sustained lower interest rates, we may need to increase our reserves.
Interest rate increases may also harm our profitability. During rapidly increasing interest rates, we may not be able to replace the investments in our general account with higher yielding investments needed to fund the higher crediting rates required to stay competitive. This could result in a lower spread, lower profitability, decreased sales, and greater loss of existing contracts and related assets. In addition, policy loans, surrenders and withdrawals may increase as policyholders seek investments with higher perceived returns. This may result in cash outflows requiring the sale of investments on less favorable terms, resulting in investment losses. We may accelerate the amortization of DAC and value of business acquired (“VOBA”), reducing net income, harming our credit instrument covenants and rating agency assessment of our financial condition. Interest rate increases may harm the value of our investment portfolio, for example, by decreasing the estimated fair value of fixed income securities, and may increase our daily settlement payments on interest rate futures and cleared swaps, resulting in increased cash outflows and liquidity needs. Furthermore, if interest rates rise, our unrealized gains on fixed income securities may decrease and our unrealized losses may increase. We would recognize the accumulated change in estimated fair value of these fixed income securities in net income when we realize a gain or loss upon the sale of the security or we determine that the decline in estimated fair value is due to a credit loss. Finally, an increase in interest rates may decrease fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds.
Federal Reserve Board monetary policy (and that of other central banks) may also impact the pricing levels of risk-bearing investments and may harm our investment income or product sales.
The measures we take to mitigate the risks of investing in a changing interest rate environment, such as mitigating our fixed income investments relative to our interest rate sensitive liabilities, may not be sufficient. For some of our liability portfolios, we may not be able to invest assets at the full liability duration, thereby creating some asset/liability mismatch. In addition, asymmetrical and non-economic accounting may cause material changes to our net income and stockholders’ equity because we record our non-qualified derivatives at fair value through earnings, while the related hedged items either follow an accrual-based accounting model or are recorded at fair value through other comprehensive income.
Credit Spread Risks
Changes in credit spreads may result in market price volatility and cash flow variability. Market price volatility can make valuations of our securities difficult if trading becomes less frequent, which may require us to add to our reserves. Market volatility may cause changes in credit spreads, defaults and a lack of pricing transparency. An increase in credit spreads relative to U.S. Treasury benchmarks may increase our borrowing costs and decrease certain product fee income. A sustained decrease in credit spreads could reduce the yield on our future investments.
Equity Risks
Downturns and volatility in equity markets may harm our savings and investment products’ revenues and investment returns, where fee income is earned based upon the estimated fair value of our managed assets. Our variable annuity business is highly sensitive to equity markets, and a sustained weakness or stagnation in the equity markets may decrease these products’ revenues and earnings. Furthermore, certain of our variable annuity products offer guaranteed benefits that increase our potential benefit exposure should equity markets decline or stagnate.
Sustained declines in long-term equity returns or interest rates may harm the funding of our pension plans and other post-retirement benefit obligations. An increase in equity markets could increase settlement payments on equity futures and total rate of return swaps (“TRRs”), which may increase our cash outflows and liquidity needs.
The timing of distributions from and valuations of our investments in leveraged buy-out funds, hedge funds and other private equity funds depends on the performance of the underlying investments, distribution schedules, and the funds’ need for cash. The amount of net investment income from these investments can vary substantially from period to period and significant volatility may harm our returns and net investment income. In addition, downturns or volatility in the equity markets may decrease the estimated fair value of our alternative investments and equity securities.
Real Estate Risks
Changes in leasable commercial space supply and demand, pandemics and other public health issues, creditworthiness of tenants and partners, capital markets volatility, interest rate fluctuations, commodity prices, farm incomes, housing and commercial property market conditions, and real estate investment supply and demand may adversely impact our investments in commercial, agricultural and residential mortgage loans, and real estate and real estate joint ventures.
Obligor and Counterparty Risks
Our general account investments in certain countries could be adversely affected by volatility resulting from local economic and political concerns, as well as volatility in specific sectors. Government entities may face budget deficits and other financial difficulties, which may harm the value of securities we hold issued by or under the auspices of such governments.
The issuers or guarantors of fixed income securities and mortgage loans we own may default on principal and interest payments they owe us. Additionally, the change in value of underlying collateral within asset-backed securities (“ABS”), including mortgage-backed securities, may result in a default on principal and interest payments, reducing our cash flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit spreads, or other adverse events may reduce the estimated fair value of our portfolio of fixed income securities and mortgage loans and increase the default rate of the fixed income securities and mortgage loans in our investment portfolio.
Many of our transactions with counterparties such as brokers and dealers, central clearinghouses, commercial banks, investment banks, hedge funds, investment funds, reinsurers and other financial institutions expose us to the risk of counterparty default. Such credit risk may be exacerbated if we cannot realize on the collateral held by us in secured transactions or cannot liquidate such collateral at prices sufficient to recover the full amount of the loan or derivative exposure due to us. Furthermore, potential action by governments and regulatory bodies, such as controlling investment, nationalization, conservatorship, receivership and other intervention, or lack of action by governments and central banks, as well as deterioration in the banks’ credit standing, could negatively impact these instruments, securities, transactions and investments or limit our ability to trade with them. These may cause losses or impairments to the carrying value of our investments.
Our efforts to manage our total exposure to a single counterparty or limited number of counterparties within or among any of our investment, derivative, treasury, and reinsurance relationships, which we adjust from time to time, may not completely or adequately mitigate counterparty risks.
Currency Exchange Rate Risks
Fluctuations in foreign currency exchange rates against the U.S. dollar may adversely affect our non-U.S. dollar denominated investments, investments in non-U.S. subsidiaries, net income from non-U.S. operations and issuance of non-U.S. dollar denominated instruments. Fluctuations in foreign currency exchange rates may also make certain of our products less attractive to customers, which may increase levels of early policy terminations and decrease sales volume and our in-force business. Such negative effects may be exacerbated if international markets experience severe economic or financial disruptions or significant currency devaluations, if a foreign economy is determined to be “highly inflationary,” or if a country withdraws from the Euro zone. Fluctuations in foreign currency exchange rates may harm our operations, earnings or investments in the affected countries.
We may be unable to mitigate the risk of such changes in exchange rates due to unhedged positions, asymmetrical and non-economic accounting resulting from derivative gains (losses) on non-qualifying hedges, the failure of hedges to effectively offset the impact of the foreign currency exchange rate fluctuation, or other factors. Fluctuations in currency exchange rates may adversely affect the translation of results into our U.S. dollar basis consolidated financial statements.
Derivatives Risks
If our counterparties, clearing brokers or central clearinghouses fail or refuse to honor their obligations under our derivatives agreements, our risks may not be hedged. A counterparty, clearing broker, or central clearinghouse may become insolvent or otherwise unable or unwilling to make payments or to return collateral under the terms of derivatives agreements, increasing our costs. If the net estimated fair value of a derivative to which we are a party declines, we may need to pledge collateral or make payments. In addition, we may face increased costs to the extent we replace counterparties who suffer financial difficulties. Furthermore, our derivatives valuations may change based on changes to our valuation methodology or errors in such valuation or valuation methodology.
Terrorism and Security Risks
The continued threat of terrorism, ongoing or potential military and other actions, and heightened security measures may cause significant volatility in global financial markets and result in loss of life, property damage, additional disruptions to commerce and reduced economic activity. The value of our investment portfolio may be adversely affected by declines in the credit and equity markets and reduced economic activity caused by such threats. Companies in which we maintain investments may suffer losses as a result of financial, commercial or economic disruptions, and such disruptions might affect the ability of those companies to pay interest or principal on their securities or mortgage loans. Terrorist or military actions also could disrupt our operations centers and result in higher than anticipated claims under our insurance policies.
We May Not Meet Our Liquidity Needs, Access Capital, or May Face Significantly Increased Cost of Capital Due to Adverse Capital and Credit Market Conditions
In cases of volatility, disruption, or other conditions in global capital markets, we may have to seek additional financing, the availability and cost of which could be adversely affected by market conditions, regulatory considerations, availability of credit to our industry generally, our credit ratings and credit capacity, reduced business activity, or investment losses, and the perception of our financial prospects. Our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. We may not be able to successfully obtain additional financing we need on favorable terms or at all. We may be required to return significant amounts of cash collateral on short notice under securities lending or derivatives agreements or post collateral or make payments related to specified counterparty agreements.
Our business and financial results may suffer without sufficient liquidity through impaired ability to pay claims, other operating expenses, interest on our debt and dividends on our capital stock, cash or collateral to our subsidiaries, maintain our securities lending, replace certain maturing liabilities, sustain our operations and investments, and repurchase our common stock. Capital and credit market volatility may limit our access to capital we need to operate, limiting our ability to raise capital, issue the types of securities we would prefer, timely replace maturing liabilities, satisfy regulatory requirements, and access capital to grow our business, any of which could decrease our profitability and significantly reduce our financial flexibility.
We May Be Unable to Access Our Credit Facility, Reducing Our Liquidity and Leading to Downgrades in Our Credit and Financial Strength Ratings
We may fail to comply with or fulfill all conditions under the unsecured credit facility (the “Credit Facility”) MetLife, Inc. and MetLife Funding, Inc. (“MetLife Funding”) maintain. Lenders may fail to fund their lending commitments under the Credit Facility due to insolvency, illiquidity or other reasons.
We May Lose Business Due to a Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings
Nationally Recognized Statistical Rating Organizations (“NRSROs”) and others may, at any time, downgrade our financial strength ratings or credit ratings, lower our ratings outlooks, increase the scope or frequency of their reviews, or increase capital or other requirements to maintain ratings. Such changes could reduce our product sales, reduce cash flows from funding agreements and other capital market products, and force us to change product pricing and increase our financing costs, policy surrenders or withdrawals, collateral requirements, risk of derivative terminations, cost of reinsurance, regulatory scrutiny, or various other factors.
We May Not Find Available, Affordable or Adequate Reinsurance to Protect Us Against Losses
Reinsurers may increase our reinsurance costs, or may decline to offer us reinsurance, due to policy changes related to pandemics or other public health issues (such as the COVID-19 pandemic), market conditions, or other factors. Our risk of loss may increase if we decrease the amount of our reinsurance. Any of these could harm our ability to write future business or result in the assumption of more risk with respect to the policies we issue.
We may incur costs as a result of a reinsurer’s insolvency, inability or unwillingness to make payments, or inability or unwillingness to maintain collateral.
Our Statutory Life Insurance Reserve Financings Costs May Increase, and We May Find Limited Market Capacity for New Financings
If MetLife’s ratings decline, market capacity is limited, or on other repricing occasions, our costs to finance statutory life insurance reserves may increase. If regulators disallow assets to back statutory reserves, we would not be able to take some or all related statutory reserve credit, which may harm the statutory capitalization of certain of our insurance subsidiaries.
Regulatory and Legal Risks
Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us
Insurance or other regulators may change licensing, permit, or approval requirements, or take other actions harmful to us. They may also take actions that harm our customers and independent sales intermediaries or their operations, which may affect our business relationships with them and their ability to purchase or distribute our products.
Governments may change regulation of financial services, insurance, variable annuities and variable life insurance, securities, derivatives, pension, health care, accounting, cybersecurity, privacy and data protection, tort reform legislation, taxation, benefit plan investment advice and related fiduciary duties, antitrust as applied to the business of health insurance or otherwise, and other areas. Laws and regulations may also affect customers, sales intermediaries, or others. We or others may fail to comply with these requirements or suffer adverse regulatory examinations or audits. Regulators may also interpret rules differently from the way we have, or change interpretations of laws or rules, and legislators may change statutes. Any of these changes may harm our ability to continue to offer products we do today or to introduce new products.
We may incur costs to comply with laws and regulations and changes to these laws and regulations may increase our expenses. Our failure to comply with our own policies or with regulatory requirements may harm our reputation or result in sanctions or legal claims.
Laws, regulations or regulatory actions may limit or change the type, amount or structure of compensation or benefits we offer our employees or others, which may harm our ability to compete in recruiting and retaining key personnel. We may also fail to fulfill our fiduciary or other benefit-related obligations completely.
Solvency standards compliance may increase our capital and reserve requirements, risk management costs, and reporting costs. We may be subject to enhanced capital standards, supervision and additional requirements, such as group capital standards or insurer capital standards. MetLife, Inc. could be compelled to undergo FDIC liquidation if it becomes insolvent or is in danger of defaulting on its obligations, imposing greater losses on shareholders and unsecured creditors than under the Bankruptcy Code. This could also apply to financial institutions whose debt we hold and could harm the value of our holdings. We could be assessed charges in connection with a financial company liquidation.
Our ability to react to rapidly changing economic conditions and the dynamic, competitive markets may be impaired if our product designs do not allow frequent and contemporaneous revisions of key pricing elements, or if we are unable to work collaboratively with regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could harm our ability to react to such changing conditions. Rules on defined benefit pension plan funding may reduce the likelihood or delay corporate plan sponsors in terminating their plans or engaging in transactions to partially or fully transfer pension obligations. This could affect the mix of our pension risk transfers and increase non-guaranteed funding products.
Regulators have reacted and may continue to react to pandemics and other public health issues (such as the COVID-19 pandemic). They may require “no lapse” in policy coverage regardless of whether we receive premiums or are able to assess fees against policyholder account balances. They may extend insurance coverage beyond our policy or contract terms and may impose premium grace periods, suspend cancellations, lower or freeze premium rates, and extend proof of loss deadlines, including retroactively, exposing us to risks and costs we are unable to foresee or underwrite. We may also adopt customer accommodations, such as waiving exclusions, forgoing rate increases or implementing lower rate increases than we would otherwise, relaxing claim documentation requirements, relaxing eligibility criteria, granting premium credits, or other accommodations for customers experiencing economic or other distress. Regulators may restrict our underwriting on public policy or other grounds, excluding factors such as exposure, quarantine, infection, and association with others suffering public health-related effects.
Governmental bodies may delay acting on or implementing regulatory or policy changes due to pandemics or other public health issues, or because they are attending to pandemic or public health issues rather than to other topics. This may increase uncertainty, prolong deleterious regulations and policies, delay or prevent beneficial regulatory or policy changes, and create the potential for later, more rapid changes to which we find it more difficult to adjust.
Our New York insurance regulator’s annual SCL for year-end asset adequacy testing may impose unforeseen assumptions or requirements that require us to increase or release reserves, which could affect our statutory capital and surplus.
Governments or Others May Increase our Taxes by Changing or Re-Interpreting Tax Laws, Making Some of Our Products Less Attractive to Consumers
Changes in tax laws or interpretations of such laws could increase our corporate taxes, reduce our earnings, and increase our deferred income tax liabilities. Changes may increase our effective tax rate or have implications that make our products less attractive to consumers. Tax authorities may enact laws, change regulations to increase existing taxes, or add new types of taxes, and authorities who have not imposed taxes in the past may impose taxes.
Customers shifting away from employee benefits, life insurance and annuity contracts, or other tax-preferred products would reduce our income from these products and our asset base, reducing our earnings and potentially affecting the value of our deferred tax assets.
We May Face Increasing Litigation and Regulatory Investigations
Legal or regulatory actions, inquiries or investigations, whether ongoing or yet to come, could harm our reputation, ability to attract or retain customers or employees, business, financial condition, or results of operations, even if we ultimately prevail. Regulators or private parties may bring class actions, individual suits, or investigations seeking large recoveries alleging wrongs relating to sales or underwriting practices, claims payments and procedures, failure to adequately or appropriately supervise, inappropriate compensation contrary to licensing requirements, product design, disclosure, administration, investments, denial or delay of benefits, pandemic- or other public health-related practices (such as those related to the COVID-19 pandemic), data security incidents, discriminatory or inequitable practices, and breaches of fiduciary or other duties. We may be unable to anticipate the outcome of a litigation and the amount or range of loss because we do not know how adversaries, fact finders, courts, regulators, or others will evaluate evidence, the law, or accounting principles, and whether they will do so differently than we have.
We May Face Changes to Interest Rates, the Value of our Financial Instruments, the Competitiveness of our Products, the Performance of our Investments, and our Relationships Due to LIBOR’s Discontinuation and the Uncertainties in Our Transition to Alternative Reference Rates
The FCA, the U.K. regulator of LIBOR, and the ICE Benchmark Administration, the administrator of LIBOR, have announced the publication cessation dates for all U.S. Dollar and non-U.S. Dollar LIBOR settings. Most settings ceased at the end of December 2021 and the remaining U.S. Dollar settings (overnight and one-, three-, six- and 12-month U.S. Dollar LIBOR) will cease at the end of June 2023. We continue to actively transition to the alternative reference rates. Differences between LIBOR and the applicable alternative reference rates may impact the value of, return on, and markets for, a broad array of our products, our financial instruments, the instruments in which we invest, or interest rates on our borrowing or debt. The effects on our business and investments will vary depending on the transition of our existing LIBOR contracts to alternative reference rates, including the adequacy of LIBOR fallback provisions in such contracts and whether, how, and when industry participants adopt alternative reference rates for new products or instruments. Uncertainty regarding the continued use and reliability of LIBOR, regarding the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, or regarding the application or effectiveness of alternative reference rates, could increase our costs, reduce the value of such instruments, or impair our cash or derivative positions. We may not effectively hedge or manage risks from differences among applicable alternative reference rates or timing of when such rates take effect.
We may fail to adequately prepare for or react to LIBOR discontinuation and replacement, or fail to fully protect ourselves from all the effects of such changes. We may also fail to manage adequately any transition to alternative reference rates in a way that maintains the competitiveness of our products and the performance of our investment portfolio. Our transition may not effectively protect other aspects of our business, such as our operations and the accuracy of the financial models and valuations we use to gauge our risks, for financial reporting, or other purposes.
Any such uncertainties or ineffective management may harm our reputation, our relationships with our investors, customers, or regulators, our financial condition, and our business operations.
Our Efforts to Meet Environmental, Social, and Governance Standards and to Enhance the Sustainability of our Businesses May Not Meet Investors' or Regulators' Expectations
Some of our shareholders, investors and customers, or those considering such a relationship with us, evaluate our business or other practices according to a variety of ESG standards and expectations. Some of our regulators have proposed or announced that they plan to propose ESG rules or announced that they intend to review our practices against ESG standards; others may yet do so. Further, we define our own corporate purpose, in part, by the sustainability of our practices and our impact on all our stakeholders.
Our investors or others may evaluate our practices by ESG criteria that are continually evolving and not always clear or readily measurable. These standards and expectations may also, as a whole, reflect contrasting or conflicting values or agendas. Our decisions or priorities must also necessarily, and simultaneously, take account of multiple business goals and interests. Our practices may not change in the particulars or at the rate stakeholders expect. As a result, our efforts to conduct our business in accordance with some or all these expectations may involve trade-offs. We may fail to meet our commitments or targets, and our policies and processes to evaluate and manage ESG standards in coordination with other business priorities may not prove completely effective or fully satisfy investors, regulators, or others. Customers and potential customers may be prohibited or choose not to do business with us based on our sustainability practices and related policies and actions. We may face adverse regulatory, investor, media, or public scrutiny leading to business, reputational, or legal challenges.
Capital Risks
We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs
Our financial condition, results of operations, cash requirements, future prospects, capital position, liquidity, financial strength and credit ratings, as well as regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, other legal and accounting factors, and any other factors our Board deems relevant may preclude us from paying dividends or repurchasing our common stock.
Other factors may affect our ability to pay dividends or repurchase our common stock. Governments, investors or media may pressure us not to repurchase shares of our common stock or other securities, or prohibit us from doing so. Our use of other means to return excess capital to shareholders may be less tax-efficient than repurchases. We maintain a buffer of cash and other liquid assets, and may increase it. As a result, we may have less capital to devote to other uses, such as innovation, acquisitions, development and return of capital to shareholders. We may also be restricted from repurchasing shares or entering into share repurchase programs at times, such as when we are aware of material non-public information.
If we do not pay dividends on our preferred stock or pay interest on our junior subordinated debentures or trust securities, terms of those instruments may restrict our ability to pay dividends on or repurchase our common stock. Further, terms applicable to our Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”), junior subordinated debentures and trust securities may prevent us from paying dividends or interest on those instruments. We may not be able to eliminate these restrictions through the repayment, redemption or purchase of junior subordinated debentures or other securities.
Our Subsidiaries May be Unable to Pay Dividends, a Major Component of Holding Company Free Cash Flow
If the cash MetLife, Inc. receives from its subsidiaries through dividends and other payments is insufficient for it to fund its debt service and other holding company obligations, MetLife, Inc. may have to issue debt or equity, or sell assets. MetLife, Inc. may also not meet its free cash flow or shareholder cash distribution goals.
Insurance regulators may restrict dividends or other payments above certain amounts where their approval is required if they determine payments could be adverse to our policyholders or contract holders. Business conditions, rating agency considerations, taxation, dividend and repatriation rules, and monetary transfer and foreign currency exchange rules may limit our insurance subsidiaries’ dividends and other payments. We may need to transfer capital among our companies to comply with net worth maintenance or other support agreements, limiting capital available for other purposes.
Investment Risks
We May Face Defaults, Downgrades, Volatility or Other Events That Adversely Affect the Investments We Hold
In case of a major economic downturn, acts of corporate malfeasance, widening credit risk spreads, ratings downgrades or other events, our estimated fair value of our fixed income securities and loan portfolios and corresponding earnings may decline, and the default rate of our investment portfolio may increase. These changes could harm the issuers or guarantors of securities or the underlying collateral of structured securities that we hold. We may have to hold more capital to support our securities to maintain our RBC levels if securities we hold suffer a ratings downgrade. Our intent to sell, or our assessment of the likelihood that we will be required to sell, fixed income securities may increase our write-downs or impairments. Our realized losses or impairments on these securities may harm our net income.
The default rate, loss severity or other performance of our mortgage loan investments may change. Any concentration of our mortgage loans by geography, tenancy or property type may have an adverse effect on our investment portfolio, the prices we can obtain when we sell assets, and our results of operations or financial condition. Legislation or regulations that would allow or require modifications to the terms of, or impact the value of, mortgage loans could harm our investment portfolio.
Pandemics and other major public health issues (such as the COVID-19 pandemic) have affected and may continue to affect financial markets and our investment portfolio. These have increased and may continue to increase our risk of investment defaults, downgrades and volatility, and lower variable investment income and returns, and may cause or exacerbate any of the investment risks we describe in these risk factors.
Market volatility affects the value of or return on our investments. It may slow or prevent us from reacting to market events as effectively as we otherwise could. When we sell our investment holdings, we may not receive the prices we seek, and may sell at a price lower than our carrying value, due to reduced liquidity during periods of market volatility or disruption, or other reasons. Borrowers may delay or fail to pay principal and interest when due, or may demand loan modifications. Tenants may delay paying rent, or fail to pay it, or demand lease modifications. We may face moratoriums on foreclosures and other enforcement actions impairments, and loan or lease modifications, due to government action or market conditions. We may also encounter credit spread changes, increasing our borrowing costs and decreasing our product fee income. Issuer or guarantor default rates may increase.
We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value
When we sell holdings in our investment portfolio, we may not receive the price we seek and may sell at a price lower than our carrying value. We may face unfavorable conditions in privately-placed fixed income securities, private structured credit, certain derivative instruments, mortgage loans, policy loans, direct financing and leveraged leases, other limited partnership interests, tax credit and renewable energy partnerships, and real estate equity, including real estate joint ventures and funds. Our investments may suffer reduced liquidity during periods of market volatility or disruption or for other reasons. In addition, central banks' efforts to provide market liquidity or otherwise address market conditions may not be successful or sufficient. We may realize losses that harm our financial metrics, which could harm our compliance with our credit requirements and rating agency capital adequacy measures.
We may face similar risks if we are required under our securities lending program to return significant amounts of cash collateral that we have invested. Our securities lending activities and profitability may decrease.
We May Have to Pledge Collateral or Make Payments in Derivatives Transactions
We may have to pledge additional collateral and increase payments we make under our derivatives transactions. Regulators, clearinghouses, or counterparties may restrict or eliminate eligible collateral, increase our collateral requirements, or charge us to pledge such collateral, which would increase our costs, reduce our investment income, and harm our liquidity.
We May Change Our Securities and Investments Valuation, or Take Allowances and Impairments on Our Investments, or Change Our Methodologies, Estimations, and Assumptions
During periods of market disruption or rapidly changing market conditions, such as significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, or infrequent trading, or when market data is limited, our assets may become less liquid. We may base our asset valuations on less observable and more subjective judgments, assumptions, or methods that may result in estimated fair values that significantly vary by period, and may exceed the investment’s sale price. The estimated fair value of our securities may also decrease due to changes in valuation methods and assumptions.
Business Risks
Our Actual Claims or Other Results May Differ From Our Estimates, Assumptions, or Models
If our actual claims experience is less favorable than the underlying underwriting, reserving, and other assumptions we used in establishing claim liabilities, we could be required to reduce DAC or VOBA, increase our liabilities, or incur higher costs.
The amounts that we will ultimately pay to settle our liabilities, particularly when those payments may not occur until well into the future, may vary from what we expect. We may change our liability assumptions and increase our liabilities based on actual experience and accounting requirements. Our operating practices and procedures that support our policyholders and contractholder obligation assumptions, such as obtaining, accumulating, and filtering data, and our use of technology, such as database analysis and electronic communications, may affect our reserve estimates. If these practices and procedures do not accurately produce the data to support our assumptions or cause us to change our assumptions, or if enhanced technological tools become available to us, we may change those assumptions and procedures, as well as our reserves. If any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such deviations or errors may negatively impact our business, reputation, results of operations, or financial condition. We may change our assumptions, models, or reserves due to changes in longevity. Increases in the prevalence and accuracy of genetic testing, or restrictions on its use, may exacerbate adverse selection risks.
Pandemics and other public health issues (such as the COVID-19 pandemic) have caused and may continue to cause increased claims under many of our policies (for example, life, disability, leave, long-term care, major medical and supplemental health products), raising our resulting costs. Governments or others may fail to produce accurate population and impact data that we use in our estimates, assumptions, models, or reserves, such as death rates, infections, morbidity, hospitalization, or illness. This may cause or exacerbate any of the risks related to our estimates or assumptions. Pandemics and other public health issues may cause related or consequential long-term economic, social, political, policy, regulatory, business, demographic, or other changes to our claims or other areas subject to estimates, assumptions, models, or reserves. We may not accurately predict, prepare, and adjust to these changes.
We May Face a Variety of Political, Legal, Operational, Economic and Other Risks Globally
The global nature of our business operations exposes us to a wide range of political, legal, operational, economic and other risks, including but not limited to: nationalization or expropriation of assets; imposition of limits on foreign ownership of local companies; changes in laws, their application or interpretation; political instability; economic or trade sanctions; sanctions on cross-border exchange listing, investment or other securities transactions; dividend limitations; price controls; currency exchange controls or other transfer or exchange restrictions; difficulty enforcing contracts; regulatory restrictions; and public or political criticism of our business and operations. Some of these actions may affect us more harshly than our peers. Some of our businesses operate in emerging markets, where many of these risks are heightened.
We face other risks that may affect our global operations and investments, including those related to the imposition of tariffs or other barriers to international trade, changes to international trade agreements, uncertainties in intergovernmental organizations, pension system reforms, labor problems with workers’ associations or trade unions, and reliance on interconnected information systems and the security of such systems.
Expanding our operations to new businesses or jurisdictions may require considerable management time and expenses before significant, if any, revenues and earnings are generated, which may reduce management and financial resources available for other uses. Our operations in new or existing markets may be unprofitable or achieve low margins.
We May Face Competition for Business
Competitive pressures, based on a number of factors including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities, name recognition, performance against ESG metrics, technology, adaptation in light of pandemics and other public health issues, and other factors, may adversely affect the persistency of our products and our ability to sell products in the future. We may be harmed by competition from other insurance companies, as well as non-insurance financial services companies, which may have a broader array of products, more competitive pricing, higher claims paying ability ratings, greater financial resources with which to compete, or pre-existing customer bases for financial services products. Additionally, we may lose purchasers of group insurance products that are underwritten annually due to more favorable terms from competitors. Furthermore, the investment management and securities brokerage businesses have relatively low barriers to entry and continually attract new entrants. Our customers and clients may engage other financial service providers, resulting in our loss of business.
An increase in consolidation activity among banks and broker-dealers may negatively impact the insurance industry’s sales. It may increase competition for access to distributors, resulting in greater distribution expenses, and may impair our ability to market insurance products to or expand our current customer base. Consolidation and other industry changes may also increase the likelihood that distributors will renegotiate agreements on terms less favorable to us.
In addition, legislative and other changes affecting the regulatory environment for our business may not impact all activities and companies equally, which could adversely affect our competitive position within the insurance industry and the broader financial services industry.
We Face Technological Changes That Present New and Intensified Challenges and May Fail to Foresee or Adapt to These Changes
Our business operations rely on functioning and secure information systems and those of our vendors. Technological changes present us with new or intensified challenges, and if we are unable to foresee or adapt to these changes, our business, results of operations and financial condition may be adversely affected. For example, our assumptions, models and reserves may need to be modified if we are unable to accurately, timely, or completely process the increased volume and variety of information relating to our businesses, including information related to deaths, that new technological tools for data collection and analysis make available.
Similarly, our distribution channels may become more automated to increase flexibility of access to our services and products. We may incur significant costs to implement and adapt to such changes. If we are unsuccessful, our results of operations, competitive position, reputation and customer and distribution relationships may be harmed. Steps taken to adapt to these changes, such as changes to the method of collection and analysis of data, could also expose us to litigation or other regulatory and legal actions.
Technological changes may affect our business model and how we interact with existing or prospective customers, and evolving consumer preferences may require a redesign of our products and investment composition. For example, changes in energy technology and increasing consumer preferences for e-commerce may harm the profitability of some businesses. We may fail to adjust our investments accordingly or suffer stranded assets. If we are unable to update our business model to match evolving consumer preferences and purchasing behavior, our business, results of operations and financial condition may be adversely affected.
New technologies may impact the configuration of our information systems, and how they connect with those of our vendors, service providers and/or partners. Such technological developments may introduce or uncover information security vulnerabilities, which may result in breaches or increased costs associated with maintaining appropriate cybersecurity and data protection measures. Any such vulnerability that results in a security breach or failure of our information systems, or those of third parties on which we rely, may result in regulatory action, negative impacts to our business operations, and reputational harm.
We May Face Catastrophes That Affect Liabilities for Policyholder Claims and Reinsurance Availability
Catastrophic events could increase claims, impair assets in or otherwise harm our investment portfolio, and could harm our reinsurers’ financial condition, increasing reinsurance defaults. Catastrophic events may also reduce economic activity in affected areas, which could harm our existing business or prospects for new business, or the value of our investments. The severity of claims from catastrophic events may be higher if property values increase due to inflation or other factors or our insured lives or property are geographically concentrated.
Pandemics and other public health issues or other events may continue to cause a large number of illnesses or deaths. Hurricanes, windstorms, earthquakes, hail, tornadoes, explosions, severe winter weather, fires and man-made events such as riot, insurrection, or terrorist attacks may also cause catastrophic losses. An event that affects the workforce of one or more of our customers could increase our mortality or morbidity claims. Governmental and non-governmental organizations may not effectively mitigate catastrophes' effects.
Consistent with industry practice and accounting standards, we establish liabilities for claims arising from a catastrophe only after assessing the probable losses arising from the event. The liabilities we have established may not be adequate to cover our actual claim liabilities. Our efforts to manage risks may be impeded by restrictions on our ability to withdraw from catastrophe-prone areas or on internal reinsurance transactions. We may be unable to obtain catastrophe reinsurance at rates we find acceptable, or at all. We may also be called upon to make contributions to guaranty associations or similar organizations as a result of catastrophes.
We May Face Direct or Indirect Effects of Climate Change or Responses to It
Climate change may increase the frequency and severity of near- or long-term weather-related disasters, public health incidents, and pandemics, and their effects may increase over time. Climate change regulation may harm the value of investments we hold or harm our counterparties, including reinsurers, or increase our compliance costs. Our regulators may also increasingly focus their examinations on climate-related risks.
We May Need to Fund Deficiencies in Our Closed Block, and May Not Re-Allocate Closed Block Assets
The closed block assets established in connection with the MLIC demutualization, their cash flows, and the revenue from the closed block policies may not be sufficient to provide for the policies’ guaranteed benefits. If they are not, we must fund the shortfall. We may choose, for competitive or other reasons, to support policyholder dividend payments with our general account funds. Such actions may reduce funds otherwise available for other uses.
We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against Our Deferred Income Tax Assets
We may reduce our estimated fair value of business units, impairing our goodwill and charging net income, if prolonged market declines or other factors negatively impact the performance of our businesses.
We may write down long-lived assets if we conclude we will be unable to recover their carrying amount.
We may charge net income because we determine that it is more likely than not that we will not realize a deferred income tax asset based on the performance of the business and its ability to generate future taxable income. In addition, we may need to write off deferred tax assets if tax rates change.
We May Be Required to Accelerate the Amortization of or Impair DAC, DSI, VOBA, VODA or VOCRA
Adverse changes to investment returns, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders, expenses to administer the business, creditworthiness of reinsurance counterparties, significant or sustained equity market declines, significantly lower spreads, and certain other economic variables, such as inflation, may harm the gross profit or margins that we use to amortize DAC, deferred sales inducements (“DSI”) and VOBA. These factors could also cause an impairment of the value of distribution agreements acquired (“VODA”) or the value of customer relationships acquired (“VOCRA”). We may accelerate amortization or impair these assets in the period these occur.
We May Face Volatility, Higher Risk Management Costs, and Increased Counterparty Risk Due to Guarantees Within Certain of Our Products
Our liabilities for guaranteed benefits, including but not limited to no-lapse guarantee benefits, guaranteed minimum death benefits (“GMDBs”), guaranteed minimum withdrawal benefits (“GMWBs”), guaranteed minimum accumulation benefits (“GMABs”), guaranteed minimum income benefits (“GMIBs”), and minimum crediting rate features could increase if equity or fixed income funds decline or become more volatile, or interest rates remain low or decrease.
Our derivatives and other risk management strategies to hedge our economic exposure to these liabilities may harm our results. Our use of reinsurance, derivatives, or other risk management techniques may not sufficiently offset the costs of guarantees or protect us against losses from changes in policyholder behavior, mortality, or market events.
Policyholders may also change their behavior in unexpected ways. For example, policyholders and contractholders seeking liquidity due to economic uncertainty or challenges may withdraw or surrender, change their premium payment practices, exercise product options, or take other actions at rates different from those we expect.
Operational Risks
Our Risk Management Policies and Procedures, or Our Models, May Leave Us Exposed to Unidentified or Unanticipated Risk
Our enterprise risk management and business continuity policies and procedures may not be sufficiently comprehensive and may not identify or adequately protect us from every risk to which we are exposed.
Pandemics and other public health issues (such as the COVID-19 pandemic), and authorities’ and people’s reactions thereto, have resulted in and may continue to result in remote, hybrid and/or flexible office working arrangements and other unusual conditions. These may strain our risk management and our business continuity plans, introduce or increase our operational and cybersecurity risks, and otherwise impair our ability to manage our business. They may increase the frequency and sophistication of attempts at unauthorized access to our technology systems. They may hinder our efforts to prevent money-laundering or other fraud, whether due to limited abilities to “know our customers,” strains on our programs to avoid and deter foreign corrupt practices, or otherwise, and may increase both our compliance costs and our risk of violations.
The assumptions, projections and data on which our risk management models are based may be inaccurate, and our models may not be suitable for their purpose, be misused, not operate properly, and contain errors. Our decisions and model adjustments, including determination of reserves, are based on such model output and reports and may be flawed. We may fail to identify or remediate model errors adequately. Our models may not fully predict future exposures or correctly reflect past experience.
Our evaluation of markets, clients, catastrophe occurrence or other matters may not always be accurate, complete, up-to-date or properly evaluated. We may not effectively identify and monitor all risks or appropriately limit our exposures and our associates, vendors or non-employee sales agents may not follow our risk management policies and procedures. Past or future misconduct by our associates, vendors or non-employee sales agents could result in investigations, violations of law, regulatory sanctions, and litigation. We may have to implement more extensive or different risk management policies and procedures due to legal and regulatory requirements.
Our Policies and Procedures May Be Insufficient to Protect Us From Operational Risks
We may make errors in any of the large number of transactions we process through our complex administrative systems. Our controls and procedures to prevent such errors may not be effective. Our controls and procedures to comply with and enforce contractual obligations may not always be effective. Mistakes can subject us to claims from our customers.
If we are unable to obtain necessary and accurate information from our customers or their employees, we may be unable to provide or verify coverage and pay claims, or we may pay claims without sufficient documentation.
Pandemics and other public health issues (such as the COVID-19 pandemic) have increased, and may continue to increase, our administrative expenses and have impacted the reliability and efficacy of our operational processes. They may affect our employees, agents, brokers and distribution partners, vendors, other service providers and counterparties. We may have difficulties conducting our business, including continued challenges in selling some of our products, such as those traditionally sold in person. We may face increased workplace safety costs and risks, lose access to critical employees, and face increased employment-related claims and employee-relations challenges. Any of the third parties to whom we outsource certain critical business activities may fail to perform due to a force majeure or otherwise.
The controls of our vendors on whom we rely may not meet our standards or be adequate. Our vendors could fail to perform their services accurately or timely. Our exchange of information with vendors may be imperfect, or our vendors may suffer financial or reputational distress. Each of these may cause errors, misconduct, or discontinuation of services.
We may fail to escheat property timely and completely. As a result, we may incur charges, reserve strengthening, and expenses, regulatory examinations, or penalties.
Our practices and procedures may, at times, limit our efforts to contact all our customers, which may result in delayed, untimely, or missed customer payments.
Our associates, vendors, non-employee sales agents, customers, or others may commit fraud against us. Our policies and procedures may be ineffective in preventing, detecting or mitigating fraud and other illegal or improper acts.
We may fail to attract, motivate and retain employees, develop talent, and plan for management succession. The institution of protocols relating to the COVID-19 pandemic and policies relating to workplace flexibility may exacerbate these concerns.
Notwithstanding our compliance with regulatory and accounting requirements in relation to internal controls and our conclusion that internal control over financial reporting is effective as of the date reported, there is a risk that the Company’s internal controls will prove ineffective and significant deficiencies or material weaknesses in internal controls may occur in the future.
We May Fail to Protect the Confidentiality and Integrity of Our Data, Including As a Result of a Failure in Our Cybersecurity or Other Information Security Systems or Our Disaster Recovery Plans or Those of Our Vendors
Our business is highly dependent upon the effective operation of our information systems, and those of our service providers, vendors, and other third parties. Our business relies on the proper functioning of these systems, including processing claims, transactions and applications, providing information to customers and distributors, performing actuarial analyses, and other core business functions. A failure in the security of such systems or a failure to maintain the security of such systems, or the confidential information stored thereon, may adversely affect our ability to conduct business, result in regulatory enforcement action, and harm our results of operations, financial condition and reputation.
We and our vendors, like other commercial entities, continue to be targeted by or subject to computer viruses or other malicious codes, unauthorized or fraudulent access, human errors, ransomware or cyber-attacks, and other breaches of cybersecurity and information security systems. Globally, the frequency, severity and sophistication of cybersecurity incidents have increased, and these trends may continue. While we have implemented, and we require our critical vendors to implement, what we believe to be effective cybersecurity and data protection measures, including a formal risk-based information security program, our efforts to minimize the risk of cyber-incidents and protect our information technology may be insufficient to prevent break-ins, attacks, fraud, security breaches or other unauthorized access to our and our vendors’ systems, including as a result of software code that contains vulnerabilities that are unknown to us or our vendors that may increase the potential of cyber-attacks or unauthorized access. We may not timely detect such incidents.
If we or our vendors fail to prevent, detect, address and mitigate such incidents, we may suffer significant financial and reputational harm. There is no assurance that our security measures or those of our vendors, including information security policies, administrative, technical and physical controls and other actions designed as preventative, will provide fully effective protection from such events.
In addition, we routinely transmit, receive and store personal, confidential and proprietary information by electronic means, including customers’ confidential health-related information. Although we attempt to keep such information confidential and secure, we may be unable to do so in all events, and we or our vendors may also fail to maintain adequate internal controls or comply with relevant policies and procedures designed to ensure the privacy of sensitive data. Such failure may result in our or our vendors’ intentional or unintentional disclosure or misuse of confidential information, as well as others’ misappropriation of such confidential information, which could damage our reputation, reduce demand for our products and services and subject us to significant legal and regulatory liability and expenses, which would harm our business, results of operations and financial condition.
We, our vendors, and our customers may suffer disasters such as a natural catastrophe, epidemic, pandemic, industrial accident, blackout, computer virus, terrorist attack, ransomware or cyber-attack, or war, and our disaster recovery systems may be insufficient to safeguard our ability to conduct normal business operations and maintain our critical business or information technology systems in such circumstances, particularly if such disasters affect computer-based data processing, transmission, storage and retrieval systems and/or destroy or otherwise adversely impact the confidentiality, integrity or availability of valuable data. Our ability to conduct business effectively and maintain the security, integrity, confidentiality or privacy of sensitive data could be severely compromised if, as a result of such disaster, key personnel are unavailable, or our vendors’ ability to provide goods and services and our associates’ ability to perform their job responsibilities are impaired. We may not carry business interruption insurance sufficient to protect us from all losses that may result from such interruptions, and any insurance for liability, operational and other risks may become less readily available or more expensive in the future.
We may not be able to reliably access all the documents and records in the information storage systems we use, whether electronic or physical. We may fail to obtain or maintain all the records we need to administer and establish appropriate reserves for benefits and claims accurately and timely. If a breach released any of our sensitive financial information, then customers, investors, or regulators may develop an inaccurate perception of our financial condition or results of operations. We could be compelled to publicly disclose information prematurely in order to dispel such inaccurate perceptions, or in order to fulfill our disclosure obligations, even if we do not believe the information is yet completely reliable or confirmed per our usual internal controls and disclosure controls. This may result in harm to our reputation.
Regulators’ or others’ scrutiny of cybersecurity, including new laws or regulations, could increase our compliance costs and operational burdens, especially as regulatory and legislative focus on cybersecurity matters intensifies. Regulators, customers, or others may act against us for any cybersecurity failures. We also have an increasing challenge of attracting and retaining highly qualified personnel to assist us in combating these security threats. Our continuous technological evaluations and enhancements, including changes designed to update our protective measures, may increase our risk of a breach or gap in our security. We may incur higher costs to comply with laws on, or regulators’ scrutiny of, our use, collection, management, or transfer of data and other privacy practices. We are continuously evaluating and enhancing our cybersecurity and information security systems and creating new systems and processes. However, there can be no assurance that these measures will be effective in preventing or limiting the impact of future cybersecurity incidents.
We May Face Changes in Accounting Standards
Authorities may change accounting standards that apply to us, and we may adopt changes earlier than required. Changes in accounting rules applicable to our business may have an adverse impact on our results of operations and financial condition. For a discussion of the impact of accounting pronouncements issued but not yet implemented, see Note 1 of the Notes to the Consolidated Financial Statements.
Our Associates May Take Excessive Risks
Our associates, including executives and others who manage sales, investments, products, wholesaling, underwriting, and others, may take excessive risks. Our compensation programs and practices, and our other controls, may not effectively deter excessive risk-taking or misconduct.
We May Have Difficulty in or Complications from Marketing and Distributing Our Products
Our product distributors may suspend, alter, reduce or terminate their distribution relationships with us if we change our strategy, if our business performance declines, as a result of rating agency actions or concerns about market-related risks, or for other reasons. Our distributors may merge, change their business models in ways that affect us, or terminate their distribution contracts with us, and new distribution channels could emerge, harming our distribution efforts. Distributors may try to renegotiate the terms of any existing selling agreements to less favorable terms due to consolidation or other industry changes or for other reasons. Disruption or changes to our relationships with our distributors could harm our ability to market our products.
Our employees or unaffiliated firms or agents may distribute our products in an inappropriate manner, or our customers may not understand them or whether they are suitable.
We May Change Our Pension and Other Postretirement Benefit Plans Assumptions
We may change our discount rate, rate of return on plan assets, mortality rate, compensation level or medical trends assumptions, harming our benefit plan estimates.
We May be Unable to Protect Our Intellectual Property and May Face Infringement Claims
We may be unable to prevent third parties from infringing on or misappropriating our intellectual property. We may incur litigation costs to enforce and protect it or to determine its scope or validity, and we may not be successful.
In addition, we may be subject to claims by third parties for infringement of intellectual property, breach of license usage rights, or misappropriation of trade secrets. We may incur significant expenses for any such claims. If we are found to have infringed or misappropriated a third-party intellectual property right, we may be enjoined from providing certain products or services to our customers or from utilizing and benefiting from certain intellectual property. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly alternative.
Risks Related to Acquisitions, Dispositions or Other Structural Changes
We May Face Difficulties, Unforeseen Liabilities, Asset Impairments or Rating Actions from Business Acquisitions or Integrating and Managing Growth of Such Businesses, Dispositions of Businesses, or Legal Entity Reorganizations
Acquisitions and dispositions of businesses, joint ventures, and other structural changes expose us to a number of risks arising from, among other factors, economic, operational, strategic, financial, tax, legal, regulatory, and compliance. As a result, there can be no assurance that any acquisition, disposition or reorganization will be completed as contemplated, or at all. We may not realize the anticipated economic, strategic or other benefits of any transaction. Effecting these transactions may result in unforeseen expenditures and liabilities or a performance different than we expected. The areas where we face risks include, among others, rights to indemnification for losses, regulatory, liquidity and capital requirements, loss of customers, distributors, vendors and key personnel, diversion of management time and resources to acquisition integration challenges or growth strategies from maximizing business value, and inability to realize anticipated efficiencies. Our success in conducting business through joint ventures will depend on our ability to manage a variety of issues, including: (i) our exposure to additional operational, financial, legal or compliance risks as a result of entry into certain joint ventures; (ii) our dependence on a joint venture counterparty given limits on our ownership or distribution requirements, as well as for resources, including capital and product distribution, may reduce our control over, financial returns from, or the value of a joint venture; and (iii) our counterparties' cooperation or their ability to meet obligations, or election to alter, modify or terminate a relationship.
Reorganizing or consolidating the legal entities through which we conduct business may raise similar risks. Our success in realizing the benefits from legal entity reorganizations will also depend on our management of various issues, including regulatory approvals, modification of our operations and changes to our investment portfolios or derivatives hedging activities.
Any of these risks, if realized, could prevent us from achieving the benefits we expect from such transactions.
We May Face Risks Related to Our Separation from and Continuing Relationship with Brighthouse
We may not realize any or all the expected tax or other benefits of the Brighthouse separation. Brighthouse may not succeed, causing litigation or regulatory claims against us.
Governance Risks
MetLife, Inc.’s Board of Directors May Influence the Outcome of Stockholder Votes on Matters Due to the Voting Provisions of the MetLife Policyholder Trust
Our Board of Directors may be able to influence stockholder votes by virtue of the provisions of the MetLife Policyholder Trust and the number of shares of MetLife, Inc. common stock held by it. Trust beneficiary vote instructions are likely to have disproportionate weight on votes concerning certain fundamental corporate actions because the trustee will vote all the shares of common stock held by the trust in proportion to those instructions actually received.
We may incur regulatory, mailing, or other costs related to the termination of the trust, distribution of the common stock held in the trust to beneficiaries and the resulting increase in the number of shareholders. The increase to our shareholder base with full voting rights may affect the outcome of matters brought to a stockholder vote and other aspects of our corporate governance.
State or Federal Laws, or MetLife, Inc.’s Certificate of Incorporation and By-Laws, May Delay, Deter or Prevent Takeovers and Business Combinations
State laws, federal laws and MetLife, Inc.’s certificate of incorporation and by-laws may delay, deter or prevent a takeover attempt that stockholders might consider favorable. These provisions may adversely affect the price of MetLife, Inc.’s common stock if they discourage takeover attempts.
Stockholders’ changes to MetLife, Inc.’s corporate governance may make it more difficult for the Board of Directors to protect stockholders’ interests.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
MetLife has no unresolved comments from the SEC staff regarding its periodic or current reports under the Exchange Act.

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ITEM 2. PROPERTIES
Item 2. Properties
Not applicable.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
See Note 21 of the Notes to the Consolidated Financial Statements.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Issuer Common Equity
MetLife, Inc.’s common stock, par value $0.01 per share, began trading on the New York Stock Exchange under the symbol “MET” on April 5, 2000.
At February 11, 2022, there were 73,512 stockholders of record of our common stock.
See Item 12 for information about our equity compensation plans.
Issuer Purchases of Equity Securities
Purchases of MetLife, Inc. common stock made by or on behalf of MetLife, Inc. or its affiliates during the quarter ended December 31, 2021 are set forth below:
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1 - October 31, 2021 3,641,852 $63.86 3,641,304 $2,475,046,203
November 1 - November 30, 2021 5,593,449 $63.01 5,593,449 $2,122,629,767
December 1 - December 31, 2021 10,204,843 $60.42 10,204,504 $1,506,100,095
Total 19,440,144 19,439,257
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(1)During the periods October 1 through October 31, 2021, November 1 through November 30, 2021 and December 1 through December 31, 2021, separate account index funds purchased 548 shares, 0 shares and 339 shares, respectively, of MetLife, Inc. common stock on the open market in non-discretionary transactions.
(2)In August 2021, MetLife, Inc. announced that its Board of Directors authorized $3.0 billion of common stock repurchases. At December 31, 2021, MetLife, Inc. had $1.5 billion of common stock repurchases remaining under the authorization. For more information on common stock repurchases, see “Risk Factors - Capital Risks - We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - The Company - Liquidity and Capital Uses - Common Stock Repurchases” and Note 16 of the Notes to the Consolidated Financial Statements.
Common Stock Performance Graph
The graph and table below compare the total return on our common shares with the total return on the S&P Global Ratings (“S&P”) 500, S&P 500 Insurance, and S&P 500 Financials indices, respectively, for the five-year period ended on December 31, 2021. The graph and table show the total return on a hypothetical $100 investment in our common shares and in each index, respectively, on December 31, 2016, including the reinvestment of all dividends. The graph and table below shall not be deemed to be “soliciting material” or to be “filed,” or to be incorporated by reference in future filings with the SEC, or to be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
As of December 31,
2016 2017 2018 2019 2020 2021
MetLife, Inc. common stock $ 100.00 $ 108.07 $ 91.03 $ 117.28 $ 113.27 $ 155.67
S&P 500 100.00 121.83 116.49 153.17 181.35 233.41
S&P 500 Insurance 100.00 116.19 103.17 133.48 132.90 175.58
S&P 500 Financials 100.00 122.18 106.26 140.40 138.02 186.38

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
Page
Forward-Looking Statements and Other Financial Information
Executive Summary
Industry Trends
Summary of Critical Accounting Estimates
Acquisitions and Dispositions
Results of Operations
Investments
Derivatives
Policyholder Liabilities
Liquidity and Capital Resources
Adopted Accounting Pronouncements
Future Adoption of Accounting Pronouncements
Non-GAAP and Other Financial Disclosures
Risk Management
Subsequent Events
Forward-Looking Statements and Other Financial Information
For purposes of this discussion, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. This discussion should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere herein.
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. See “Note Regarding Forward-Looking Statements” for cautionary language regarding forward-looking statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, adjusted earnings and adjusted earnings available to common shareholders, that are not based on GAAP. See “- Non-GAAP and Other Financial Disclosures” for definitions and a discussion of these and other financial measures, and “- Results of Operations” and “- Investments” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.
For information relating to the Company’s financial condition and results of operations as of and for the year ended December 31, 2019, as well as for the year ended December 31, 2020 compared with the year ended December 31, 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.
Executive Summary
Overview
MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management. MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See “Business - Segments and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.
COVID-19 Pandemic
We continue to closely monitor developments relating to the COVID-19 pandemic and assess its impact on our business. The COVID-19 pandemic continues to impact the global economy and financial markets and has caused volatility in the global equity, credit and real estate markets. See “- Industry Trends - Financial and Economic Environment.” We have implemented risk management and business continuity plans and taken preventive measures and other precautions, such as employee business travel restrictions and remote work arrangements which, to date, have enabled us to maintain our critical business processes, customer service levels, relationships with key vendors, financial reporting systems, internal controls over financial reporting and disclosure controls and procedures.
In 2021 and 2020, we granted certain accommodations to our customers, borrowers and lessees, including (i) waiving exclusions, such as deferred rate increases, extending premium grace periods, waiving late payment fees, and relaxing claim documentation requirements, (ii) credits on insured dental premiums, (iii) payment deferrals and other loan modifications on certain commercial, agricultural and residential mortgage loans, and (iv) certain operating and direct financing lease concessions. See “- Results of Operations - Segment Results and Corporate & Other” for further information regarding the effect of the COVID-19 pandemic on our businesses. See also Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions.
Current Year Highlights
During 2021, adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased compared to 2020 driven by the disposition of MetLife P&C. Growth in our Group Benefits business in our U.S. segment and the acquisition of Versant Health, Inc. (“Versant Health”) resulted in higher adjusted premiums, fees and other revenues. Strong returns in our private equity and real estate portfolios resulted in improved investment yields. Results for 2021 also included the gain on the sale of MetLife P&C, favorable tax adjustments and the release of a legal reserve. Changes in long-term interest rates drove an unfavorable change in net derivative gains (losses). In addition, results in both years included a charge due to the impact of our annual actuarial assumption review. Underwriting experience was unfavorable and reflected impacts from the COVID-19 pandemic.
The following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended December 31, 2021:
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(1) Excludes Corporate & Other adjusted loss available to common shareholders of $399 million.
(2) Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. For additional information, see Note 2 of the Notes to the Consolidated Financial Statements.
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.’s common shareholders up $1.2 billion:
• Favorable change in net investment gains (losses) of $1.6 billion ($1.3 billion, net of income tax)
• Favorable change from annual actuarial assumption reviews of $97 million ($85 million, net of income tax)(2)
• Unfavorable change in net derivative gains (losses) of $3.6 billion ($2.8 billion, net of income tax)(3)
• Adjusted earnings available to common shareholders up $2.3 billion
(1) See “- Results of Operations - Consolidated Results” and “- Non-GAAP and Other Financial Disclosures” for reconciliations and definitions of non-GAAP financial measures.
(2) Includes amounts recognized in net derivative gains (losses) and adjusted earnings available to common shareholders. See “- Results of Operations - Consolidated Results - Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020 - Actuarial Assumption Review” for additional information.
(3) Includes amounts relating to investment hedge adjustments, which are also included in adjusted earnings available to common shareholders. See “- Investments- Current Environment- Investment Portfolio Results” for additional information.
Consolidated Results - Adjusted Earnings Highlights
Adjusted earnings available to common shareholders up $2.3 billion primarily due to (i) higher investment yields due to strong returns in our private equity and real estate portfolios, (ii) an increase in net investment income due to a larger average invested asset base, and (iii) lower interest credited expenses, partially offset by (i) unfavorable underwriting, which reflected impacts from the COVID-19 pandemic, and (ii) the disposition of MetLife P&C, which decreased adjusted earnings by $322 million.
• Our results for 2021 also included the following:
• the favorable impact of tax adjustments totaling $140 million related to an IRS audit settlement and the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent
• the unfavorable impact from our annual actuarial assumption review of $140 million, net of income tax.
• the favorable impact of a legal reserve release of $66 million
• Our results for 2020 included the unfavorable impact from our annual actuarial assumption review of $203 million, net of income tax.
For a more in-depth discussion of our consolidated results, see “- Results of Operations - Consolidated Results,” “- Results of Operations - Consolidated Results - Adjusted Earnings” and “- Results of Operations - Segment Results and Corporate & Other.”
Consolidated Company Outlook
We continue to closely monitor developments relating to the COVID-19 pandemic and assess its impact on our business operations, investment portfolio and derivatives. See “- COVID-19 Pandemic.” Due to the continued uncertainty around the COVID-19 pandemic in 2022, we have excluded assumptions related to COVID-19 from our near-term targets.
While the economic projections of the Federal Reserve Board suggest that the interest rates will increase in 2022, a prolonged low interest rate environment still remains possible. We believe that our investment portfolio is highly diversified and positioned to perform well in a variety of economic scenarios, including disruptions caused by the COVID-19 pandemic. See “- Industry Trends - Impact of Market Interest Rates” for discussion of the mitigating actions the Company has taken to reduce interest rate sensitivity, as market interest rates are a key driver of our results.
As of December 31, 2021, we had $5.4 billion of cash and liquid assets at the holding companies which is above the high end of our $3.0 billion to $4.0 billion holding company cash target. In 2022, we expect to maintain this holding company cash target and expect to be at or above the high end of this range.
Our capital stress testing and longstanding commitment to liquidity position us to withstand a variety of economic conditions. We do not expect any material liquidity deficiencies, and we expect to remain able to comply with the financial covenants of our credit agreements. See “- Liquidity and Capital Resources.” We will continue reviewing accounting estimates, asset valuations and various financial scenarios for capital and liquidity implications. See “- Investments - Current Environment” and “Risk Factors” for additional information.
Assuming (i) interest rates following the observable forward yield curves as of December 31, 2021, including a 10-year U.S. Treasury rate of 1.51% at December 31, 2021, and 1.73% at December 31, 2022, (ii) a mid-single digit S&P 500 equity index annual return over the near-term, and (iii) positive low double digit private equity annual returns over the near-term consistent with historical long-term averages; we expect to maintain the two-year average annual ratio of free cash flow to adjusted earnings, excluding total notable items, at 65% to 75%. Due to higher 2021 adjusted earnings, we expect the 2021-2022 ratio to be at the lower end of the range before moving higher in 2022-2024. Based on the aforementioned assumptions, we continue to target an adjusted return on equity, excluding accumulated other comprehensive income (“AOCI”) other than foreign currency translation adjustments (“FCTA”), of 12% to 14% over the near-term. Lastly, we remain on track to generate approximately $20.0 billion of free cash flow over the time period of 2020 through 2024.
We are fully committed to achieving a full year direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers, of less than 12.3% over the near-term.
Furthermore, we continue to execute on our Next Horizon Strategy, which was introduced at our December 2019 Investor Day.
Our outlook relies on the accuracy of our assumptions about future economic and business conditions, which can be affected by known and unknown risks and other uncertainties, such as those posed by the COVID-19 pandemic. Due to the evolving and highly uncertain nature of the COVID-19 pandemic and other factors, we will continually review our assumptions, implement mitigation plans, and take precautions. We may revise our outlook as we obtain more information regarding the effects of the COVID-19 pandemic, the effect and efficacy of efforts taken to respond to it, economic conditions, regulatory changes, and other events, and the impact of these events on our business operations, investment portfolio, derivatives, financial results and financial condition.
Industry Trends
We continue to be impacted by the changing global financial and economic environment that has been affecting the industry.
Financial and Economic Environment
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally due to our market presence in numerous countries, large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors.
We are closely monitoring political and economic conditions that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives, such as the COVID-19 pandemic and global inflation. See “- Investments - Current Environment.” We are also monitoring the imposition of tariffs or other barriers to international trade, changes to international trade agreements, and their potential impacts on our business, results of operations and financial condition.
Governments and central banks around the world responded to the COVID-19 pandemic with unprecedented fiscal and monetary policies, but many of these stimulus programs are now winding down due to global economic recovery and rising inflation. In the United States, the Federal Reserve Board has begun to reduce its asset purchases and will end all such purchases by March 2022. Additionally, the board members’ forecasts suggest the policy rate is likely to increase in 2022. The European Central Bank (“ECB”) also announced that it will end its pandemic asset purchase program by March 31, 2022; however, it plans to continue its net asset purchases at a slower pace through 2022 in order to ease the transition. The ECB has stated its willingness to maintain its policies despite inflation being currently above target levels, as economic activity and price levels continue to rebound from COVID-19 pandemic-depressed levels. The Bank of England raised interest rates in December 2021 to combat rising inflation and, as planned, ended its quantitative easing program in 2021. The Bank of England is expected to further raise policy interest rates in 2022. The EU also approved a regional stimulus package comprised of grants and low interest financing to member states, which became operational in mid-2021.
In Japan, the Bank of Japan has begun to taper its monetary easing program but does not plan to adjust interest rates despite the uncertainty regarding global inflation. In order to further enhance its effectiveness and sustainability, the Bank of Japan (i) introduced a program to promote lending which will enable the Bank of Japan to mitigate potential negative side effects of further reductions in short and long-term interest rates; (ii) has clarified the target range of yield curve fluctuations for the 10-year Japanese government bond, including an upper limit when necessary, and (iii) announced greater purchasing flexibility for exchange-traded funds and Japan real estate investment trusts.
Impact of Market Interest Rates
Market interest rates are a key driver of our results. Increases and decreases in such rates, as well as extended periods of stagnation, may impact our business and investments in various ways.
Effects of Inflation
Management believes that while inflation has not had a material effect on the Company’s consolidated results of operations, except insofar as inflation may affect interest rates, both rising interest rates and inflation will have a neutral to modest impact on our business. See “- Impact of a Rising Interest Rate Environment” and “- Interest Rate Scenarios.”
An increase in inflation could affect our business in several ways. In our group life and disability businesses, premiums increase as compensation levels of our customers’ employees increase. However, during inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other costs, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.
Impact of a Sustained Low Interest Rate Environment
Sustained periods of low U.S. interest rates may cause us to:
•Reduce the difference between interest credited to policyholders and interest earned on supporting assets (“gross margin”);
•Reinvest investment proceeds in lower yielding assets and experience higher frequency prepayment or redemption of assets in our portfolio;
•Increase our reserves related to policy liabilities, accelerate amortization of DAC and VOBA, and potentially impair intangible assets;
•Reduce interest expense, change pension and other post-retirement benefit calculations, and change derivative cash flows and market values;
•Change our product offerings, design features, crediting rates and sales mix; and
•Experience changing policyholder behavior, including surrender or withdrawal activity.
For additional discussion on gross margin and interest rate assumptions, as well as the potential impact of low interest rates, see “- Results of Operations - Consolidated Results - Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020 - Actuarial Assumption Review;” “Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions - Interest Rate Risks;” “Risk Factors - Business Risks - We May Be Required to Accelerate the Amortization of or Impair DAC, DSI, VOBA, VODA or VOCRA;” “Risk Factors - Business Risks - We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against Our Deferred Income Tax Assets;” and “Risk Factors - Business Risks - We May Face Volatility, Higher Risk Management Costs, and Increased Counterparty Risk Due to Guarantees Within Certain of Our Products.”
Impact of a Rising Interest Rate Environment
Periods of rising U.S. interest rates may cause us to:
•Reinvest investment proceeds in higher yielding assets and experience lower frequency prepayment or redemption of assets in our portfolio;
•Decrease our reserves related to policy liabilities;
•Increase interest expense, change pension and other post-retirement benefit calculations, and change derivative cash flows and market values; and
•Change our product offerings, design features, crediting rates and sales mix.
For additional discussion on the potential impact of rising interest rates, see “Risk Factors - Investment Risks - We May Change Our Securities and Investments Valuation, or Take Allowances and Impairments on Our Investments, or Change Our Methodologies, Estimations, and Assumptions.”
Management Actions
To manage the impact of a changing U.S. interest rate environment, we maintain diversification across products, distribution channels, and geographies while proactively evaluating interest rate and product strategies. In addition, we apply disciplined asset/liability management (“ALM”) strategies, including the use of derivatives. Our ability to take such actions may be limited by competition, regulatory approval requirements, or minimum crediting rate guarantees and may not match the timing or magnitude of interest rate changes.
In addition to proactive management strategies, businesses within our Latin America, EMEA, and Asia (exclusive of our Japan business) segments help manage impacts to our consolidated results given their limited U.S. interest rate sensitivity.
For additional discussion on interest rate risk management and our ability to change interest crediting rates or dividend scales, see “Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions - Interest Rate Risks;” “- Policyholder Liabilities;” “- Risk Management;” and “Quantitative and Qualitative Disclosures About Market Risk - Management of Market Risk Exposures.”
Interest Rate Scenarios
To illustrate our sensitivity to U.S. interest rates, we compared the outcome of two hypothetical interest rate environments (the “Declining Interest Rate Scenario” and “Rising Interest Rate Scenario”) relative to our baseline economic assumptions (the “Base Scenario”) through 2024.
The Declining Interest Rate Scenario assumes U.S. interest rates for all maturities decline immediately on January 1, 2022 by 50 basis points compared to the Base Scenario through 2024. The Rising Interest Rate Scenario assumes U.S. interest rates rise immediately on January 1, 2022 by 50 basis points through 2024. Other than changing U.S. interest rates through 2024, all other economic assumptions are equivalent in the Base Scenario, Declining Interest Rate Scenario and Rising Interest Rate Scenario.
The following table compares the most relevant interest rate assumptions for the dates indicated:
Years Ended December 31,
2022 2023 2024
Base Scenario Declining
Interest Rate Scenario Rising Interest Rate Scenario Base Scenario Declining
Interest Rate Scenario Rising Interest Rate Scenario Base Scenario Declining
Interest Rate Scenario Rising Interest Rate Scenario
Three-month LIBOR 1.07% 0.57% 1.57% 1.60% 1.10% 2.10% 1.66% 1.16% 2.16%
10-year U.S. Treasury 1.73% 1.23% 2.23% 1.86% 1.36% 2.36% 1.96% 1.46% 2.46%
30-year U.S. Treasury 1.97% 1.47% 2.47% 2.00% 1.50% 2.50% 2.02% 1.52% 2.52%
Hypothetical Impact to Net Derivative Gains (Losses) and Adjusted Earnings
We estimate a net favorable impact to net derivative gains (losses) from non-VA program derivatives through 2024 for the hypothetical Declining Interest Rate Scenario. We hold significant positions in long-duration receive-fixed U.S. interest rate swaps, which are most sensitive to the 10-year and 30-year swap rates, to hedge reinvestment risk. We estimate a net unfavorable impact to net derivative gains (losses) from the non-VA program derivatives through 2024 for the hypothetical Rising Interest Rate Scenario. For purposes of the two hypothetical interest rate scenarios, we have excluded all VA program derivatives. For information regarding our VA and non-VA program derivatives, see “- Results of Operations - Consolidated Results.”
We estimate a net unfavorable impact to consolidated adjusted earnings through 2024 for the hypothetical Declining Interest Rate Scenario. The negative impact of reinvesting cash flows in lower yielding assets is partially offset by lowering interest crediting rates and dividend scales on products, and additional derivative income. We estimate a net favorable impact to consolidated adjusted earnings through 2024 for the hypothetical Rising Interest Rate Scenario. The positive impact of reinvesting cash flows in higher yielding assets is partially offset by increased interest crediting rates and dividend scales on products and lower derivative income.
The following table summarizes the hypothetical impact on net derivative gains (losses) and adjusted earnings for certain of our segments, as well as Corporate & Other, for the Declining Interest Rate Scenario:
Years Ended December 31,
2022 2023 2024
(In millions - post-tax)
Net Derivative Gains (Losses):
Non-VA Program Derivatives $ 555 $ (55) $ (25)
Adjusted Earnings:
U.S. $ 10 $ (15) $ (25)
Group Benefits (5) (15) (20)
RIS 15 - (5)
Asia (Japan only) - (15) (35)
MetLife Holdings 5 (10) (30)
Corporate & Other 5 (5) (15)
Total Adjusted Earnings Impact $ 20 $ (45) $ (105)
The following table summarizes the hypothetical impact on net derivative gains (losses) and adjusted earnings for certain of our segments, as well as Corporate & Other, for the Rising Interest Rate Scenario:
Years Ended December 31,
2022 2023 2024
(In millions - post-tax)
Net Derivative Gains (Losses):
Non-VA Program Derivatives $ (445) $ 20 $ 15
Adjusted Earnings:
U.S. $ (5) $ 20 $ 20
Group Benefits 5 5 10
RIS (10) 15 10
Asia (Japan only) - 10 30
MetLife Holdings (5) 15 30
Corporate & Other (5) 5 15
Total Adjusted Earnings Impact $ (15) $ 50 $ 95
Segments and Corporate & Other
The primary drivers impacting certain of our segments, as well as Corporate & Other, in the hypothetical interest rate scenarios are summarized below. Our Latin America, EMEA, and Asia (exclusive of our Japan business) segments are excluded given their limited U.S. interest rate sensitivity. For additional information regarding account values subject to minimum crediting rate guarantees, the maturity profile of fixed maturity securities available-for-sale (“AFS”), and the yield on invested assets, see “- Investments;” “- Policyholder Liabilities - Policyholder Account Balances;” and Note 8 of the Notes to the Consolidated Financial Statements.
U.S.
Group Benefits
Declining Interest Rate Scenario. Our group life insurance products are primarily renewable term policies. This provides repricing flexibility to mitigate the negative impact of reinvesting in lower yielding assets.
Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. All of these accounts are at their minimum crediting rates. Additionally, we experience gross margin compression from our disability policy claim reserves for which crediting rates cannot be reduced. We use interest rate derivatives to mitigate gross margin compression for both products.
Gross margin compression is limited for our group disability products, which are generally renewable term policies allowing for crediting rate adjustments at renewal based on the retrospective experience rating and the prevailing interest rate assumptions.
Rising Interest Rate Scenario. We reinvest our cash flows from our group insurance products in higher yielding assets, mitigating the impact of (i) higher interest crediting rates on, primarily, our retained asset accounts, and (ii) lower income from our derivative positions used to mitigate low interest rate margin compression.
Retirement and Income Solutions
This business contains both short- and long-duration products consisting of capital market products, pension risk transfers, structured settlements, and other benefit funding products.
The two hypothetical interest rate scenarios do not assume any additional ALM actions we may take to preserve margins.
Declining Interest Rate Scenario. A significant portion of short-duration products are managed on a floating rate basis, which mitigates gross margin compression. Our long-duration products have very predictable cash flows and we use both interest rate derivatives and asset/liability duration matching to mitigate gross margin compression. These mitigating strategies partially offset the negative impact of reinvesting in lower yielding assets. Based on our investment portfolios and expected cash flows, only a small portion of invested assets are subject to reinvestment risk through 2024.
Rising Interest Rate Scenario. Our long-duration products which have very predictable cash flows benefit from reinvesting in higher yielding assets, which is partially offset by the negative impact of lower income from derivative positions designed to protect against a low interest rate environment. A significant portion of our short-duration products are managed on a floating rate basis. The negative impact of higher crediting rates on these short-duration products is partially offset by higher income from derivative positions designed to protect against a rising interest rate environment.
Asia
Declining Interest Rate Scenario. Our Japan business offers traditional life insurance and accident & health products, many of which are U.S. dollar denominated. We experience gross margin compression to the extent our investment portfolios are U.S. interest rate sensitive and we are unable to offset the impact by lowering interest crediting rates. Additionally, we manage interest rate risk on our life products through a combination of product design features and ALM strategies.
Our Japan business also offers U.S. dollar denominated annuities which are predominantly single premium products with crediting rates set upon issuance. This allows for tightly managing product ALM, cash flows and net spreads, which mitigates interest rate risk.
Rising Interest Rate Scenario. For U.S. dollar denominated products, higher reinvestment rates on cash flows from these products more than offset the negative impacts of (i) higher interest crediting rates on such products, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.
MetLife Holdings
Declining Interest Rate Scenario. Our interest rate sensitive life products include traditional and universal life products. Since most of our traditional life insurance is participating, we can mitigate gross margin compression by adjusting the applicable dividend scale. For our universal life products, we manage interest rate risk through a combination of product design features and ALM strategies, including the use of interest rate derivatives. Although we are able to mitigate gross margin compression by lowering interest crediting rates on certain in-force universal life policies, these actions may be partially offset by increased liabilities for policies with secondary guarantees.
Our annuity products experience gross margin compression primarily from deferred annuities with minimum crediting rate guarantees. Most of these contracts are at their minimum crediting rate, and therefore we use interest rate derivatives to partially mitigate gross margin compression.
Our long-term care business experiences gross margin compression as we cannot reduce interest crediting rates for established claim reserves. Long-term care policies are guaranteed renewable, and rates may be adjusted on a class basis with regulatory approval to reflect emerging experience. We review the discount rate assumptions and other assumptions associated with our long-term care claim reserves no less frequently than annually and, with respect to interest rates, set the discount rate based on the prevailing interest rate environment.
Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. Most of these accounts are at their minimum crediting rates and therefore we use interest rate derivatives to mitigate gross margin compression.
Based on our investment portfolios and cash flow estimates, approximately 5% of our invested assets each year are subject to reinvestment risk through 2024.
Rising Interest Rate Scenario. Higher reinvestment rates on cash flows, over time, more than offset the negative impacts of (i) higher interest crediting rates, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.
Corporate & Other
Corporate & Other contains the surplus investment portfolios used to fund capital and liquidity needs, certain reinsurance agreements, collateral financing arrangements, and our outstanding debt and preferred securities. For purposes of the two hypothetical interest rate scenarios, the preferred stock dividend impact is excluded and the impact on pension and postretirement plan expenses is included within Corporate & Other and not allocated across segments.
Declining Interest Rate Scenario. The negative impact of reinvesting in lower yielding assets, over time, more than offset the positive impact of lower interest expense on debt and lower pension expense. Although low interest rates result in pension and other postretirement benefit liabilities increasing, the impact is more than offset by the corresponding returns on fixed income investments and results in lower expenses.
Rising Interest Rate Scenario. The positive impact of reinvesting in higher yielding assets, over time, more than offsets the negative impact of higher interest expense on debt and higher pension expense. Although higher interest rates result in pension and other postretirement benefit liabilities decreasing, the impact is, over time, more than offset by the corresponding returns on fixed income investments and results in higher expenses.
Competitive Pressures
The life insurance industry remains highly competitive. See “Business - Competition.” Product development is focused on differentiation leading to more intense competition with respect to product features and services. Certain of the industry’s products can be quite homogeneous and subject to intense price competition. Cost reduction efforts are a priority for industry players, with benefits resulting in price adjustments to favor customers and reinvestment capacity. Larger companies have the ability to invest in brand equity, product development, technology optimization, risk management, and innovation, which are among the fundamentals for sustained profitable growth in the life insurance industry. Insurers are focused on their core businesses, specifically in markets where they can achieve scale. Insurers are increasingly seeking alternative sources of revenue; there is a focus on monetization of assets, fee-based services, and opportunities to offer comprehensive solutions, which include providing value-added services along with traditional products. Financial strength and flexibility and technology modernization are prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information technology and have the ability to leverage the capabilities of new digital entrants. There is a shift in distribution from proprietary to third party models in mature markets, due to the lower cost structure. Evolving customer expectations are having a significant impact on the competitive environment as insurers strive to offer the superior customer service demanded by an increasingly sophisticated industry client base. Rising demands from stakeholders to address ESG issues have resulted in insurers expanding their sustainability efforts. Legislative and other changes affecting the regulatory environment can also affect the competitive environment within the life insurance industry and within the broader financial services industry. See “Business - Regulation.” We believe that the current low interest rate environment and increased volatility of the financial markets, as a result of the COVID-19 pandemic, will continue to strain the life insurance industry, as well as the broader financial services industry. In addition to financial strength, technological efficiency and organizational agility, we believe that the ability to adapt to changes in the competitive environment as a result of the COVID-19 pandemic is a significant differentiator to success in the life insurance industry and the broader financial services industry, and we are well positioned to compete in this environment.
Regulatory Developments
In the United States, our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving standards for the life insurance industry. Laws and regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. See “Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.” Regulators have also undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products and, in some states, instituted a moratorium on new reserve financing transactions. See “Business - Regulation,” “Risk Factors - Economic Environment and Capital Markets Risks - Our Statutory Life Insurance Reserve Financings Costs May Increase, and We May Find Limited Market Capacity for New Financings,” “Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us” and “- Liquidity and Capital Resources - The Company - Capital - Affiliated Captive Reinsurance Transactions.”
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Consolidated Financial Statements. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:
(i) liabilities for future policy benefits and the accounting for reinsurance;
(ii) capitalization and amortization of DAC and the establishment and amortization of VOBA;
(iii) estimated fair values of investments in the absence of quoted market values;
(iv) investment allowance for credit loss (“ACL”) and impairments;
(v) estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation;
(vi) measurement of goodwill and related impairment;
(vii) measurement of employee benefit plan liabilities;
(viii) measurement of income taxes and the valuation of deferred tax assets; and
(ix) liabilities for litigation and regulatory matters.
In addition, the application of acquisition accounting requires the use of estimation techniques in determining the estimated fair values of assets acquired and liabilities assumed - the most significant of which relate to the aforementioned critical accounting estimates. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.
Liability for Future Policy Benefits
Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type and geographical area. These assumptions are established at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. If experience is less favorable than assumed, additional liabilities may be established, resulting in a charge to policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.
Liabilities for unpaid claims are estimated based upon our historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
Future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts are based on estimates of the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on total expected assessments. Liabilities for ULSG and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical experience of the appropriate underlying equity index, such as the S&P 500 Index.
We regularly review our estimates of liabilities for future policy benefits and compare them with our actual experience. Differences between actual experience and the assumptions used in pricing these policies and guarantees, as well as in the establishment of the related liabilities, result in variances in profit and could result in losses.
Traditional long-duration and limited-payment contracts comprise approximately 70% of MetLife’s liabilities for future policyholder benefits. For such contracts, original assumptions developed at the time of issue are locked-in and used in all future liability calculations provided the resulting liabilities are adequate to provide for future benefits and expenses (i.e., there is no premium deficiency). Therefore, liabilities for these products would not be impacted by changes in assumptions unless such change would result in an adverse impact that would trigger an establishment of a premium deficiency reserve. Favorable experience for traditional long-duration and limited-payment contracts would have no impact on liabilities given that the current assumption is required to remain locked-in, however the positive experience would be reflected in net income over the life of the policies in force.
We have performed sensitivity tests on our traditional long-duration and limited-payment contracts to demonstrate the impact of the Declining Interest Rate Scenario and the Rising Interest Rate Scenario. These tests show the resulting change in net derivative gains (losses) and adjusted earnings versus the Base Scenario. These results are included in “- Industry Trends - Impact of Market Interest Rates - Interest Rate Scenarios.”
Our traditional life and other participating blocks comprise approximately 25% of our future policyholder benefit liabilities. For these contracts, MetLife’s risk of adverse experience may be mitigated through adjustments to the dividend scales.
For all insurance assets and liabilities, MetLife holds capital and surplus to mitigate potential adverse experience development. The Company’s approaches for managing liquidity and capital are described in “- Liquidity and Capital Resources.”
See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our liability for future policy benefits.
Reinsurance
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements using criteria similar to that evaluated in our security impairment process. See “- Investment Allowance for Credit Loss and Impairments.” Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of accounting.
See Note 6 of the Notes to the Consolidated Financial Statements for additional information on our reinsurance programs.
Deferred Policy Acquisition Costs and Value of Business Acquired
We incur significant costs in connection with acquiring new and renewal insurance business. Costs that relate directly to the successful acquisition or renewal of insurance contracts are capitalized as DAC. In addition to commissions, certain direct-response advertising expenses and other direct costs, deferrable costs include the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed. We utilize various techniques to estimate the portion of an employee’s time spent on qualifying acquisition activities that result in actual sales, including surveys, interviews, representative time studies and other methods. These estimates include assumptions that are reviewed and updated on a periodic basis to reflect significant changes in processes or distribution methods.
VOBA represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in force at the acquisition date. For certain acquired blocks of business, the estimated fair value of the in-force contract obligations exceeded the book value of assumed in-force insurance policy liabilities, resulting in negative VOBA, which is presented separately from VOBA as an additional insurance liability included in other policy-related balances. The estimated fair value of the acquired obligations is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience on the purchased business may vary from these projections. The recovery of DAC and VOBA is dependent upon the future profitability of the related business.
Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Our practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC and VOBA amortization with an offset to our unearned revenue liability which nets to approximately $30 million. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for the variable universal life contracts and variable deferred annuity contracts is 5.75%.
We periodically review long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business. Assumptions used in the calculation of estimated gross margins and profits which may have significantly changed are updated annually. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.
Our most significant assumption updates resulting in a change to expected future gross margins and profits and the amortization of DAC and VOBA are due to revisions to expected future investment returns, expenses, in-force or persistency assumptions and policyholder dividends on participating traditional life contracts, variable and universal life contracts and annuity contracts. We expect these assumptions to be the ones most reasonably likely to cause significant changes in the future. Changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time.
At December 31, 2021 and 2020, DAC and VOBA for the Company was $16.1 billion and $16.4 billion, respectively. The following illustrates the effect on DAC and VOBA of changing each of the respective assumptions, as well as updating estimated gross margins or profits with actual gross margins or profits during the years ended December 31, 2021 and 2020. Increases (decreases) in DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization.
Years Ended December 31,
2021 2020
(In millions)
General account investment return
$ (197) $ (285)
Separate account investment return
32 40
Net investment/Net derivative gains (losses) and GMIB
(93) (28)
In-force/Persistency
77 (32)
Policyholder dividends, expense and other
(22) (29)
Total
$ (203) $ (334)
Items contributing to the changes to DAC and VOBA amortization in 2021 consisted of the following:
•Net increase in amortization of $197 million mostly due to the annual actuarial assumption review relating to the general account long-term investment rates of return.
•Net increase in amortization of $93 million associated with net investment/net derivative gains (losses) and GMIB, primarily driven by the following:
◦A decrease in amortization of approximately $10 million associated with gains from GMIB hedges and the decreases in GMIB obligations.
◦Net increase in amortization of approximately $100 million from other investment activities.
Items contributing to the changes to DAC and VOBA amortization in 2020 consisted of the following:
•Net increase in amortization of $285 million mostly due to the annual actuarial assumption review relating to the general account long-term investment rates of return
Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been recognized if such gains and losses had been realized. The decrease in unrealized investment gains (losses) increased the DAC and VOBA balance by $822 million in 2021.The increase in unrealized investment gains (losses) decreased the DAC and VOBA balance by $1.3 billion in 2020. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment gains (losses).
Estimated Fair Value of Investments
In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment, including assumptions or estimates, are used to determine the estimated fair value of investments. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such investments. The methodologies, assumptions and inputs utilized are described in Note 10 of the Notes to the Consolidated Financial Statements.
For the vast majority of our investments, sensitivity analysis regarding unobservable inputs is not necessary or appropriate, as they are valued using quoted prices, as described above. Quantitative information about the significant unobservable inputs used in fair value measurement and the sensitivity of the estimated fair value to changes in those inputs for the more significant asset and liability classes measured at estimated fair value on a recurring basis is presented in Note 10 of the Notes to the Consolidated Financial Statements.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain investments.
Investment Allowance for Credit Loss and Impairments
The significant estimates and inherent uncertainties related to our evaluation of credit loss and impairments on our investment portfolio are summarized below. See “Quantitative and Qualitative Disclosures About Market Risk” for information regarding the sensitivity of our fixed maturity securities and mortgage loan portfolios to changes in interest rates and foreign currency exchange rates.
Fixed Maturity Securities
The assessment of whether a credit loss has occurred is based on our case-by-case evaluation of whether the net amount expected to be collected is less than the amortized cost basis. We consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. In accordance with credit loss guidance adopted January 1, 2020, we evaluate credit loss by considering information that changes from time to time about past events, current and forecasted economic conditions, and we measure credit loss by estimating recovery value using a discounted cash flow analysis. We estimate recovery value based on our best estimate of future cash flows, which is inherently subjective, and methodologies can vary depending on the facts and circumstances specific to each security. In accordance with this credit loss guidance, we record an ACL for the amount of the credit loss instead of recording a reduction of the amortized cost as an impairment. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these evaluations as conditions change and new information becomes available. The valuation of our fixed maturity securities portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our fixed maturities securities portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.
Prior to adopting the credit loss guidance, we applied the other than temporary impairment model, where credit loss was recognized when it was anticipated that amortized cost of the security would not be recovered. The credit loss evaluation process and the measurement of credit loss are generally similar under the credit loss guidance and the other than temporary impairment model.
Mortgage Loans
The ACL is established both for pools of loans with similar risk characteristics and for loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in an amount that represents the portion of the amortized cost basis of mortgage loans that we do not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In accordance with credit loss guidance adopted January 1, 2020, to determine the mortgage loan ACL, we apply significant judgement to estimate expected lifetime credit loss over the contractual term of our mortgage loans adjusted for expected prepayments and any extensions; and we consider past events and current and forecasted economic conditions which are subject to inherent uncertainty and which necessarily change from time to time. The ACL methodologies, significant inputs and significant judgements and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these estimates as conditions change and new information becomes available. The estimated fair value of our mortgage loan portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our mortgage loan portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.
Prior to adopting the credit loss guidance, we used the incurred loss model, where credit loss was recognized when incurred (when it was probable, based on current information and events, that all amounts due under the loan agreement would not be collected). The credit loss evaluation process and the measurement of credit loss are generally similar under the credit loss guidance and the incurred loss model, except that the credit loss guidance requires recording an ACL for expected lifetime credit loss.
Real Estate, Leases and Other Asset Classes
The determination of the amount of ACL on leases and impairments on real estate and the remaining asset classes is highly subjective and is based upon our quarterly evaluation and assessment of known and inherent risks associated with the respective asset class. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of ACL and impairments are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. Such evaluations and assessments are revised as conditions change and new information becomes available.
Derivatives
The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 10 of the Notes to the Consolidated Financial Statements for additional details on significant inputs into the OTC derivative pricing models and credit risk adjustment.
We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates. The valuation of these embedded derivatives also includes an adjustment for our nonperformance risk and risk margins for non-capital market inputs. The nonperformance risk adjustment, which is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability, is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
The table below illustrates the impact that a range of reasonably likely variances in credit spreads would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value. In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near term. The ranges do not reflect extreme market conditions, as we do not consider those to be reasonably likely events in the near future.
The impact of the range of reasonably likely variances in credit spreads decreased as compared to prior periods. However, these estimated effects do not take into account potential changes in other variables, such as equity price levels and market volatility, which can also contribute significantly to changes in carrying values. Therefore, the table does not necessarily reflect the ultimate impact on the consolidated financial statements under the credit spread variance scenarios presented below.
Changes in Balance Sheet Carrying Value At December 31, 2021
Policyholder Account Balances DAC and VOBA
(In millions)
100% increase in our credit spread $ 320 $ (6)
As reported $ 422 $ 34
50% decrease in our credit spread $ 487 $ 55
The accounting for derivatives is complex and interpretations of accounting standards continue to evolve in practice. If it is determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Assessments of the effectiveness of hedging relationships are also subject to interpretations and estimations and different interpretations or estimates may have a material effect on the amount reported in net income.
Variable annuities with guaranteed minimum benefits may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates, changes in our nonperformance risk, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income. If interpretations change, there is a risk that features previously not bifurcated may require bifurcation and reporting at estimated fair value on the consolidated financial statements and respective changes in estimated fair value could materially affect net income.
Additionally, we ceded the risk associated with certain of the variable annuities with guaranteed minimum benefits described in the preceding paragraphs. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously for the guarantees directly written by us with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. Because certain of the direct guarantees do not meet the definition of an embedded derivative and, thus are not accounted for at fair value, significant fluctuations in net income may occur since the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a corresponding and offsetting change in fair value of the direct guarantee.
See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our derivatives and hedging programs.
Goodwill
Goodwill is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test.
For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company will consider income tax effects from any tax-deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if applicable. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units include projected adjusted earnings, current book value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account value of in-force business, projections of new and renewed business, as well as margins on such business, interest rate levels, credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit.
We apply significant judgment when determining the estimated fair value of our reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based may differ in some respects from actual future results. Depending upon the reporting segment, a change in market conditions, including equity market returns, interest rate levels, market volatility including foreign currency, as well as policyholder behavior and mortality could result in a decline in the estimated fair value of any of our reporting units. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position.
In the third quarter of 2021, the Company performed its annual goodwill impairment tests on all of its reporting units, using both qualitative and quantitative assessments. The quantitative assessment utilized the market multiple, embedded value and discounted cash flow valuation approaches based on best available data as of June 30, 2021. The Company concluded that the estimated fair values of all its reporting units were substantially in excess of their carrying values and, therefore, goodwill was not impaired.
See Note 12 of the Notes to the Consolidated Financial Statements for additional information on our goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor defined benefit pension plans and other postretirement benefit plans covering eligible employees. See Note 18 of the Notes to the Consolidated Financial Statements for information on amendments to our U.S. benefit plans. The calculation of the obligations and expenses associated with these plans requires an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases and healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirement, withdrawal rates and mortality. In consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as historical experience of the plan and its assets, currently available market and industry data, and expected benefit payout streams.
We determine the expected rate of return on plan assets based upon an approach that considers inflation, real return, term premium, credit spreads, equity risk premium and capital appreciation, as well as expenses, expected asset manager performance, asset weights and the effect of rebalancing. Given the amount of plan assets as of December 31, 2020, the beginning of the measurement year, if we had assumed an expected rate of return for both our pension and other postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs in 2021 would have been as follows:
Year Ended December 31, 2021
Increase/(Decrease) in Net Periodic Pension Cost Increase/(Decrease) in Net Other Postretirement
Benefit Cost
(In millions)
Increase in expected rate of return by 100 bps
$ (105) $ (14)
Decrease in expected rate of return by 100 bps
$ 105 $ 14
This table considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return.
We determine the discount rates used to value the Company’s pension and postretirement obligations, based upon rates commensurate with current yields on high quality corporate bonds. Given our pension and postretirement obligations as of December 31, 2020, the beginning of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs would have been as follows:
Year Ended December 31, 2021
Increase/(Decrease) in Net Periodic Pension Cost Increase/(Decrease) in Net Other Postretirement
Benefit Cost
(In millions)
Increase in discount rate by 100 bps
$ (88) $ (2)
Decrease in discount rate by 100 bps
$ 79 $ 6
Given our pension and postretirement obligations as of December 31, 2021, the end of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our benefit obligations would have been as follows:
Year Ended December 31, 2021
Increase/(Decrease) in Pension Benefit Obligation Increase/(Decrease) in Other Postretirement
Benefit Obligation
(In millions)
Increase in discount rate by 100 bps
$ (1,299) $ (121)
Decrease in discount rate by 100 bps
$ 1,574 $ 149
These tables consider only changes in our assumed discount rates without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant impact on the Company’s consolidated financial statements and liquidity.
See Note 18 of the Notes to the Consolidated Financial Statements for additional discussion of assumptions used in measuring liabilities relating to our employee benefit plans.
Income Taxes
Our accounting for income taxes represents our best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions in which we conduct business.
If there were a 1% increase in the global effective income tax rate, the change would have resulted in an approximate $411 million increase in the deferred income tax liabilities balance at December 31, 2021.
See Notes 1 and 19 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.
Litigation Contingencies
We are a defendant in a large number of litigation matters and are involved in a number of regulatory investigations. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of reliable data and uncertainty regarding numerous variables that can affect liability estimates. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.
See Note 21 of the Notes to the Consolidated Financial Statements for additional information regarding our assessment of litigation contingencies.
Acquisitions and Dispositions
Acquisitions
Pending Ownership Increase of PNB MetLife
In October 2021, the Company entered into a share purchase agreement to acquire approximately 15.0% ownership in PNB MetLife India Insurance Company Limited (“PNB MetLife”). Upon completion of the transaction, the Company’s ownership in PNB MetLife, an operating joint venture accounted for under the equity method, will increase to approximately 47.0%. The transaction will close upon receipt of all necessary regulatory approvals and satisfaction of other closing conditions. This transaction supports the Company’s continued growth in India and will enable us to deliver more value for our customers, partners and shareholders.
Acquisition of Versant Health
For information regarding the Company’s December 2020 acquisition of Versant Health, see Note 3 of the Notes to the Consolidated Financial Statements.
Acquisition of PetFirst
In January 2020, the Company completed the acquisition of PetFirst Healthcare, LLC (“PetFirst”), a fast-growing pet health insurance administrator.
Dispositions
Pending Disposition of MetLife Poland and Disposition of MetLife Greece
For information regarding the Company's pending disposition of MetLife Poland and disposition of MetLife Greece, reported as held-for-sale, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements.
Disposition of MetLife Seguros
For information regarding the Company's September 2021 disposition of MetLife Seguros, see Note 3 of the Notes to the Consolidated Financial Statements.
Disposition of MetLife P&C
For information regarding the Company's April 2021 disposition of MetLife P&C, which was reported as held-for-sale, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements.
Disposition of MetLife Russia
For information regarding the Company's January 2021 disposition of MetLife Russia, see Note 3 of the Notes to the Consolidated Financial Statements.
Disposition of MetLife Seguros de Retiro
For information regarding the Company's October 2020 disposition of one of its wholly-owned Argentinian subsidiaries, MetLife Seguros de Retiro S.A. (“MetLife Seguros de Retiro”), see Note 3 of the Notes to the Consolidated Financial Statements.
Results of Operations
Consolidated Results
Years Ended December 31,
2021 2020
(In millions)
Revenues
Premiums $ 42,009 $ 42,034
Universal life and investment-type product policy fees 5,756 5,603
Net investment income 21,395 17,117
Other revenues 2,619 1,849
Net investment gains (losses) 1,529 (110)
Net derivative gains (losses) (2,228) 1,349
Total revenues 71,080 67,842
Expenses
Policyholder benefits and claims and policyholder dividends 44,830 42,551
Interest credited to policyholder account balances 5,538 5,214
Capitalization of DAC (2,718) (3,013)
Amortization of DAC and VOBA 2,555 3,160
Amortization of negative VOBA (34) (45)
Interest expense on debt 920 913
Other expenses 11,863 12,135
Total expenses 62,954 60,915
Income (loss) before provision for income tax 8,126 6,927
Provision for income tax expense (benefit) 1,551 1,509
Net income (loss) 6,575 5,418
Less: Net income (loss) attributable to noncontrolling interests 21 11
Net income (loss) attributable to MetLife, Inc. 6,554 5,407
Less: Preferred stock dividends 195 202
Preferred stock redemption premium 6 14
Net income (loss) available to MetLife, Inc.’s common shareholders $ 6,353 $ 5,191
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
During 2021, net income (loss) increased $1.2 billion from 2020, primarily driven by favorable changes in adjusted earnings and net investment gains (losses), as well as a favorable change from our annual actuarial assumption reviews, partially offset by an unfavorable change in net derivative gains (losses), net of investment hedge adjustments.
Management of Investment Portfolio and Hedging Market Risks with Derivatives. See “- Investments - Overview” for a discussion of the management of our investment portfolio.
We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period can significantly impact the levels of provision for credit loss and impairments on our investment portfolio, as well as realized gains and losses on investments sold.
We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions.
Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but does not have an economic impact on us.
We continuously review and refine our hedging strategy in light of changing economic and market conditions, evolving NAIC and NYDFS statutory requirements, and accounting rule changes. As a part of our current hedging strategy, we maintain portfolio level derivatives in our macro hedge program. These macro hedge program derivatives, which are included in the non-VA program derivatives section of the table below, mitigate the potential deterioration in our capital positions from significant adverse economic conditions.
Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives.” All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives.” The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
Years Ended December 31,
2021 2020
(In millions)
Non-VA program derivatives
Interest rate $ (1,075) $ 2,880
Foreign currency exchange rate (429) (148)
Credit 85 (76)
Equity (771) (1,005)
Non-VA embedded derivatives 37 (80)
Total non-VA program derivatives (2,153) 1,571
VA program derivatives
Market risks in embedded derivatives 1,006 139
Nonperformance risk adjustment on embedded derivatives (17) (10)
Other risks in embedded derivatives (279) (159)
Total embedded derivatives 710 (30)
Freestanding derivatives hedging embedded derivatives (785) (192)
Total VA program derivatives (75) (222)
Net derivative gains (losses) $ (2,228) $ 1,349
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $3.7 billion ($2.9 billion, net of income tax). This was primarily due to long-term rates increasing in 2021 versus decreasing significantly in 2020. This unfavorably impacted the estimated fair value of receive fixed interest rate swaps and options. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the items being hedged.
The favorable change in net derivative gains (losses) on VA program derivatives was $147 million ($116 million, net of income tax). This was due to a favorable change of $274 million ($216 million, net of income tax) in market risks in embedded derivatives, net of freestanding derivatives that hedge market risks in embedded derivatives, partially offset by (i) an unfavorable change of $120 million ($95 million, net of income tax) in other risks in embedded derivatives, (primarily policyholder behavior and other non-market risks that generally cannot be hedged), and (ii) an unfavorable change of $7 million ($5 million, net of income tax) in the nonperformance risk adjustment included in the valuation of embedded derivatives.
The aforementioned $274 million ($216 million, net of income tax) favorable change reflects an $867 million ($684 million, net of income tax) favorable change in market risks in embedded derivatives, partially offset by a $593 million ($468 million, net of income tax) unfavorable change in freestanding derivatives that hedge market risks in embedded derivatives.
The primary changes in market factors affecting the valuation of VA program derivatives are summarized as follows:
•Key equity index levels increased more in 2021 compared with 2020, contributing to a favorable change in our embedded derivatives and an unfavorable change in our freestanding derivatives. For example, the S&P 500 Index increased 27% in 2021 and increased 16% in 2020.
•Long-term interest rates increased in 2021 versus decreased significantly in 2020, contributing to a favorable change in our embedded derivatives and an unfavorable change in our freestanding derivatives. For example, the 30-year U.S. swap rate increased 33 basis points in 2021 and decreased 69 basis points in 2020.
The aforementioned $120 million ($95 million, net of income tax) unfavorable change in other risks in embedded derivatives reflects actuarial assumption updates and a combination of factors, such as fees deducted from accounts, changes in the benefit base, premiums, lapses, withdrawals and deaths, in addition to changes to cross-effect, basis mismatch, risk margin and fund allocation.
The aforementioned $7 million ($5 million, net of income tax) unfavorable change in the nonperformance risk adjustment on embedded derivatives resulted from an unfavorable change of $45 million, before income tax, related to model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, partially offset by a favorable change of $38 million, before income tax, related to changes in our own credit spread.
When equity index levels decrease in isolation, the variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk.
When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk.
When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk. For each of these primary market drivers, the opposite effect occurs when the driver moves in the opposite direction.
Net Investment Gains (Losses). The favorable change in net investment gains (losses) of $1.6 billion ($1.3 billion, net of income tax) primarily reflects (i) the 2021 gain on the disposition of MetLife P&C, (ii) increased gains on sales of real estate investments in 2021, (iii) lower provision for mortgage loan credit loss in 2021 compared to 2020, and (iv) mark-to-market gains in 2021 compared to mark-to-market losses in 2020 on equity securities, which are measured at estimated fair value through net income (loss). These favorable changes were partially offset by 2021 losses on the dispositions of MetLife Seguros and MetLife Greece and on the pending disposition of MetLife Poland, as well as lower gains on sales of fixed maturity securities compared to 2020.
Divested Businesses. Income (loss) before provision for income tax related to divested businesses, excluding net investment gains (losses) and net derivative gains (losses), increased $92 million ($76 million, net of income tax) to $62 million ($53 million, net of income tax) in 2021 from a loss of $30 million ($23 million, net of income tax) in 2020. Included in this increase was an increase in total revenues of $996 million, before income tax, and an increase in total expenses of $904 million, before income tax. Divested businesses primarily included activity related to the disposition of MetLife P&C in 2021.
Taxes. Our 2021 effective tax rate on income (loss) before provision for income tax was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, an IRS audit settlement, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate, the dispositions of MetLife P&C, MetLife Seguros and MetLife Greece and the pending disposition of MetLife Poland. Our 2020 effective tax rate on income (loss) before provision for income tax was 22%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax charges from foreign earnings taxed at different rates than the U.S. statutory rate and the dispositions of MetLife Seguros de Retiro and MetLife Russia, partially offset by tax benefits from tax credits, non-taxable investment income, the finalization of bankruptcy proceedings for a leveraged lease investment and the impact from an IRS audit matter.
Actuarial Assumption Review. Results for 2021 include a $281 million ($216 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $2 million ($1 million, net of income tax) loss was recognized in net derivative gains (losses).
Of the $281 million charge, $129 million ($96 million, net of income tax) was related to DAC and $152 million ($120 million, net of income tax) was associated with reserves. The portion of the $281 million charge that is included in adjusted earnings is $187 million ($140 million, net of income tax).
The $2 million ($1 million, net of income tax) loss recognized in net derivative gains (losses) associated with our annual review of actuarial assumptions is included within the other risks in embedded derivatives line in the table above.
As a result of our annual review of actuarial assumptions, changes were made to economic, biometric, policyholder behavior, and operational assumptions. The most significant impacts were in the MetLife Holdings segment, driven by updates to behavioral assumptions for variable annuities and in Asia, driven by economic assumption updates for interest sensitive whole life. The breakdown of total current period results is summarized as follows:
•Economic assumption updates resulted in unfavorable impacts to reserves and DAC, for a net charge of $136 million ($101 million, net of income tax).
•Changes in biometric assumptions resulted in favorable impacts to reserves and slightly unfavorable impacts to DAC, for a net gain of $39 million ($29 million, net of income tax).
•Changes in policyholder behavior assumptions resulted in unfavorable impacts to reserves and favorable impacts to DAC, for a net charge of $195 million ($152 million, net of income tax).
•Changes in operational assumptions resulted in favorable impacts to reserves and unfavorable impacts to DAC, for a net gain of $11 million ($8 million, net of income tax).
Results for 2020 include a $378 million ($301 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $44 million ($34 million, net of income tax) gain was recognized in net derivative gains (losses). Of the $378 million charge, $120 million ($94 million, net of income tax) was related to DAC and $258 million ($207 million, net of income tax) was associated with reserves. The portion of the $378 million charge that is included in adjusted earnings is $255 million ($203 million, net of income tax).
Adjusted Earnings. As more fully described in “- Non-GAAP and Other Financial Disclosures,” we use adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings and other financial measures based on adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss). Adjusted earnings available to common shareholders and adjusted earnings available to common shareholders on a constant currency basis should not be viewed as substitutes for net income (loss) available to MetLife, Inc.’s common shareholders. Adjusted earnings available to common shareholders increased $2.3 billion, net of income tax, to $8.0 billion, net of income tax, for 2021 from $5.6 billion, net of income tax, for 2020.
Reconciliation of net income (loss) to adjusted earnings available to common shareholders and premiums, fees and other revenues to adjusted premiums, fees and other revenues
Year Ended December 31, 2021
U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total
(In millions)
Net income (loss) available to MetLife, Inc.'s common shareholders $ 3,509 $ 1,597 $ (258) $ 58 $ 905 $ 542 $ 6,353
Add: Preferred stock dividends - - - - - 195 195
Add: Net income (loss) attributable to noncontrolling interests - 2 6 3 - 10 21
Add: Preferred stock redemption premium - - - - - 6 6
Net income (loss) 3,509 1,599 (252) 61 905 753 6,575
Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:
Revenues:
Net investment gains (losses) 410 (6) (134) (190) 86 1,363 1,529
Net derivative gains (losses) 226 (818) (416) (20) (1,167) (33) (2,228)
Premiums
865 - - 117 - - 982
Universal life and investment-type product policy fees - 73 - 42 80 - 195
Net investment income
(310) 58 (64) 717 (293) 7 115
Other revenues 11 - 1 11 - 220 243
Expenses:
Policyholder benefits and claims and policyholder dividends
(610) (81) (8) (141) (338) (1) (1,179)
Interest credited to policyholder account balances 2 (211) (42) (695) - - (946)
Capitalization of DAC
89 - - 30 - - 119
Amortization of DAC and VOBA (98) (35) - (26) (60) - (219)
Amortization of negative VOBA
- - - - - - -
Interest expense on debt - - - - - (1) (1)
Other expenses
(222) 3 3 (81) - (267) (564)
Goodwill impairment - - - - - - -
Provision for income tax (expense) benefit
(75) 318 117 (4) 355 (331) 380
Adjusted earnings $ 3,221 $ 2,298 $ 291 $ 301 $ 2,242 (204) 8,149
Less: Preferred stock dividends 195 195
Adjusted earnings available to common shareholders $ (399) $ 7,954
Premiums, fees and other revenues $ 29,912 $ 8,381 $ 3,760 $ 2,883 $ 4,771 $ 677 $ 50,384
Less: adjustments to premiums, fees and other revenues 876 73 1 170 80 220 1,420
Adjusted premiums, fees and other revenues $ 29,036 $ 8,308 $ 3,759 $ 2,713 $ 4,691 $ 457 $ 48,964
Year Ended December 31, 2020
U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total
(In millions)
Net income (loss) available to MetLife, Inc.'s common shareholders $ 3,136 $ 1,684 $ 27 $ 280 $ 1,277 $ (1,213) $ 5,191
Add: Preferred stock dividends - - - - - 202 202
Add: Net income (loss) attributable to noncontrolling interests - 1 4 5 - 1 11
Add: Preferred stock redemption premium - - - - - 14 14
Net income (loss) 3,136 1,685 31 285 1,277 (996) 5,418
Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:
Revenues:
Net investment gains (losses) 61 261 (103) (159) (9) (161) (110)
Net derivative gains (losses) 202 226 75 30 1,149 (333) 1,349
Premiums
- 52 - - - - 52
Universal life and investment-type product policy fees - 39 (2) 17 84 - 138
Net investment income
(340) (7) (1) 428 (284) (7) (211)
Other revenues - - - - - 159 159
Expenses:
Policyholder benefits and claims and policyholder dividends
(44) (109) (170) 75 (444) - (692)
Interest credited to policyholder account balances 9 (107) (43) (400) - - (541)
Capitalization of DAC
- 5 - - - - 5
Amortization of DAC and VOBA - (53) - 2 (115) - (166)
Amortization of negative VOBA
- - - - - - -
Interest expense on debt - - - - - - -
Other expenses
- (24) (9) (7) - (223) (263)
Goodwill impairment - - - - - - -
Provision for income tax (expense) benefit
24 (163) 4 (28) (80) 116 (127)
Adjusted earnings $ 3,224 $ 1,565 $ 280 $ 327 $ 976 (547) 5,825
Less: Preferred stock dividends 202 202
Adjusted earnings available to common shareholders $ (749) $ 5,623
Adjusted earnings available to common shareholders on a constant currency basis (1) $ 3,224 $ 1,591 $ 302 $ 330 $ 976 $ (749) $ 5,674
Premiums, fees and other revenues $ 29,292 $ 8,615 $ 3,295 $ 2,761 $ 4,995 $ 528 $ 49,486
Less: adjustments to premiums, fees and other revenues - 91 (2) 17 84 159 349
Adjusted premiums, fees and other revenues $ 29,292 $ 8,524 $ 3,297 $ 2,744 $ 4,911 $ 369 $ 49,137
Adjusted premiums, fees and other revenues on a constant currency basis (1) $ 29,292 $ 8,451 $ 3,420 $ 2,775 $ 4,911 $ 369 $ 49,218
__________________
(1)Amounts for U.S., MetLife Holdings and Corporate & Other are shown on a reported basis, as constant currency impact is not significant.
Consolidated Results - Adjusted Earnings
Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $173 million, or less than 1%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $254 million, or 1%, compared to 2020, primarily due to a decrease of $3.6 billion attributable to the disposition of MetLife P&C. Higher adjusted premiums, fees and other revenues from growth in our Group Benefits business and the acquisition of Versant Health was partially offset by lower premiums in our RIS business. In our Asia segment, adjusted premiums, fees and other revenues declined compared to 2020 mainly due to the impact of our annual actuarial assumption review in both years. A decrease in adjusted premiums, fees and other revenues in our EMEA segment was primarily due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland. Strong sales and persistency across the region resulted in an increase in adjusted premiums, fees and other revenues in our Latin America segment. In our MetLife Holdings segment, we anticipate an average decline in adjusted premiums, fees and other revenues of approximately 6% to 8% per year from expected business run-off.
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were (i) higher investment yields due to strong returns in our private equity and real estate portfolios, (ii) an increase in net investment income due to a larger average invested asset base, (iii) favorable tax adjustments, (iv) lower interest credited expenses, (v) the release of a legal reserve in 2021 and (vi) a favorable change from our annual actuarial assumption reviews, partially offset by (i) unfavorable underwriting, which reflected impacts from the COVID-19 pandemic, and (ii) the disposition of MetLife P&C. The disposition of MetLife P&C decreased adjusted earnings by $322 million. All amounts discussed below are net of the results of this business.
Foreign Currency. Changes in foreign currency exchange rates had a $51 million positive impact on adjusted earnings for 2021 compared to 2020. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. We benefited from positive net flows from many of our businesses, which increased our average invested asset base. Growth in the investment portfolios of all of our segments resulted in higher net investment income. However, consistent with the growth in average invested assets, interest credited expenses on certain insurance-related liabilities increased. In addition, higher premiums, net of corresponding changes in policyholder benefits improved adjusted earnings, primarily from growth in our EMEA and Asia segments, partially offset by a decline in our MetLife Holdings segment. Lower fee income in our MetLife Holdings and EMEA segments was offset by increases in our Asia and Latin America segments. Also, an increase in expenses due to business growth was more than offset by the related increase in DAC capitalization and the 2021 abatement of the annual health insurer fee under the Patient Protection and Affordable Care Act (“PPACA”). The combined impact of the items affecting our business growth resulted in a $238 million increase in adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Excluding the impact of changes in foreign currency exchange rates on net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields increased. The increase in investment yields was primarily driven by the favorable impact of strong equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds. These increases were partially offset by lower yields on fixed income securities and mortgage loans, as well as decreased returns on fair value option securities (“FVO Securities”). The net impact of interest rate fluctuations resulted in a decline in our average interest credited rates on deposit-type and long-duration liabilities, which drove a decrease in interest credited expenses. The changes in market factors discussed above resulted in a $3.1 billion increase in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a $1.2 billion decrease in adjusted earnings and reflected impacts from the COVID-19 pandemic. This was primarily driven by unfavorable mortality in our U.S. and Latin America segments, coupled with unfavorable claims experience in our U.S., EMEA and MetLife Holdings segments. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $63 million in adjusted earnings. Changes in operational, biometric and economic assumptions were less unfavorable in 2021 when compared to 2020. Refinements to certain insurance and other liabilities in both years resulted in a $67 million increase in adjusted earnings. Dividend scale reductions, as well as run-off in MLIC’s closed block, contributed to lower dividend expenses of $149 million and lower associated DAC amortization of $68 million, which increased adjusted earnings.
Expenses. Adjusted earnings decreased $7 million compared to the prior period, primarily due to higher corporate-related expenses, largely offset by the release of a legal reserve in 2021 and lower legal expenses.
Taxes. Our 2021 effective tax rate on adjusted earnings was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, an IRS audit settlement, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate. Our 2020 effective tax rate on adjusted earnings was 19%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, and the finalization of bankruptcy proceedings for a leveraged lease investment, partially offset by tax charges from foreign earnings taxed at different rates than the U.S. statutory rate.
Segment Results and Corporate & Other
U.S.
Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $256 million, or 1%, compared to 2020. This was primarily due to a decrease of $3.6 billion attributable to the disposition of MetLife P&C, as well as lower premiums in our RIS business, mostly offset by growth in our Group Benefits business. The increase in our Group Benefits business was primarily due to growth from our group life business which includes increased premiums from our participating contracts, which can fluctuate with claims experience, and the 2021 impact of the Versant Health acquisition. In addition, growth in other core products was driven by increases in our group disability businesses, as well as the impact of premium credits in 2020, and growth in the dental business. Growth in voluntary products was due to the impact of new sales and growth in membership in our accident & health and legal plans businesses. The decrease in premiums in RIS was mainly driven by the impact of 2020 sales in the pension risk transfer business, partially offset by increases in our U.K. longevity reinsurance and post-retirement businesses. Changes in RIS premiums are mostly offset by a corresponding change in policyholder benefits.
Growth in RIS’s stable value and capital market investments businesses drove increases in policyholder account balances, resulting in higher interest margins.
For further information regarding the MetLife P&C disposition and the acquisition of Versant Health, see Note 3 of the Notes to the Consolidated Financial Statements.
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 26,358 $ 27,265
Universal life and investment-type product policy fees 1,140 1,070
Net investment income 8,048 6,903
Other revenues 1,538 957
Total adjusted revenues 37,084 36,195
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 27,957 26,309
Interest credited to policyholder account balances 1,422 1,622
Capitalization of DAC (65) (453)
Amortization of DAC and VOBA 60 471
Interest expense on debt 7 7
Other expenses 3,632 4,162
Total adjusted expenses 33,013 32,118
Provision for income tax expense (benefit) 850 853
Adjusted earnings $ 3,221 $ 3,224
Adjusted premiums, fees and other revenues $ 29,036 $ 29,292
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
The disposition of MetLife P&C decreased adjusted earnings by $322 million. All amounts discussed below are net of the results of this business.
Business Growth. The impact of positive flows from pension risk transfer transactions and funding agreement issuances resulted in higher average invested assets, improving net investment income. However, consistent with the growth in average invested assets, interest credited expenses on long-duration and deposit-type liabilities increased. Higher volume-related, premium tax and direct expenses, driven by business growth, were partially offset by the 2021 abatement of the annual health insurer fee under the PPACA. The net increase in expenses was more than offset by a corresponding increase in adjusted premiums, fees and other revenues. The combined impact of the items affecting our business growth increased adjusted earnings by $130 million.
Market Factors. Market factors, including interest rate levels, variability in equity market returns and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased primarily driven by the favorable impact of equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds, partially offset by lower yields on fixed income securities and mortgage loans. The impact of interest rate fluctuations resulted in a decline in our average interest credited rates on deposit-type and long-duration liabilities, which drove a decrease in interest credited expenses. The changes in market factors discussed above resulted in a $1.1 billion increase in adjusted earnings.
Underwriting. Unfavorable mortality in our Group Benefits business resulted in a decrease in adjusted earnings of $767 million. This was primarily driven by: (i) increases in both incidence and severity in both COVID-19 and core claims across our life businesses; and (ii) unfavorable results in our accidental death & dismemberment business due to lower incidence in 2020 as a result of the COVID-19 pandemic. Favorable mortality in our RIS business, including the impact of the COVID-19 pandemic, resulted in an increase in adjusted earnings of $81 million, driven by our pension risk transfer, structured settlement, specialized benefit resource and post-retirement benefit businesses, partially offset by unfavorable results in our institutional income annuity business. Unfavorable claims experience, partially offset by the impact of growth in our Group Benefits business, resulted in a $248 million decrease in adjusted earnings, primarily due to: (i) unfavorable dental results, primarily the result of the COVID-19 pandemic, which limited availability of services and reduced utilization in 2020; and (ii) unfavorable claims experience in our group disability business, partially offset by: (i) the impact of the acquisition of Versant Health on our vision business; (ii) favorable claims experience in the individual disability business; and (iii) the impact of business growth in our accident & health business.
Asia
Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $216 million, or 3%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $143 million, or 2% compared to 2020, mainly due to the impact of our annual actuarial assumption review in both periods. In addition, a decrease in premiums from yen-denominated life products in Japan was largely offset by higher fees from foreign currency-denominated life products and business growth in other markets.
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 6,421 $ 6,571
Universal life and investment-type product policy fees 1,814 1,892
Net investment income 5,052 3,938
Other revenues 73 61
Total adjusted revenues 13,360 12,462
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 5,008 5,213
Interest credited to policyholder account balances 1,995 1,834
Capitalization of DAC (1,607) (1,652)
Amortization of DAC and VOBA 1,369 1,415
Amortization of negative VOBA (27) (37)
Other expenses 3,388 3,481
Total adjusted expenses 10,126 10,254
Provision for income tax expense (benefit) 936 643
Adjusted earnings $ 2,298 $ 1,565
Adjusted earnings on a constant currency basis $ 2,298 $ 1,591
Adjusted premiums, fees and other revenues $ 8,308 $ 8,524
Adjusted premiums, fees and other revenues on a constant currency basis $ 8,308 $ 8,451
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $26 million for 2021 compared to 2020, primarily due to the strengthening of the Australian dollar and Korean won against the U.S. dollar. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Asia’s adjusted premiums, fees and other revenues decreased as compared to 2020 as discussed above; however, this was more than offset by a decline in policyholder benefits and lower variable expenses, net of DAC capitalization, which resulted in an increase to adjusted earnings. Positive net flows in Japan and Korea resulted in higher average invested assets, which improved net investment income. The increase in net investment income was more than offset by a corresponding increase in interest credited expenses on certain insurance liabilities. The combined impact of the items affecting our business growth improved adjusted earnings by $73 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by the favorable impact of equity market returns on our private equity funds and the favorable impact of real estate market returns on our real estate investments, primarily real estate funds. The increase in net investment income was partially offset by lower yields on fixed income securities supporting products sold in Japan denominated in U.S. and Australian dollars. In addition, a decrease in interest credited expense improved adjusted earnings. The changes in market factors discussed above increased adjusted earnings by $672 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Higher lapses in Japan and claims in Korea decreased adjusted earnings by $13 million. The unfavorable change from our annual actuarial assumption reviews resulted in a net decrease of $51 million in adjusted earnings. Refinements to certain insurance liabilities and other liabilities in both years resulted in a $6 million increase in adjusted earnings.
Expenses. Adjusted earnings increased by $24 million, primarily driven by lower operating expenses in Japan and lower corporate overhead.
Latin America
Business Overview. Adjusted premiums, fees and other revenues for 2021 increased $462 million, or 14%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased $339 million, or 10%, compared to 2020, mainly driven by strong sales and persistency across the region.
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 2,609 $ 2,265
Universal life and investment-type product policy fees 1,109 994
Net investment income 1,271 992
Other revenues 41 38
Total adjusted revenues 5,030 4,289
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 3,143 2,406
Interest credited to policyholder account balances 249 240
Capitalization of DAC (414) (362)
Amortization of DAC and VOBA 285 276
Interest expense on debt 5 4
Other expenses 1,401 1,318
Total adjusted expenses 4,669 3,882
Provision for income tax expense (benefit) 70 127
Adjusted earnings $ 291 $ 280
Adjusted earnings on a constant currency basis $ 291 $ 302
Adjusted premiums, fees and other revenues $ 3,759 $ 3,297
Adjusted premiums, fees and other revenues on a constant currency basis $ 3,759 $ 3,420
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $22 million for 2021 compared to 2020, mainly due to the strengthening of foreign currencies against the U.S. dollar, primarily the Mexican and Chilean pesos. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Latin America experienced premium and fee growth across several lines of business, primarily in Mexico and Chile. The net increase in premiums and fees was largely offset by related changes in policyholder benefits. An increase in average invested assets, primarily in Chile, generated higher net investment income. In addition, interest credited expenses on certain insurance liabilities decreased. Although business growth in the region drove an increase in commissions and other variable expenses, this was mostly offset by higher DAC capitalization. The combined impact of the items affecting business growth increased adjusted earnings by $60 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by higher returns on private equity funds and higher prepayment income, both in Chile, partially offset by lower yields on fixed income securities in Mexico and the unfavorable impact of rising interest rates on our Chilean encaje within FVO Securities. In addition, interest credited expense decreased. The changes in market factors discussed above, as well as the impact of inflation, increased adjusted earnings by $64 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting drove a $178 million decrease in adjusted earnings which includes impacts from COVID-19-related life claims, primarily in Mexico and Brazil. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $7 million in adjusted earnings. Refinements to certain insurance liabilities and other liabilities in both years resulted in a $9 million increase in adjusted earnings.
Expenses and Taxes. Adjusted earnings decreased slightly due to expenses related to the region’s continued investment in technology, partially offset by the impact of expense reduction actions, continued expense discipline and a 2020 information technology charge. Tax-related adjustments in both years resulted in a $29 million net increase in adjusted earnings, primarily driven by a recurring tax item related to inflation in both Mexico and Chile, as well as a 2021 adjustment related to the filing of the U.S. income tax return.
EMEA
Business Overview. Adjusted premiums, fees and other revenues for 2021 decreased $31 million, or 1%, compared to 2020. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased $62 million, or 2%, compared to 2020 due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland. These declines were partially offset by growth, mainly in our (i) corporate solutions business in the U.K. and Egypt, (ii) accident & health and ordinary life businesses in Europe, and (iii) credit life business in Turkey, as well as (iv) a favorable refinement to an unearned premium reserve in Italy.
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 2,271 $ 2,259
Universal life and investment-type product policy fees 395 433
Net investment income 215 269
Other revenues 47 52
Total adjusted revenues 2,928 3,013
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 1,241 1,196
Interest credited to policyholder account balances 86 109
Capitalization of DAC (469) (491)
Amortization of DAC and VOBA 356 454
Amortization of negative VOBA (7) (8)
Interest expense on debt - 1
Other expenses 1,324 1,344
Total adjusted expenses 2,531 2,605
Provision for income tax expense (benefit) 96 81
Adjusted earnings $ 301 $ 327
Adjusted earnings on a constant currency basis $ 301 $ 330
Adjusted premiums, fees and other revenues $ 2,713 $ 2,744
Adjusted premiums, fees and other revenues on a constant currency basis $ 2,713 $ 2,775
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $3 million for 2021 as compared to 2020, primarily driven by the weakening of the U.S. dollar against the British pound, euro, Czech koruna and Polish zloty, partially offset by the strengthening of the U.S. dollar against the Turkish lira. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Growth in our (i) corporate solutions business in the U.K., (ii) pension business in Romania, (iii) credit life business in Turkey, and (iv) ordinary life and accident & health businesses in Europe resulted in a $39 million increase in adjusted earnings.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, decreased adjusted earnings by $2 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Adjusted earnings decreased $62 million as a result of unfavorable underwriting experience, primarily due to the impact of the COVID-19 pandemic, which resulted in lower utilization in 2020 and higher claims in 2021. Unfavorable underwriting experience in our (i) corporate solutions business across the region, (ii) variable life business in the Gulf, Lebanon and Czech Republic, and (iii) accident & health business in Europe and the Gulf was partially offset by favorable underwriting experience in our credit life business in Turkey. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $25 million in adjusted earnings. Refinements to certain insurance-related assets and liabilities in both years resulted in a $29 million increase in adjusted earnings.
Expenses and Taxes. Higher expenses, mainly in Turkey and Lebanon, resulted in a $15 million decrease in adjusted earnings. Taxes decreased adjusted earnings by $21 million, primarily due to changes in business mix among tax jurisdictions and tax-related adjustments in both years, as well as a revision to a tax asset in Greece.
Other. In addition to the items discussed above, adjusted earnings decreased by $22 million due to the dispositions of MetLife Russia and MetLife Greece and the pending disposition of MetLife Poland.
MetLife Holdings
Business Overview. Our MetLife Holdings segment consists of operations relating to products and businesses, previously included in our former retail business, that we no longer actively market in the United States. We anticipate an average decline in adjusted premiums, fees and other revenues of approximately 6% to 8% per year from expected business run-off. A significant portion of our adjusted earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact DAC amortization and asset-based commissions. Separate account balances are driven by movements in the market, surrenders, deposits, withdrawals, benefit payments, transfers and policy charges. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the existing block of business, which contributed to asset growth in the segment, and we expect the related reserves to grow as this block matures. Our future policyholder benefit liability for our long-term care business was $14.4 billion and $14.3 billion as of December 31, 2021 and 2020, respectively.
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 3,333 $ 3,600
Universal life and investment-type product policy fees 1,101 1,073
Net investment income 6,450 5,184
Other revenues 257 238
Total adjusted revenues 11,141 10,095
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 6,268 6,738
Interest credited to policyholder account balances 840 868
Capitalization of DAC (33) (39)
Amortization of DAC and VOBA 257 370
Interest expense on debt 5 6
Other expenses 992 942
Total adjusted expenses 8,329 8,885
Provision for income tax expense (benefit) 570 234
Adjusted earnings $ 2,242 $ 976
Adjusted premiums, fees and other revenues $ 4,691 $ 4,911
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Negative net flows from our deferred annuity business resulted in lower asset-based fee income. Premiums also declined due to business run-off and the impact of dividend scale reductions in both periods. These declines were partially offset by higher net investment income resulting from an increase in average invested assets. The combined impact of the items affecting our business growth resulted in a $66 million decrease in adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased driven by the favorable impact of equity market returns on our private equity funds, the favorable impact of real estate market returns on our real estate investments, primarily real estate funds, and higher prepayment income, partially offset by lower yields on fixed income securities. In our deferred annuity business, higher equity market returns drove higher asset-based fee income, which increased adjusted earnings. The changes in market factors discussed above, partially offset by higher DAC amortization, resulted in a $1.1 billion increase in adjusted earnings.
Underwriting, Actuarial Assumption Review, and Other Insurance Adjustments. Unfavorable underwriting, mainly in our long-term care business, resulted in a $14 million decrease in adjusted earnings, which reflects the diminishing impact of the COVID-19 pandemic on this business in 2021. The favorable change from our annual actuarial assumption reviews resulted in a net increase of $82 million in adjusted earnings. Unfavorable refinements to DAC and certain insurance-related liabilities in 2020 resulted in a $24 million increase in adjusted earnings. Dividend scale reductions, as well as run-off in MLIC’s closed block, contributed to lower dividend expenses of $149 million and lower associated DAC amortization of $68 million, which increased adjusted earnings.
Expenses. Adjusted earnings decreased by $54 million mainly due to higher corporate-related expenses.
Corporate & Other
Years Ended December 31,
2021 2020
(In millions)
Adjusted revenues
Premiums $ 35 $ 22
Universal life and investment-type product policy fees 2 3
Net investment income 244 42
Other revenues 420 344
Total adjusted revenues 701 411
Adjusted expenses
Policyholder benefits and claims and policyholder dividends 34 (3)
Capitalization of DAC (11) (11)
Amortization of DAC and VOBA 9 8
Interest expense on debt 902 895
Other expenses 562 625
Total adjusted expenses 1,496 1,514
Provision for income tax expense (benefit) (591) (556)
Adjusted earnings (204) (547)
Less: Preferred stock dividends 195 202
Adjusted earnings available to common shareholders $ (399) $ (749)
Adjusted premiums, fees and other revenues $ 457 $ 369
The table below presents adjusted earnings available to common shareholders by source:
Years Ended December 31,
2021 2020
(In millions)
Business activities $ 143 $ 96
Net investment income 248 54
Interest expense on debt (944) (943)
Corporate initiatives and projects (128) (159)
Other (114) (151)
Provision for income tax (expense) benefit and other tax-related items 591 556
Preferred stock dividends (195) (202)
Adjusted earnings available to common shareholders $ (399) $ (749)
Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Activities. Adjusted earnings from business activities increased $37 million. This was primarily related to improved results from certain of our businesses.
Net Investment Income. Net investment income increased $153 million, primarily due to increased returns on our equity market sensitive investments, including private equity funds, as well as increased income on real estate investments. These increases were partially offset by lower yields on our fixed income securities and decreased returns on FVO Securities.
Corporate Initiatives and Projects. Adjusted earnings increased $24 million due to lower expenses associated with employee-related project costs.
Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. A favorable change in Corporate & Other’s taxes was primarily due an IRS audit settlement in 2021, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent in 2021 and lower taxes on stock compensation. These were partially offset by the finalization of bankruptcy proceedings for a leveraged lease investment in 2020 and lower utilization of tax preferenced items, which include foreign earnings taxed at different rates than the U.S. statutory rate, tax credits and non-taxable investment income.
Other. Adjusted earnings increased $29 million, primarily as a result of the release of a legal reserve in 2021, lower legal expenses, as well as a decrease in certain corporate-related expenses, partially offset by an increase in employee-related costs.
Preferred Stock Dividends. Adjusted earnings available to common shareholders increased $7 million as a result of the redemption and cancellation of the 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the “Series C preferred stock”) on June 15, 2021, partially offset by dividends paid on the 3.85% Fixed Rate Reset Non-Cumulative Preferred Stock, Series G, we issued in September 2020.
Investments
Overview
We manage our investment portfolio using disciplined ALM principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with the vast majority of our portfolio invested in fixed maturity securities AFS and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities.
Current Environment
As a global insurance company, we continue to be impacted by the changing global financial and economic environment, the fiscal and monetary policy of governments and central banks around the world and other governmental measures. The COVID-19 pandemic continues to impact the global economy and financial markets and has caused volatility in the global equity, credit and real estate markets. See “- Industry Trends - Financial and Economic Environment.” Uncertainty created by the COVID-19 pandemic may persist for some time and may continue to impact pricing levels of risk-bearing investments, as well as our business operations, investment portfolio and derivatives. See “- Selected Country and Sector Investments,” “- U.S. and Foreign Corporate Fixed Maturity Securities AFS,” “- Mortgage Loans,” and “- Real Estate and Real Estate Joint Ventures” for discussion of impacts of the COVID-19 pandemic on the investment portfolio.
Selected Country and Sector Investments
Selected Country: We have a market presence in numerous countries and, therefore, our investment portfolio, which supports our insurance operations and related policyholder liabilities, as well as our global portfolio diversification objectives, is exposed to risks posed by local political and economic conditions, as well as those resulting from the COVID-19 pandemic. The countries included in the following table have been the most affected by these risks. The table below presents a summary of selected country fixed maturity securities AFS, at estimated fair value, on a “country of risk basis” (e.g. where the issuer primarily conducts business).
Selected Country Fixed Maturity Securities AFS at December 31, 2021
Country
Sovereign (1) Financial
Services Non-Financial
Services Structured Products Total (2)
(Dollars in millions)
Mexico $ 2,406 $ 795 $ 2,021 $ 34 $ 5,256
Chile 1,424 816 2,895 1 5,136
Colombia 369 70 187 - 626
Peru 120 41 247 - 408
Russia 278 26 101 - 405
Ukraine 129 - 2 - 131
Turkey 78 1 12 - 91
Total $ 4,804 $ 1,749 $ 5,465 $ 35 $ 12,053
Investment grade % 87.3 % 89.7 % 90.2 % 91.4 % 89.0 %
__________________
(1)Sovereign includes government and agency.
(2)The par value, amortized cost net of ACL and estimated fair value, net of purchased and written credit default swaps, of these securities were $11.7 billion, $11.1 billion and $11.3 billion, respectively, at December 31, 2021. The notional value and estimated fair value of the net purchased and written credit default swaps were $740 million and ($1) million, respectively, at December 31, 2021.
Selected Sector: As a result of current economic conditions, including the effects on the global economy and financial markets from the COVID-19 pandemic, certain sectors of our investment portfolio have continued to experience stress. Our fixed maturity securities AFS exposure to stressed sectors is summarized below:
Selected Sectors at December 31, 2021
Sectors Book Value (1) Investment
Grade % % of Total
Investments
(Dollars in millions)
Airports $ 3,233 82 % 0.6 %
Cruise Lines / Leisure 994 92 % 0.2 %
Airlines 477 73 % 0.1 %
Restaurants 445 96 % 0.1 %
Lodging 175 62 % - %
Fixed maturity securities AFS exposure to stressed sectors (2) $ 5,324 1.0 %
__________________
(1)Fixed maturity securities AFS at amortized cost, net of ACL.
(2)The par value, estimated fair value and estimated fair value, net of written credit default swaps, of these securities were $5.3 billion, $5.7 billion and $5.8 billion, respectively, at December 31, 2021. The notional value and estimated fair value of the written credit default swaps were $167 million and $3 million, respectively, at December 31, 2021.
We maintain a high quality portfolio of Airports sector fixed maturity securities AFS that is diversified across issuers and geographies, with 46%, 23% and 23% of the exposure in Europe, Asia and the U.S., respectively. This portfolio is primarily invested in higher quality, highly rated investment grade securities. At December 31, 2021, this securities portfolio was in an unrealized gain position of $215 million.
We manage direct and indirect investment exposure in the selected countries and sectors through fundamental analysis and we continually monitor and adjust our level of investment exposure.
Investment Portfolio Results
The reconciliation of net investment income under GAAP to adjusted net investment income is presented below.
For the Years Ended December 31,
2021 2020
(In millions)
Net investment income - GAAP $ 21,395 $ 17,117
Investment hedge adjustments
895 815
Unit-linked investment income (952) (568)
Other
(58) (36)
Adjusted net investment income (1) $ 21,280 $ 17,328
__________________
(1)See “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements for a discussion of the adjustments made to net investment income under GAAP in calculating adjusted net investment income.
The following yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.
For the Years Ended December 31,
2021 2020
Asset Class
Yield% (1) Amount Yield% (1) Amount
(Dollars in millions)
Fixed maturity securities AFS (2), (3) 3.74 % $ 11,146 3.88 % $ 11,356
Mortgage loans (3) 4.19 3,430 4.27 3,518
Real estate and real estate joint ventures (4) 4.81 579 1.56 178
Policy loans 5.11 474 5.18 498
Equity securities 4.45 36 4.83 50
Other limited partnership interests (4) 40.71 4,935 12.17 1,010
Cash and short-term investments 0.80 87 1.35 140
Other invested assets - 1,197 - 1,162
Investment income
5.05 % $ 21,884 4.22 % $ 17,912
Investment fees and expenses (0.12) (537) (0.13) (538)
Net investment income including divested businesses (5) 4.93 % $ 21,347 4.09 % $ 17,374
Less: net investment income from divested businesses (5) 67 46
Adjusted net investment income $ 21,280 $ 17,328
__________________
(1)We calculate yields using adjusted net investment income as a percent of average quarterly asset carrying values. Adjusted net investment income excludes realized gains (losses) from sales and disposals, includes the impact of changes in foreign currency exchange rates. Average quarterly asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, annuities funding structured settlement claims, freestanding derivative assets, collateral received from derivative counterparties, the effects of consolidating under GAAP certain variable interest entities that are treated as consolidated securitization entities (“CSEs”) and contractholder-directed equity securities. In addition, average quarterly asset carrying values include invested assets reclassified to held-for-sale. A yield is not presented for other invested assets, as it is not considered a meaningful measure of performance for this asset class.
(2)Investment income from fixed maturity securities includes amounts from FVO Securities of $167 million and $140 million for the years ended December 31, 2021 and 2020, respectively.
(3)Investment income from fixed maturity securities AFS and mortgage loans includes prepayment fees.
(4)See “- Results of Operations - Consolidated Results - Adjusted Earnings” for discussion of results for the year ended December 31, 2021.
(5)See “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements for discussion of divested businesses.
See “- Results of Operations - Consolidated Results - Adjusted Earnings” for an analysis of the period over period changes in investment portfolio results.
Fixed Maturity Securities AFS and Equity Securities
The following table presents fixed maturity securities AFS and equity securities by type (public or private) and information about perpetual and redeemable securities held at:
December 31,
2021 2020
Securities by Type Estimated Fair
Value % of
Total Estimated Fair
Value % of
Total
(Dollars in millions)
Fixed maturity securities AFS
Publicly-traded $ 267,040 78.5 % $ 284,083 80.1 %
Privately-placed 73,234 21.5 70,726 19.9
Total fixed maturity securities AFS $ 340,274 100.0 % $ 354,809 100.0 %
Percentage of cash and invested assets 66.1 % 67.2 %
Equity securities
Publicly-traded $ 1,118 88.1 % $ 851 78.9 %
Privately-held 151 11.9 228 21.1
Total equity securities $ 1,269 100.0 % $ 1,079 100.0 %
Percentage of cash and invested assets 0.2 % 0.2 %
Perpetual and redeemable securities
Perpetual securities included within fixed maturity securities AFS and equity securities $ 321 $ 344
Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS $ 864 $ 912
See Note 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities, continuous gross unrealized losses and equity securities by security type.
Included within fixed maturity securities AFS are structured securities, including residential mortgage-backed securities (“RMBS”), ABS and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Products”).
Perpetual securities are included within fixed maturity securities AFS and equity securities. Upon acquisition, we classify perpetual securities that have attributes of both debt and equity as fixed maturity securities AFS if the securities have an interest rate step-up feature which, when combined with other qualitative factors, indicates that the securities have more debt-like characteristics; while those with more equity-like characteristics are classified as equity securities. Many of such securities, commonly referred to as “perpetual hybrid securities,” have been issued by non-U.S. financial institutions that are accorded the highest two capital treatment categories by their respective regulatory bodies (i.e. core capital, or “Tier 1 capital” and perpetual deferrable securities, or “Upper Tier 2 capital”).
Redeemable preferred stock with a stated maturity is included within fixed maturity securities AFS. These securities, which are commonly referred to as “capital securities,” primarily have cumulative interest deferral features and are primarily issued by U.S. financial institutions.
Valuation of Securities. We are responsible for the determination of the estimated fair value of our investments. We determine the estimated fair value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent pricing services (after we determine the independent pricing services’ use of available observable market data). For publicly-traded securities, the number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by observable market data. See Note 10 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not available in the active market or through an independent pricing service, management values the security primarily using market standard internal matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the following section, less than 1% of our fixed maturity securities AFS were valued using non-binding quotations from independent brokers at December 31, 2021.
Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies for securities, mortgage loans, real estate and derivatives. On a quarterly basis, new transaction types and markets are reviewed and approved to ensure that observable market prices and market-based parameters are used for valuation, wherever possible, and for determining that valuation adjustments, when applied, are based upon established policies and are applied consistently over time. Senior management oversees the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing.
We review our valuation methodologies on an ongoing basis and revise those methodologies when necessary based on changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with fair value accounting guidance through controls designed to ensure valuations represent an exit price. Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. We ensure that prices received from independent brokers, also referred to herein as “consensus pricing,” are representative of estimated fair value by considering such pricing relative to our knowledge of the current market dynamics and current pricing for similar investments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio.
We also apply a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair value, compared with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates are generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence, management’s best estimate is used.
We have reviewed the significance and observability of inputs used in the valuation methodologies to determine the appropriate fair value hierarchy level for each of our securities. Based on the results of this review and investment class analysis, each instrument is categorized as Level 1, 2 or 3 based on the lowest level significant input to its valuation. See Note 10 of the Notes to the Consolidated Financial Statements for valuation approaches and key inputs by major category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Fair Value of Fixed Maturity Securities AFS and Equity Securities
Fixed maturity securities AFS and equity securities measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources were as follows:
December 31, 2021
Level Fixed Maturity
Securities AFS Equity
Securities
(Dollars in millions)
Level 1
Quoted prices in active markets for identical assets
$ 25,489 7.5 % $ 931 73.4 %
Level 2
Independent pricing sources
282,408 83.0 184 14.5
Internal matrix pricing or discounted cash flow techniques
980 0.3 3 0.2
Significant other observable inputs
283,388 83.3 187 14.7
Level 3
Independent pricing sources
25,051 7.4 5 0.4
Internal matrix pricing or discounted cash flow techniques
5,864 1.7 146 11.5
Independent broker quotations
482 0.1 - -
Significant unobservable inputs
31,397 9.2 151 11.9
Total at estimated fair value $ 340,274 100.0 % $ 1,269 100.0 %
See Note 10 of the Notes to the Consolidated Financial Statements for the fixed maturity securities AFS and equity securities fair value hierarchy; a rollforward of the fair value measurements for securities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs; transfers into and/or out of Level 3; and further information about the valuation approaches and inputs by level by major classes of invested assets that affect the amounts reported above.
The majority of the Level 3 fixed maturity securities AFS and equity securities were concentrated in three sectors at December 31, 2021: foreign corporate securities, U.S. corporate securities and RMBS. During the year ended December 31, 2021, Level 3 fixed maturity securities AFS increased by $1.9 billion, or 6%. The increase was driven by purchases in excess of sales, partially offset by a decrease in estimated fair value recognized in other comprehensive income (loss) and by transfers out of Level 3 in excess of transfers into Level 3.
Fixed Maturity Securities AFS
See Note 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities and continuous gross unrealized losses.
Fixed Maturity Securities AFS Credit Quality - Ratings
The Securities Valuation Office of the NAIC evaluates the fixed maturity securities of insurers for regulatory reporting and capital assessment purposes. The NAIC assigns securities to one of six credit quality categories defined as “NAIC designations.” In general, securities with NAIC designations of 1 and 2 are considered investment grade and securities with NAIC designations of 3 through 6 are considered below investment grade. If no NAIC designation is available, then, as permitted by the NAIC, an internally developed designation is used. NAIC designations are generally similar to the credit quality ratings of the NRSRO, except for non-agency RMBS and CMBS as described below, accordingly, NAIC designations may not correspond to NRSRO ratings.
NAIC designations for non-agency RMBS and CMBS are based on a modeling methodology that estimates security level expected losses under a variety of economic scenarios. Prior to December 31, 2021, the modeling methodology incorporated the amortized cost of the security (including any purchase discounts and prior impairments) without regard to the issuance date. As of December 31, 2021, the modeling methodology for non-agency RMBS and CMBS issued prior to January 1, 2013 incorporates the amortized cost of the security (including any purchase discounts and prior impairments) and the likelihood of recovery of the amortized cost; while for non-agency RMBS and CMBS issued after January 1, 2013, the modeling methodology does not incorporate the amortized cost of the security. The NAIC’s objective with the modeling methodology is to increase accuracy in estimating expected losses, and to use the improved assessment to determine an appropriate RBC charge for non-agency RMBS and CMBS. We utilize these NAIC designations for non-agency RMBS and CMBS held by MetLife, Inc.’s insurance subsidiaries that maintain the NAIC statutory basis of accounting. The NAIC evaluates non-agency RMBS and CMBS held by insurers on an annual basis. When MetLife, Inc.’s insurance subsidiaries acquire non-agency RMBS and CMBS that have not been previously evaluated by the NAIC, an internally developed designation is used until a NAIC designation becomes available.
Effective December 31, 2020, the NAIC implemented 20 “NAIC designation categories” which is an additional, more granular credit quality categorization. These NAIC designation categories correspond more closely to the NRSRO’s alpha-numeric credit quality ratings. Effective December 31, 2021, the NAIC implemented new unique RBC factors for each of the 20 NAIC designation categories. The NAIC’s goal is to better align RBC charges on securities with the instruments’ actual credit risk.
Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s Investors Service (“Moody’s”), S&P, Fitch Ratings (“Fitch”), DBRS Morningstar, A.M. Best Company (“A.M. Best”), Kroll Bond Rating Agency and Egan Jones Ratings Company. If no rating is available from a rating agency, then an internally developed rating is used.
The following table presents total fixed maturity securities AFS by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for non-agency RMBS and CMBS, held by MetLife, Inc.'s insurance subsidiaries that maintain the NAIC statutory basis of accounting, which are presented using NAIC designations for modeled securities. NRSRO ratings and NAIC designations are as of the dates shown below. Over time, credit ratings can migrate, up or down, through the NRSRO's and NAIC’s continuous monitoring process.
December 31,
2021 2020
NAIC
Designation NRSRO Rating Amortized
Cost net of ACL Unrealized
Gains (Losses) (1) Estimated
Fair
Value % of
Total Amortized
Cost net of ACL Unrealized
Gains (Losses) (1) Estimated
Fair
Value % of
Total
(Dollars in millions)
1 Aaa/Aa/A $ 217,886 $ 21,508 $ 239,394 70.4 % $ 218,252 $ 31,761 $ 250,013 70.5 %
2 Baa 77,739 7,470 85,209 25.0 76,342 11,360 87,702 24.7
Subtotal investment grade 295,625 28,978 324,603 95.4 294,594 43,121 337,715 95.2
3 Ba 11,439 534 11,973 3.5 11,840 972 12,812 3.6
4 B 3,152 (2) 3,150 0.9 3,688 14 3,702 1.1
5 Caa and lower 563 (37) 526 0.2 536 (33) 503 0.1
6 In or near default
14 8 22 - 72 5 77 -
Subtotal below investment grade 15,168 503 15,671 4.6 16,136 958 17,094 4.8
Total fixed maturity securities AFS $ 310,793 $ 29,481 $ 340,274 100.0 % $ 310,730 $ 44,079 $ 354,809 100.0 %
(1) Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.
The following tables present total fixed maturity securities AFS, at estimated fair value, by sector and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for non-agency RMBS and CMBS, which are presented using NAIC designations for modeled securities:
Fixed Maturity Securities AFS - by Sector & Credit Quality Rating
NAIC Designation 1 2 3 4 5 6 Total
Estimated
Fair Value
NRSRO Rating Aaa/Aa/A Baa Ba B Caa and
Lower In or Near
Default
(Dollars in millions)
December 31, 2021
U.S. corporate $ 47,377 $ 39,094 $ 4,523 $ 1,796 $ 244 $ - $ 93,034
Foreign corporate 23,228 35,893 3,731 577 210 1 63,640
Foreign government 52,316 5,739 3,032 506 14 2 61,609
U.S. government and agency 46,065 534 - - - - 46,599
RMBS 29,529 634 150 67 5 19 30,404
ABS 15,920 2,221 316 85 27 - 18,569
Municipals 13,737 457 18 - - - 14,212
CMBS 11,222 637 203 119 26 - 12,207
Total fixed maturity securities AFS $ 239,394 $ 85,209 $ 11,973 $ 3,150 $ 526 $ 22 $ 340,274
Percentage of total
70.4 % 25.0 % 3.5 % 0.9 % 0.2 % - % 100.0 %
December 31, 2020
U.S. corporate $ 46,847 $ 39,552 $ 4,649 $ 2,018 $ 326 $ 24 $ 93,416
Foreign corporate 26,812 37,884 3,984 648 74 6 69,408
Foreign government 61,322 6,678 3,161 456 77 5 71,699
U.S. government and agency 46,543 557 - - - - 47,100
RMBS 29,347 706 197 153 14 18 30,435
ABS 15,328 1,496 197 96 1 1 17,119
Municipals 13,240 460 22 - - - 13,722
CMBS 10,574 369 602 331 11 23 11,910
Total fixed maturity securities AFS $ 250,013 $ 87,702 $ 12,812 $ 3,702 $ 503 $ 77 $ 354,809
Percentage of total
70.5 % 24.7 % 3.6 % 1.1 % 0.1 % - % 100.0 %
U.S. and Foreign Corporate Fixed Maturity Securities AFS
We maintain a diversified portfolio of corporate fixed maturity securities AFS across industries and issuers. This portfolio did not have any exposure to any single issuer in excess of 1% of total investments at December 31, 2021. The top 10 holdings comprised 2% of total investments at both December 31, 2021 and 2020. The table below presents our U.S. and foreign corporate securities holdings by industry at:
December 31,
2021 2020
Industry Estimated
Fair
Value % of
Total Estimated
Fair
Value % of
Total
(Dollars in millions)
Industrial $ 45,732 29.2 % $ 47,472 29.2 %
Finance 35,676 22.7 37,645 23.1
Consumer 31,142 19.9 33,384 20.5
Utility 28,961 18.5 29,984 18.4
Communications 12,346 7.9 12,107 7.4
Other 2,817 1.8 2,232 1.4
Total
$ 156,674 100.0 % $ 162,824 100.0 %
As a result of current economic conditions, including the effects of the COVID-19 pandemic, we have experienced stress within certain sub-sectors of our industrial and consumer corporate securities portfolios, principally in Airports, Cruise Lines / Leisure, Airlines, Restaurants and Lodging. See “- Current Environment - Selected Country and Sector Investments.”
Structured Products
We held $61.2 billion and $59.5 billion of Structured Products, at estimated fair value, at December 31, 2021 and 2020, respectively, as presented in the RMBS, ABS and CMBS sections below.
RMBS
Our RMBS portfolio is diversified by security type and risk profile. The following table presents our RMBS portfolio by security type, risk profile and ratings profile at:
December 31,
2021 2020
Estimated
Fair
Value % of
Total Net
Unrealized
Gains (Losses) (1) Estimated
Fair
Value % of
Total Net
Unrealized
Gains (Losses) (1)
(Dollars in millions)
Security type
Collateralized mortgage obligations $ 17,646 58.0 % $ 1,092 $ 17,342 57.0 % $ 1,468
Pass-through mortgage-backed securities 12,758 42.0 160 13,093 43.0 552
Total RMBS $ 30,404 100.0 % $ 1,252 $ 30,435 100.0 % $ 2,020
Risk profile
Agency $ 19,487 64.1 % $ 671 $ 20,408 67.1 % $ 1,314
Prime 3,018 9.9 13 1,637 5.4 38
Alt-A 3,887 12.8 267 3,809 12.5 306
Sub-prime 4,012 13.2 301 4,581 15.0 362
Total RMBS $ 30,404 100.0 % $ 1,252 $ 30,435 100.0 % $ 2,020
Ratings profile
Rated Aaa/AAA $ 21,786 71.7 % $ 22,555 74.1 %
Designated NAIC 1 $ 29,529 97.1 % $ 29,347 96.4 %
(1) Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.
Collateralized mortgage obligations are structured by dividing the cash flows of mortgage loans into separate pools or tranches of risk that create multiple classes of bonds with varying maturities and priority of payments. Pass-through mortgage-backed securities are secured by a mortgage loan or collection of mortgage loans. The monthly mortgage loan payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments and, for a fee, remits or passes these payments through to the holders of the pass-through securities.
The majority of our RMBS holdings were rated Aaa/AAA and were designated NAIC 1 at December 31, 2021 and 2020. Agency RMBS were guaranteed or otherwise supported by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Government National Mortgage Association. Non-agency RMBS include prime, alternative residential mortgage loans (“Alt-A”) and sub-prime RMBS. Prime residential mortgage lending includes the origination of residential mortgage loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
Historically, we have managed our exposure to sub-prime RMBS holdings by focusing primarily on senior tranche securities, stress testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2).
ABS
Our ABS portfolio is diversified by collateral type and issuer. The following table presents our ABS portfolio by collateral type and ratings profile at:
December 31,
2021 2020
Estimated
Fair
Value % of
Total Net
Unrealized
Gains (Losses) (1) Estimated
Fair
Value % of
Total Net
Unrealized
Gains (Losses) (1)
(Dollars in millions)
Collateral type
Collateralized obligations (2) $ 8,441 45.5 % $ (3) $ 8,946 52.2 % $ (16)
Consumer loans 1,653 8.9 48 1,535 9.0 46
Automobile loans 1,287 6.9 10 976 5.7 20
Student loans 1,143 6.2 15 1,174 6.9 7
Foreign residential loans 922 5.0 2 956 5.5 15
Credit card loans 900 4.8 9 1,006 5.9 13
Other loans (3) 4,223 22.7 45 2,526 14.8 71
Total $ 18,569 100.0 % $ 126 $ 17,119 100.0 % $ 156
Ratings profile
Rated Aaa/AAA
$ 8,071 43.5 % $ 9,164 53.5 %
Designated NAIC 1
$ 15,920 85.7 % $ 15,328 89.5 %
_________________
(1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.
(2)Includes primarily collateralized loan obligations.
(3)Other loans are broadly diversified across several subsectors and issuers, including securities with the following collateral types: digital infrastructure, franchise, equipment, containers and renewable energy.
CMBS
Our CMBS portfolio is comprised primarily of securities collateralized by multiple commercial mortgage loans and is diversified by property type, borrower, geography and vintage year. The following tables present our CMBS portfolio by NRSRO rating and vintage year.
December 31, 2021
Aaa Aa A Baa Below
Investment
Grade Total
Vintage Year Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value
(Dollars in millions)
2003 - 2014 $ 1,170 $ 1,228 $ 1,048 $ 1,085 $ 570 $ 576 $ 94 $ 91 $ 230 $ 219 $ 3,112 $ 3,199
2015 456 479 56 58 53 55 7 7 - - 572 599
2016 268 286 66 68 53 54 - - - - 387 408
2017 770 804 345 361 193 197 - - - - 1,308 1,362
2018 1,756 1,917 301 314 179 188 10 10 - - 2,246 2,429
2019 934 967 131 133 660 666 - - - - 1,725 1,766
2020 501 506 247 248 214 218 26 26 - - 988 998
2021 650 650 510 510 245 249 37 37 - - 1,442 1,446
Total
$ 6,505 $ 6,837 $ 2,704 $ 2,777 $ 2,167 $ 2,203 $ 174 $ 171 $ 230 $ 219 $ 11,780 $ 12,207
Ratings
Distribution 56.0 % 22.8 % 18.0 % 1.4 % 1.8 % 100.0 %
December 31, 2020
Aaa Aa A Baa Below
Investment
Grade Total
Vintage Year Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value Amortized
Cost net of ACL Estimated
Fair
Value
(Dollars in millions)
2003 - 2014 $ 1,409 $ 1,491 $ 1,327 $ 1,366 $ 542 $ 526 $ 115 $ 105 $ 114 $ 98 $ 3,507 $ 3,586
2015 462 492 65 69 38 40 7 6 - - 572 607
2016 282 310 56 60 54 53 - - - - 392 423
2017 757 807 432 463 150 150 - - - - 1,339 1,420
2018 1,704 1,891 592 647 205 214 9 9 - - 2,510 2,761
2019 1,048 1,100 138 141 596 610 - - - - 1,782 1,851
2020 734 748 280 293 186 191 29 30 - - 1,229 1,262
Total $ 6,396 $ 6,839 $ 2,890 $ 3,039 $ 1,771 $ 1,784 $ 160 $ 150 $ 114 $ 98 $ 11,331 $ 11,910
Ratings
Distribution 57.4 % 25.5 % 15.0 % 1.3 % 0.8 % 100.0 %
The tables above reflect NRSRO ratings including Moody’s, S&P, Fitch and DBRS Morningstar. CMBS designated NAIC 1 were 91.9% and 88.8% of total CMBS at December 31, 2021 and 2020, respectively.
Evaluation of Fixed Maturity Securities AFS for Credit Loss, Rollforward of Allowance for Credit Loss and Credit Loss on Fixed Maturity Securities AFS Recognized in Earnings
See Note 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for credit loss, rollforward of the ACL, net credit loss provision (release), impairment loss, as well as realized gross gains and gross losses on fixed maturity securities AFS sold or disposed at and for the years ended December 31, 2021 and 2020.
Contractholder-Directed Equity Securities and Fair Value Option Securities
The estimated fair value of these investments, which are primarily comprised of contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit-linked investments”), was $12.1 billion and $13.3 billion, or 2.4% and 2.5% of cash and invested assets, at December 31, 2021 and 2020, respectively. See Notes 1, 8 and 10 of the Notes to the Consolidated Financial Statements for a description of this portfolio, investments by asset type, the fair value hierarchy and a rollforward of the fair value measurements for these investments measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian Administered Programs
We participate in securities lending transactions, repurchase agreements and third-party custodian administered programs with unaffiliated financial institutions in the normal course of business for the purpose of enhancing the total return on our investment portfolio.
Securities lending transactions and repurchase agreements: We account for these arrangements as secured borrowings and record a liability in the amount of the cash received. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the securities are returned to us. Through these arrangements, we were liable for cash collateral under our control of $24.4 billion and $21.8 billion at December 31, 2021 and 2020, respectively, including a portion that may require the immediate return of cash collateral we hold. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for further information about the secured borrowings accounting and the classification of revenues and expenses.
Third-party custodian administered programs: The estimated fair value of securities we own which are loaned in connection with these programs was $273 million and $19 million at December 31, 2021 and 2020, respectively. The estimated fair value of the related non-cash collateral on deposit with third-party custodians on our behalf, which is not reflected in our consolidated financial statements and cannot be sold or re-pledged, was $282 million and $20 million at December 31, 2021 and 2020, respectively. The year-over-year increase in securities owned and loaned and related non-cash collateral was due to increased demand for longer duration securities in our portfolios available for lending.
Mortgage Loans
Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Mortgage loans carried at amortized cost and the related ACL are summarized as follows at:
December 31,
2021 2020
Portfolio Segment Amortized Cost % of
Total ACL ACL as % of
Amortized Cost Amortized Cost % of
Total ACL ACL as % of
Amortized Cost
(Dollars in millions)
Commercial $ 50,553 63.3 % $ 340 0.7 % $ 52,434 62.2 % $ 252 0.5 %
Agricultural 18,111 22.7 88 0.5 % 18,128 21.5 106 0.6 %
Residential 11,196 14.0 206 1.8 % 13,782 16.3 232 1.7 %
Total
$ 79,860 100.0 % $ 634 0.8 % $ 84,344 100.0 % $ 590 0.7 %
The carrying value of all mortgage loans, net of ACL, was 15.4% and 15.9% of cash and invested assets at December 31, 2021 and 2020, respectively.
Our commercial, agricultural and residential mortgage loan portfolios are subject to uncertain market conditions, including the effects of the COVID-19 pandemic. As a result of the COVID-19 pandemic in 2021 and 2020, we granted concessions (e.g., payment deferrals and other loan modifications) to certain of our commercial mortgage loan borrowers (principally in the hotel and retail sectors) and residential mortgage loan borrowers and, to a much lesser extent, some of our agricultural mortgage loan borrowers. While we granted concessions in 2021, both the frequency and number of concessions significantly decreased from 2020. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions. See also “- Commercial Mortgage Loans by Geographic Region and Property Type.”
We diversify our mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. Of our commercial and agricultural mortgage loan portfolios, 83% are collateralized by properties located in the United States, with the remaining 17% collateralized by properties located outside the United States, which includes 5% and 1% of properties located in Mexico and Chile, respectively, at December 31, 2021. The carrying values of our commercial and agricultural mortgage loans located in California, New York and Texas were 16%, 9% and 7%, respectively, of total commercial and agricultural mortgage loans at December 31, 2021. Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.
We manage our residential mortgage loan portfolio in a similar manner to reduce risk of concentration, with 91% collateralized by properties located in the United States, and the remaining 9% collateralized by properties located outside the United States, principally in Chile, at December 31, 2021. The carrying values of our residential mortgage loans located in California, Florida, and New York were 30%, 9%, and 9%, respectively, of total residential mortgage loans at December 31, 2021.
Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest mortgage loan portfolio segment. The tables below present the diversification across geographic regions and property types of commercial mortgage loans at:
December 31,
2021 2020
Amount % of
Total Amount % of
Total
(Dollars in millions)
Region
Non-U.S. $ 9,969 19.7 % $ 10,581 20.2 %
Pacific 9,676 19.1 10,235 19.5
Middle Atlantic 7,537 14.9 8,233 15.7
South Atlantic 6,800 13.5 7,217 13.8
West South Central 3,492 6.9 3,887 7.4
New England 2,748 5.4 2,126 4.0
East North Central 2,129 4.2 2,494 4.8
Mountain 1,993 4.0 1,777 3.4
East South Central 759 1.5 700 1.3
West North Central 663 1.3 609 1.2
Multi-Region and Other 4,787 9.5 4,575 8.7
Total amortized cost 50,553 100.0 % 52,434 100.0 %
Less: ACL 340 252
Carrying value, net of ACL $ 50,213 $ 52,182
Property Type
Office $ 22,388 44.3 % $ 23,928 45.6 %
Apartment 9,121 18.0 8,764 16.7
Retail 8,548 16.9 8,911 17.0
Industrial 5,096 10.1 5,365 10.2
Hotel 3,201 6.3 3,377 6.5
Other 2,199 4.4 2,089 4.0
Total amortized cost 50,553 100.0 % 52,434 100.0 %
Less: ACL 340 252
Carrying value, net of ACL $ 50,213 $ 52,182
__________________
Our commercial mortgage loan portfolio is well positioned with exposures concentrated in high quality underlying properties located in primary markets typically with institutional investors who are better positioned to manage their assets during periods of market volatility. Our portfolio is comprised primarily of lower risk loans with higher debt-service coverage ratios (“DSCR”) and lower loan-to-value (“LTV”) ratios. See “- Mortgage Loan Credit Quality - Monitoring Process” for further information and Note 8 of the Notes to the Consolidated Financial Statements for a distribution of our commercial mortgage loans by DSCR and LTV ratios. Excluding loans with a COVID-19 pandemic-related payment deferral, over 99% of our commercial mortgage loan portfolio, including our hotel and retail commercial mortgage loans, were current at December 31, 2021. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding COVID-19 pandemic-related mortgage loan concessions.
Mortgage Loan Credit Quality - Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans by credit quality indicator and loans that are current, past due, restructured and under foreclosure. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans.
We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR and loans with a COVID-19 pandemic-related payment deferral. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher LTV ratios. Agricultural mortgage loans are reviewed on an ongoing basis which include, but are not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, including reviews on a geographic and property-type basis. We review our residential mortgage loans on an ongoing basis, with a focus on higher risk loans, such as nonperforming loans. See Note 8 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related ACL methodology.
LTV ratios and DSCR are common measures in the assessment of the quality of commercial mortgage loans. LTV ratios are a common measure in the assessment of the quality of agricultural mortgage loans. LTV ratios compare the amount of the loan to the estimated fair value of the underlying collateral. An LTV ratio greater than 100% indicates that the loan amount is greater than the collateral value. An LTV ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average LTV ratio was 56% and 58% at December 31, 2021 and 2020 respectively, and our average DSCR was 2.5x at both December 31, 2021 and 2020. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio. For our agricultural mortgage loans, our average LTV ratio was 49% and 48% at December 31, 2021 and 2020, respectively. The values utilized in calculating our agricultural mortgage loan LTV ratio are developed in connection with the ongoing review of our agricultural loan portfolio and are routinely updated.
Mortgage Loan Allowance for Credit Loss. Our ACL is established for both pools of loans with similar risk characteristics and for mortgage loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents the portion of the amortized cost basis of mortgage loans that the Company does not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected.
In determining our ACL, management (i) pools mortgage loans that share similar risk characteristics, (ii) considers expected lifetime credit loss over the contractual term of our mortgage loans, as adjusted for expected prepayments and any extensions, and (iii) considers past events and current and forecasted economic conditions. Actual credit loss realized could be different from the amount of the ACL recorded. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the ACL to increase or decrease over time as such evaluations are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the ACL. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the ACL. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information on how the ACL is established and monitored, and activity in and balances of the ACL.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures is comprised of wholly-owned real estate and joint ventures with interests in single property income-producing real estate and, to a lesser extent, joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties to the operation of income-producing properties, as well as real estate funds. The carrying value of real estate and real estate joint ventures was $12.2 billion and $11.9 billion, or 2.4% and 2.3% of cash and invested assets, at December 31, 2021 and 2020, respectively.
Our real estate investments are typically stabilized properties that we intend to hold for the longer-term for portfolio diversification and long-term appreciation. Our real estate investment portfolio has significantly appreciated to a $6.8 billion and $6.3 billion unrealized gain position at December 31, 2021 and 2020, respectively. We continuously monitor expected future cash flows of each of our real estate investments and incorporate them into our periodic impairment analyses. As a result of the COVID-19 pandemic, we performed impairment analyses during the years ended December 31, 2021 and 2020, which included updated estimates of expected future cash flows. As a result of our impairment analyses, we recognized in earnings one impairment during the year ended December 31, 2020 for $13 million. This impairment was recorded in net investment income as the investment is in a real estate fund. There were no impairments recognized in earnings within net investment gains (losses) on real estate and real estate joint ventures for either the year ended December 31, 2021 or 2020.
We diversify our real estate investments by both geographic region and property type to reduce risk of concentration. See Note 8 of the Notes to the Consolidated Financial Statements for a summary of real estate investments, by income type, as well as income earned.
Geographical diversification: Our wholly-owned real estate and real estate joint ventures represented 72% of our total real estate investments, while real estate funds represented 28% of our total real estate investments at December 31, 2021, at carrying value. Within our wholly-owned real estate and real estate joint ventures portfolios, 63% of our properties were located in the United States and 37% of our properties were located outside the United States, at December 31, 2021, at carrying value. Within our wholly-owned real estate and real estate joint ventures portfolios, the portion of the properties located in Japan, California and Washington, D.C. were 33%, 9% and 9%, respectively, at December 31, 2021, at carrying value.
Property type diversification: Real estate and real estate joint venture investments are categorized by property type as follows at:
December 31,
2021 2020
Property Type Carrying
Value % of
Total Carrying
Value % of
Total
(Dollars in millions)
Office $ 4,209 34.5 % $ 4,082 34.2 %
Real estate funds 3,425 28.0 2,966 24.9
Apartment 1,343 11.0 1,260 10.6
Retail 1,105 9.0 1,273 10.7
Land 1,008 8.3 910 7.6
Hotel 677 5.5 610 5.0
Industrial 421 3.4 448 3.8
Agriculture 18 0.2 20 0.2
Other 10 0.1 364 3.0
Total real estate and real estate joint ventures $ 12,216 100.0 % $ 11,933 100.0 %
Other Limited Partnership Interests
Other limited partnership interests are comprised of investments in private funds, including private equity funds and hedge funds. At December 31, 2021 and 2020, the carrying value of other limited partnership interests was $14.6 billion and $9.5 billion, which included $663 million and $643 million of hedge funds, respectively. Other limited partnership interests were 2.8% and 1.8% of cash and invested assets at December 31, 2021 and 2020, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.
We use the equity method of accounting for most of our private equity funds. We generally recognize our share of a private equity fund’s earnings in net investment income on a three-month lag when the information is reported to us. Accordingly, changes in equity market levels, which can impact the underlying results of these private equity funds, are recognized in earnings within our net investment income on a three-month lag. For a discussion of our expected private equity market returns in 2022, see “- Executive Summary - Consolidated Company Outlook.”
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
December 31,
2021 2020
Asset Type Carrying Value % of Total Carrying Value % of Total
(Dollars in millions)
Freestanding derivatives with positive estimated fair values $ 10,466 56.1 % $ 11,866 57.6 %
Tax credit and renewable energy partnerships 1,564 8.4 1,751 8.5
Annuities funding structured settlement claims 1,251 6.7 1,263 6.1
Direct financing leases 1,143 6.1 1,340 6.5
Operating joint ventures 901 4.8 733 3.6
Leveraged leases 787 4.2 816 4.0
FHLB common stock 769 4.1 814 4.1
Funds withheld 525 2.8 508 2.5
Other 1,249 6.8 1,502 7.2
Total $ 18,655 100 % $ 20,593 100 %
Percentage of cash and invested assets 3.6 % 3.9 %
See Notes 1, 8 and 9 of the Notes to the Consolidated Financial Statements for information regarding freestanding derivatives with positive estimated fair values, tax credit and renewable energy partnerships, direct financing and leveraged leases, annuities funding structured settlement claims, operating joint ventures, FHLB common stock, and funds withheld, as well as gains (losses) on disposals of, and impairments losses on, tax credit and renewable energy partnerships, and leveraged leases.
Investment Commitments
We enter into the following commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See Note 21 of the Notes to the Consolidated Financial Statements for the amount of our unfunded investment commitments at December 31, 2021 and 2020. See “Net Investment Income” and “Net Investment Gains (Losses)” in Note 8 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments and the liability for credit loss for unfunded mortgage loan commitments. See also “- Fixed Maturity Securities AFS and Equity Securities,” “- Mortgage Loans,” “- Real Estate and Real Estate Joint Ventures” and “- Other Limited Partnership Interests.”
Derivatives
Overview
We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives, such as market standard purchased and written credit default swap contracts. See Note 9 of the Notes to the Consolidated Financial Statements for:
•A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks.
•Information about the primary underlying risk exposure, gross notional amount, and estimated fair value of our derivatives by type of hedge designation, excluding embedded derivatives held at December 31, 2021 and 2020.
•The statement of operations effects of derivatives in net investments in foreign operations, cash flow, fair value, or nonqualifying hedge relationships for the years ended December 31, 2021, 2020 and 2019.
We enter into market standard purchased and written credit default swap contracts. Payout under such contracts is triggered by certain credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typically also include involuntary restructuring. With respect to credit default contracts on sovereign debt, credit events typically include failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives Determinations Committee, determines that a credit event has occurred.
We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments they are hedging, which gives us more flexibility in managing our credit exposures. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.
See “Quantitative and Qualitative Disclosures About Market Risk - Management of Market Risk Exposures - Hedging Activities” for more information about our use of derivatives by major hedge program.
Fair Value Hierarchy
See Note 10 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.
The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.
Derivatives categorized as Level 3 at December 31, 2021 include: interest rate forwards with maturities which extend beyond the observable portion of the yield curve; foreign currency swaps and forwards with certain unobservable inputs, including the unobservable portion of the yield curve; and credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations. At December 31, 2021, less than 1% of the estimated fair value of our derivatives was priced through independent broker quotations.
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
The gain (loss) on Level 3 derivatives primarily relates to foreign currency derivatives that are valued using an unobservable portion of the swap yield curves and interest rate total return swaps with observable interest rates. Other significant inputs include the unobservable interest rate which extends beyond the observable portion of the yield curve. We validate the reasonableness of these inputs by valuing the positions using internal models and comparing the results to broker quotations.
The gain (loss) on Level 3 derivatives, percentage of gain (loss) attributable to observable and unobservable inputs, and the primary drivers of observable gain (loss) are summarized as follows:
Year Ended December 31, 2021
Gain (loss) recognized in net income (loss) ($460)
Approximate percentage of gain (loss) attributable to observable inputs 25%
Primary drivers of observable gain (loss) Increases in interest rates on interest rate total return swaps.
Approximate percentage of gain (loss) attributable to unobservable inputs 75%
See “- Summary of Critical Accounting Estimates - Derivatives” for further information on the estimates and assumptions that affect derivatives.
Credit Risk
See Note 9 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.
Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives on the consolidated balance sheets and does not affect our legal right of offset.
Credit Derivatives
The following table presents the gross notional amount and estimated fair value of credit default swaps at:
December 31,
2021 2020
Credit Default Swaps Gross
Notional
Amount
Estimated
Fair Value
Gross
Notional
Amount
Estimated
Fair Value
(In millions)
Purchased $ 3,042 $ (100) $ 2,978 $ (112)
Written 8,626 165 9,609 196
Total $ 11,668 $ 65 $ 12,587 $ 84
The following table presents the gross gains, gross losses and net gains (losses) recognized in net derivative gains (losses) for credit default swaps as follows:
Years Ended December 31,
2021 2020
Credit Default Swaps Gross
Gains Gross
Losses Net
Gains
(Losses) Gross
Gains Gross
Losses Net
Gains
(Losses)
(In millions)
Purchased (1) $ 18 $ (9) $ 9 $ 36 $ (64) $ (28)
Written (1) 52 (11) 41 65 (171) (106)
Total $ 70 $ (20) $ 50 $ 101 $ (235) $ (134)
__________________
(1)Gains (losses) do not include earned income (expense) on credit default swaps.
The favorable change in net gains (losses) on written credit default swaps was $147 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 due to certain credit spreads on certain credit default swaps used as replications narrowing in the current period and widening in the prior period.
The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long-dated corporate bond, we have more flexibility in managing our credit exposures.
Collateral for Derivatives
We enter into derivatives to manage various risks relating to our ongoing business operations. We receive non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not reflected on our consolidated balance sheets. The amounts of this non-cash collateral were $1.1 billion and $1.7 billion at estimated fair value, at December 31, 2021 and 2020, respectively. See “- Liquidity and Capital Resources - The Company - Liquidity and Capital Uses - Pledged Collateral” and Note 9 of the Notes to the Consolidated Financial Statements for information regarding the earned income on and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.
Embedded Derivatives
See Note 10 of the Notes to the Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and a rollforward of the fair value measurements for embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
See Note 9 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.
See “- Summary of Critical Accounting Estimates - Derivatives” for further information on the estimates and assumptions that affect embedded derivatives.
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the consolidated financial statements in conformity with GAAP. For more details on Policyholder Liabilities, see “- Summary of Critical Accounting Estimates.”
We periodically review our estimates of actuarial liabilities for future benefits and compare them with our actual experience. We revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings and have a material adverse effect on our business, results of operations and financial condition.
See “Business - Regulation - Insurance Regulation - Policy and Contract Reserve Adequacy Analysis” and “Risk Factors - Business Risks” for further information regarding required analyses of the adequacy of statutory reserves of our insurance operations.
The following discussions on future policy benefits and policyholder account balances should be read in conjunction with “- Industry Trends - Impact of Market Interest Rates,” “- Variable Annuity Guarantees” and “- Liquidity and Capital Resources - The Company - Liquidity and Capital Sources - Policyholder Account Balances.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies. A discussion of future policy benefits by segment (as well as Corporate & Other) follows.
U.S.
Amounts payable under insurance policies for this segment are comprised of group insurance and annuities. For group insurance, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, active life policies and premium stabilization and other contingency liabilities held under life insurance contracts. For group annuity contracts, future policyholder benefits are primarily related to payout annuities, including pension risk transfers, structured settlement annuities and institutional income annuities. There is no interest rate crediting flexibility on these liabilities.
Asia
Future policy benefits for this segment are held primarily for traditional life, endowment, annuity and accident & health contracts. They are also held for total return pass-through provisions included in certain universal life and savings products. They include certain liabilities for variable annuity and variable life guarantees of minimum death benefits, and longevity guarantees. Factors impacting these liabilities include sustained periods of lower than expected yields, lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments.
Latin America
Future policy benefit liabilities for this segment are held primarily for immediate annuities, traditional life contracts and total return pass-through provisions included in certain universal life and savings products. There is no interest rate crediting flexibility on the immediate annuity and traditional life liabilities. Other factors impacting these liabilities are actual mortality resulting in higher than expected benefit payments and actual lapses resulting in lower than expected income.
EMEA
Future policy benefits for this segment include unearned premium reserves for group life and medical and credit insurance contracts. Future policy benefits are also held for traditional life, endowment and annuity contracts with significant mortality risk and accident & health contracts. Factors impacting these liabilities include lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments.
MetLife Holdings
Future policy benefits for the life insurance business are comprised mainly of liabilities for traditional life insurance contracts. For the annuities business, future policy benefits are comprised mainly of liabilities for life-contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance. For the long-term care business, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, and active life policies. In addition, for our other products, future policyholder benefits related to the reinsurance of our former Japan joint venture are comprised of liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for other reinsurance business.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. A discussion of policyholder account balances by segment follows.
U.S.
Policyholder account balances in this segment are comprised of funding agreements, retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs.
Group Benefits
Policyholder account balances in this business are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs. Policyholder account balances are credited interest at a rate we determine, which is influenced by current market rates. Most of these policyholder account balances have minimum credited rate guarantees.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Group Benefits:
December 31, 2021
Guaranteed Minimum Crediting Rate
Account
Value Account
Value at
Guarantee
(In millions)
Greater than 0% but less than 2%
$ 5,378 $ 5,248
Equal to or greater than 2% but less than 4%
$ 1,564 $ 1,525
Equal to or greater than 4%
$ 808 $ 779
Retirement and Income Solutions
Policyholder account balances in this business are held largely for investment-type products, mainly funding agreements, as well as postretirement benefits and corporate-owned life insurance to fund non-qualified benefit programs for executives. Interest crediting rates vary by type of contract and can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly (1-month or 3-month) LIBOR or Secured Overnight Financing Rate. We guarantee payment of interest and return of principal at the contractual maturity date.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for RIS:
December 31, 2021
Guaranteed Minimum Crediting Rate
Account
Value Account
Value at
Guarantee
(In millions)
Greater than 0% but less than 2%
$ 605 $ 450
Equal to or greater than 2% but less than 4%
$ 814 $ 186
Equal to or greater than 4%
$ 4,612 $ 4,358
Asia
Policyholder account balances in this segment are held largely for fixed income retirement and savings plans, fixed deferred annuities, interest sensitive whole life products, universal life and, to a lesser degree, liability amounts for Unit-linked investments that do not meet the GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in certain countries in Asia that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on certain variable annuities in Asia are accounted for as embedded derivatives and recorded at estimated fair value and are also included within policyholder account balances. Most of these policyholder account balances have minimum credited rate guarantees. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated underlying investments, as the return on assets is generally passed directly to the policyholder.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
December 31, 2021
Guaranteed Minimum Crediting Rate Account
Value Account
Value at
Guarantee
(In millions)
Annuities
Greater than 0% but less than 2% $ 31,180 $ 1,700
Equal to or greater than 2% but less than 4% $ 991 $ 430
Equal to or greater than 4% $ 1 $ 1
Life & Other
Greater than 0% but less than 2% $ 12,811 $ 12,266
Equal to or greater than 2% but less than 4% $ 34,251 $ 21,673
Equal to or greater than 4% $ 282 $ 282
Latin America
Policyholder account balances in this segment are held largely for investment-type products, universal life products, deferred annuities and Unit-linked investments that do not meet the GAAP definition of separate accounts. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder. Many of the other liabilities have minimum credited rate guarantees.
EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuities, pension products, and Unit-linked investments that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Most of these policyholder account balances have minimum credited rate guarantees. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.
MetLife Holdings
Life policyholder account balances in this segment are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies, and funding agreements. For annuities, policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities, non-life contingent income annuities, and embedded derivatives related to variable annuity guarantees. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums. Most of these policyholder account balances have minimum credited rate guarantees. Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a former operating joint venture in Japan that are accounted for as embedded derivatives.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for the MetLife Holdings segment:
December 31, 2021
Guaranteed Minimum Crediting Rate Account
Value Account
Value at
Guarantee
(In millions)
Greater than 0% but less than 2%
$ 1,123 $ 1,092
Equal to or greater than 2% but less than 4%
$ 17,331 $ 15,805
Equal to or greater than 4%
$ 7,364 $ 6,754
Variable Annuity Guarantees
We issue, directly and through assumed business, certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases, the benefit base may be increased by additional deposits, bonus amounts, accruals or optional market value resets. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information.
Certain guarantees, including portions thereof, have insurance liabilities established that are included in future policy benefits. Guarantees accounted for in this manner include GMDBs, the life-contingent portion of GMWBs, elective GMIB annuitizations, and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero. These liabilities are accrued over the life of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At the end of each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.
Certain guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in policyholder account balances. Guarantees accounted for as embedded derivatives include GMABs, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk-neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value, see Note 10 of the Notes to the Consolidated Financial Statements.
The table below presents the carrying value for guarantees at:
Future Policy
Benefits Policyholder
Account Balances
December 31, December 31,
2021 2020 2021 2020
(In millions)
Asia
GMDB
$ 4 $ 6 $ - $ -
GMAB
- - 14 26
GMWB
32 35 107 134
EMEA
GMDB
3 6 - -
GMAB
- - 6 31
GMWB
19 31 (58) (23)
MetLife Holdings
GMDB
561 450 - -
GMIB
1,029 954 180 323
GMAB
- - - -
GMWB
174 179 173 443
Total
$ 1,822 $ 1,661 $ 422 $ 934
The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $120 million and $137 million at December 31, 2021 and 2020, respectively. These nonperformance risk adjustments represent the impact of including a credit spread when discounting the underlying risk-neutral cash flows to determine the estimated fair values. The nonperformance risk adjustment does not have an economic impact on us as it cannot be monetized given the nature of these policyholder liabilities. The change in valuation arising from the nonperformance risk adjustment is not hedged.
The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity volatility, interest rates or foreign currency exchange rates. Carrying values are also impacted by our assumptions around mortality, separate account returns and policyholder behavior, including lapse rates.
As discussed below, we use a combination of product design, hedging strategies, reinsurance, and other risk management actions to mitigate the risks related to these benefits. Within each type of guarantee, there is a range of product offerings reflecting the changing nature of these products over time. Changes in product features and terms are in part driven by customer demand but, more importantly, reflect our risk management practices of continuously evaluating the guaranteed benefits and their associated asset-liability matching. We continue to diversify the concentration of income benefits in our portfolio by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities.
The sections below provide further detail by total account value for certain of our most popular guarantees. Total account values include amounts not reported on the consolidated balance sheets from assumed business, Unit-linked investments that do not qualify for presentation as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and assumed business, but exclude offsets from hedging or ceded reinsurance, if any.
GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31, 2021:
Total Account Value (1)
Asia & EMEA MetLife Holdings
(In millions)
Return of premium or five to seven year step-up $ 7,549 $ 46,213
Annual step-up - 3,117
Roll-up and step-up combination - 5,329
Total
$ 7,549 $ 54,659
__________________
(1)Total account value excludes $598 million for contracts with no GMDBs. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantees are not mutually exclusive.
Based on total account value, less than 18% of our GMDBs included enhanced death benefits such as the annual step-up or roll-up and step-up combination products at December 31, 2021.
Living Benefit Guarantees
The table below presents our living benefit guarantees based on total account values at December 31, 2021:
Total Account Value (1)
Asia & EMEA MetLife Holdings
(In millions)
GMIB $ - $ 20,140
GMWB - non-life contingent (2) 956 2,051
GMWB - life-contingent 3,165 8,337
GMAB 1,594 151
Total
$ 5,715 $ 30,679
__________________
(1)Total account value excludes $26.4 billion for contracts with no living benefit guarantees. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantee amounts are not mutually exclusive.
(2)The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $956 million with a guarantee at annuitization.
In terms of total account value, GMIBs are our most significant living benefit guarantee. Our primary risk management strategy for our GMIB products is our derivatives hedging program as discussed below. Additionally, we have engaged in certain reinsurance agreements covering some of our GMIB business. As part of our overall risk management approach for living benefit guarantees, we continually monitor the reinsurance markets for the right opportunity to purchase additional coverage for our GMIB business. We stopped selling GMIBs in February 2016.
The table below presents our GMIB associated total account values, by their guaranteed payout basis, at December 31, 2021:
Total
Account Value
(In millions)
7-year setback, 2.5% interest rate $ 5,591
7-year setback, 1.5% interest rate 1,214
10-year setback, 1.5% interest rate 3,994
10-year mortality projection, 10-year setback, 1.0% interest rate 7,993
10-year mortality projection, 10-year setback, 0.5% interest rate 1,348
$ 20,140
The annuitization interest rates on GMIBs have been decreased from 2.5% to 0.5% over time, partially in response to the low interest rate environment, accompanied by an increase in the setback period from seven years to 10 years and the introduction of a 10-year mortality projection.
Additionally, 39% of the $20.1 billion of GMIB total account value has been invested in managed volatility funds as of December 31, 2021. These funds seek to manage volatility by adjusting the fund holdings within certain guidelines based on capital market movements. Such activity reduces the overall risk of the underlying funds while maintaining their growth opportunities. These risk mitigation techniques reduce or eliminate the need for us to manage the funds’ volatility through hedging or reinsurance.
Our GMIB products typically have a waiting period of 10 years to be eligible for annuitization. As of December 31, 2021, only 37% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of three years.
Once eligible for annuitization, contractholders would be expected to annuitize only if their contracts were in-the-money. We calculate in-the-moneyness with respect to GMIBs consistent with net amount at risk as discussed in Note 4 of the Notes to the Consolidated Financial Statements, by comparing the contractholders’ income benefits based on total account values and current annuity rates versus the guaranteed income benefits. The net amount at risk was $500 million at December 31, 2021, of which $461 million was related to GMIBs. For those contracts with GMIB, the table below presents details of contracts that are in-the-money and out-of-the-money at December 31, 2021:
In-the-Moneyness Total
Account Value % of Total
(In millions)
In-the-money 30% or greater $ 465 2 %
20% to less than 30% 236 1 %
10% to less than 20% 412 2 %
0% to less than 10% 747 4 %
1,860
Out-of-the-money -10% to 0% 2,248 11 %
-20% to less than -10% 4,601 23 %
Greater than -20% 11,431 57 %
18,280
Total GMIBs $ 20,140
Derivatives Hedging Variable Annuity Guarantees
Our risk mitigating hedging strategy uses various OTC and exchange traded derivatives. The table below presents the gross notional amount, estimated fair value and primary underlying risk exposure of the derivatives hedging our variable annuity guarantees:
December 31,
2021 2020
Primary Underlying Risk Exposure Gross Notional Estimated Fair Value Gross Notional Estimated Fair Value
Instrument Type Amount Assets Liabilities Amount Assets Liabilities
(In millions)
Interest rate Interest rate swaps
$ 8,663 $ 52 $ 75 $ 14,188 $ 85 $ 21
Interest rate futures
1,087 3 - 1,442 - 2
Interest rate options
100 1 - 637 134 -
Foreign currency exchange rate
Foreign currency forwards
1,149 4 13 1,834 27 13
Equity market Equity futures 3,641 11 5 4,891 12 38
Equity index options 4,161 513 362 5,360 558 408
Equity variance swaps 699 17 13 716 15 12
Equity total return swaps
2,763 11 44 1,533 3 124
Total
$ 22,263 $ 612 $ 512 $ 30,601 $ 834 $ 618
The change in estimated fair values of our derivatives is recorded in policyholder benefits and claims if such derivatives are hedging guarantees included in future policy benefits, and in net derivative gains (losses) if such derivatives are hedging guarantees included in policyholder account balances.
Our hedging strategy involves the significant use of static longer-term derivative instruments to avoid the need to execute transactions during periods of market disruption or higher volatility. We continually monitor the capital markets for opportunities to adjust our liability coverage, as appropriate. Futures are also used to dynamically adjust the daily coverage levels as markets and liability exposures fluctuate.
We remain liable for the guaranteed benefits in the event that reinsurers or derivative counterparties are unable or unwilling to pay. Certain of our reinsurance agreements and all derivative positions are collateralized and derivatives positions are subject to master netting agreements, both of which significantly reduce the exposure to counterparty risk. In addition, we are subject to the risk that hedging and other risk management actions prove ineffective or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed.
Liquidity and Capital Resources
Overview
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally due to our market presence in numerous countries, large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors. Changing conditions in the global capital markets and the economy may affect our financing costs and market interest for our debt or equity securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, see “- Industry Trends” and “- Investments - Current Environment.”
Liquidity Management
Based upon the strength of our franchise, diversification of our businesses, strong financial fundamentals and the substantial funding sources available to us as described herein, we continue to believe we have access to ample liquidity to meet business requirements under current market conditions and reasonably possible stress scenarios. We continuously monitor and adjust our liquidity and capital plans for MetLife, Inc. and its subsidiaries in light of market conditions, as well as changing needs and opportunities.
Short-term Liquidity
We maintain a substantial short-term liquidity position, which was $12.4 billion and $9.4 billion at December 31, 2021 and 2020, respectively. Short-term liquidity includes cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed, including amounts received in connection with securities lending, repurchase agreements, derivatives, and secured borrowings, as well as amounts held in the closed block.
Liquid Assets
An integral part of our liquidity management includes managing our level of liquid assets, which was $223.0 billion and $235.1 billion at December 31, 2021 and 2020, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, repurchase agreements, derivatives, regulatory deposits, the collateral financing arrangement, funding agreements and secured borrowings, as well as amounts held in the closed block.
Capital Management
We have established several senior management committees as part of our capital management process. These committees, including the Capital Management Committee and the Enterprise Risk Committee (“ERC”), regularly review actual and projected capital levels (under a variety of scenarios including stress scenarios) and our annual capital plan in accordance with our capital policy. The Capital Management Committee is comprised of members of senior management, including MetLife, Inc.’s Chief Financial Officer (“CFO”), Treasurer, and Chief Risk Officer (“CRO”). The ERC is also comprised of members of senior management, including MetLife, Inc.’s CFO, CRO and Chief Investment Officer.
Our Board of Directors and senior management are directly involved in the development and maintenance of our capital policy. The capital policy sets forth, among other things, minimum and target capital levels and the governance of the capital management process. All capital actions, including proposed changes to the annual capital plan, capital targets or capital policy, are reviewed by the Finance and Risk Committee of the Board of Directors prior to obtaining full Board of Directors approval. The Board of Directors approves the capital policy and the annual capital plan and authorizes capital actions, as required.
See “Risk Factors - Capital Risks - We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs” for information regarding restrictions on payment of dividends and stock repurchases. See also Note 16 of the Notes to the Consolidated Financial Statements for information regarding MetLife, Inc.’s common stock repurchase authorizations.
The Company
Liquidity
Liquidity refers to the ability to generate adequate amounts of cash to meet our needs. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling 12-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, sales of liquid assets, global funding sources including commercial paper and various credit and committed facilities.
Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. A downgrade in our credit or financial strength ratings could also negatively affect our liquidity. See “- Rating Agencies.” 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, for securities in an unrealized loss position, realized losses would be incurred on securities sold and impairments would be incurred, if there is a need to sell securities prior to recovery, which may negatively impact our financial condition. See “Risk Factors - Investment Risks - We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value.”
All general account assets within a particular legal entity - other than those which may have been pledged to a specific purpose - are generally 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. See “- Rating Agencies” for information regarding such 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.
Statutory Capital and Dividends
Our U.S. insurance subsidiaries have statutory surplus well above levels to meet current regulatory requirements.
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, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market 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 most of our U.S. insurance subsidiaries. State insurance laws provide 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. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of these subsidiaries subject to these requirements was in excess of each of those RBC levels.
As a Delaware corporation, American Life is subject to Delaware law; however, because it does not conduct insurance business in Delaware or any other U.S. state, it is exempt from RBC requirements under Delaware law. American Life’s operations are also regulated by applicable authorities of the jurisdictions in which it operates and is subject to capital and solvency requirements in those jurisdictions.
The amount of dividends that our insurance subsidiaries can pay to MetLife, Inc. or to other parent entities is constrained by the amount of surplus we hold to maintain our ratings, which provides an additional margin for risk protection and investment in our businesses. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions to MetLife, Inc. and other parent entities by their respective insurance subsidiaries is governed by insurance laws and regulations. See “Business - Regulation - Insurance Regulation,” “- MetLife, Inc. - Liquidity and Capital Sources - Dividends from Subsidiaries” and Note 16 of the Notes to the Consolidated Financial Statements.
Affiliated Captive Reinsurance Transactions
MLIC cedes specific policy classes, including term and universal life insurance, participating whole life insurance, LTD insurance, group life insurance and other business to various wholly-owned captive reinsurers. The reinsurance activities among these affiliated companies are eliminated within our consolidated results of operations. The statutory reserves of such affiliated captive reinsurers are supported by a combination of funds withheld assets, investment assets and letters of credit issued by unaffiliated financial institutions. MetLife, Inc. has entered into various support agreements in connection with the activities of these captive reinsurers. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules for further details on certain of these support arrangements. MLIC has entered into reinsurance agreements with affiliated captive reinsurers for risk and capital management purposes, as well as to manage statutory reserve requirements related to universal life and term life insurance policies and other business.
The NYDFS continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any states other than New York and California implementing such a moratorium. While such a moratorium would not impact our existing reinsurance agreements with captive reinsurers, a moratorium placed on the use of captives for new reserve financing transactions could impact our ability to write certain products and/or impact our RBC ratios and ability to deploy excess capital in the future. This could result in our need to increase prices, modify product features or limit the availability of those products to our customers. While this affects insurers across the industry, it could adversely impact our competitive position and our results of operations in the future. We continue to evaluate product modifications, pricing structure and alternative means of managing risks, capital and statutory reserves and we expect the discontinued use of captive reinsurance on new reserve financing transactions would not have a material impact on our future consolidated financial results. See Note 6 of the Notes to the Consolidated Financial Statements for further information on our reinsurance activities.
Rating Agencies
Rating agencies assign insurer financial strength ratings to MetLife, Inc.’s U.S. life insurance subsidiaries and credit ratings to MetLife, Inc. and certain of its subsidiaries. Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors in MetLife, Inc.’s securities. Insurer financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated independently of any other rating.
Rating agencies use an “outlook statement” of “positive,” “stable,” ‘‘negative’’ or “developing” to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a “stable” outlook to indicate that the rating is not expected to change; however, a “stable” rating does not preclude a rating agency from changing a rating at any time, without notice. Certain rating agencies assign rating modifiers such as “CreditWatch” or “under review” to indicate their opinion regarding the potential direction of a rating. These ratings modifiers are generally assigned in connection with certain events such as potential mergers, acquisitions, dispositions or material changes in a company’s results, in order for the rating agency to perform its analysis to fully determine the rating implications of the event.
Our insurer financial strength ratings at the date of this filing are indicated in the following table. Outlook is stable unless otherwise indicated. Additional information about financial strength ratings can be found on the websites of the respective rating agencies.
A.M. Best Fitch Moody’s S&P
Ratings Structure “A++ (Superior)”
to “S (Suspended)” “AAA
(Exceptionally
Strong)” to “C
(Distressed)” “Aaa (Highest
Quality)” to “C
(Lowest Rated)” “AAA (Extremely
Strong)” to “SD
(Selective
Default)” or “D
(Default)”
American Life Insurance Company NR NR A1 AA-
5th of 21 4th of 21
Metropolitan Life Insurance Company A+ AA- Aa3 AA-
2nd of 16 4th of 19 4th of 21 4th of 21
MetLife Insurance K.K. (MetLife Japan) NR NR NR AA-
4th of 21
Metropolitan Tower Life Insurance Company A+ AA- Aa3 AA-
2nd of 16 4th of 19 4th of 21 4th of 21
__________________
NR = Not rated
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 change the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.
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, including:
•impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our RIS business;
•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.”
See also “Risk Factors - Economic Environment and Capital Markets Risks - We May Lose Business Due to a Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings.”
Summary of the Company’s Primary Sources and Uses of Liquidity and Capital
Our primary sources and uses of liquidity and capital are summarized as follows:
Years Ended December 31,
2021 2020
(In millions)
Sources:
Operating activities, net $ 12,596 $ 11,639
Net change in policyholder account balances 3,827 8,246
Net change in payables for collateral under securities loaned and other transactions 1,883 3,538
Cash received for other transactions with tenors greater than three months - 150
Long-term debt issued 29 1,124
Financing element on certain derivative instruments and other derivative related transactions, net 270 -
Preferred stock issued, net of issuance costs - 1,961
Other, net 22 191
Effect of change in foreign currency exchange rates on cash and cash equivalents - 163
Total sources 18,627 27,012
Uses:
Investing activities, net 11,187 18,569
Cash paid for other transactions with tenors greater than three months 100 175
Long-term debt repaid 582 99
Collateral financing arrangement repaid 79 148
Financing element on certain derivative instruments and other derivative related transactions, net - 46
Treasury stock acquired in connection with share repurchases 4,303 1,151
Redemption of preferred stock 494 989
Preferred stock redemption premium 6 14
Dividends on preferred stock 195 202
Dividends on common stock 1,647 1,657
Effect of change in foreign currency exchange rates on cash and cash equivalents 478 -
Total uses 19,071 23,050
Net increase (decrease) in cash and cash equivalents $ (444) $ 3,962
Cash Flows from Operations
The principal cash inflows from our insurance activities come from insurance premiums, net investment income, annuity considerations and deposit funds. The principal cash outflows are the result of various life insurance, annuity and pension products, operating expenses and income tax, as well as interest expense.
Cash Flows from Investments
The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. Additional cash outflows relate to purchases of businesses. We typically have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process.
Cash Flows from Financing
The principal cash inflows from our financing activities come from issuances of debt and other securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt and the collateral financing arrangement, payments of dividends on and repurchases or redemptions of MetLife, Inc.’s securities, withdrawals associated with policyholder account balances and the return of securities on loan.
Liquidity and Capital Sources
In addition to the general description of liquidity and capital sources in “- Summary of the Company’s Primary Sources and Uses of Liquidity and Capital,” the Company’s primary sources of liquidity and capital are set forth below.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-term debt, the collateral financing arrangement, junior subordinated debt securities, preferred securities, equity securities and equity-linked securities. MetLife, Inc. maintains a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, MetLife, Inc.’s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:
Preferred Stock
See Note 16 of the Notes to the Consolidated Financial Statements for information on preferred stock issuances.
Common Stock
See Note 16 of the Notes to the Consolidated Financial Statements.
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. and MetLife Funding each have a commercial paper program that is supported by our unsecured revolving credit facility (see “- Credit and Committed Facilities”). MetLife Funding raises cash from its commercial paper program and uses the proceeds to extend loans through MetLife Credit Corp., another subsidiary of MLIC, to affiliates in order to enhance the financial flexibility and liquidity of these companies.
FHLB Advance Agreements, Reported in Liabilities Held-for-Sale
For the years ended December 31, 2021 and 2020, we borrowed $0 and $2.8 billion, respectively, and repaid $700 million and $2.9 billion, respectively, under advance agreements with the FHLB of Boston. At December 31, 2021 and 2020, total obligations outstanding under these advance agreements were $0 and $700 million, respectively.
Policyholder Account Balances
See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a description of the components of policyholder account balances. See “- Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations related to future policy benefits and policyholder account balances.
The sum of the estimated cash flows of $248.6 billion ($29.5 billion of which are estimated to occur in one year or less) exceeds the liability amount of $203.5 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.
The estimated cash flows represent cash payments undiscounted as to interest and including assumptions related to the receipt of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization; mortality; future interest credited; policy loans and other contingent events as appropriate for the respective product type. Such estimated cash payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For obligations denominated in foreign currencies, cash payments have been estimated using current spot foreign currency rates.
FHLB Funding Agreements, Reported in Policyholder Account Balances
Certain of our U.S. insurance subsidiaries are members of a regional FHLB. For the years ended December 31, 2021 and 2020, we issued $34.0 billion and $35.4 billion, respectively, and repaid $34.5 billion and $34.5 billion, respectively, of funding agreements with certain regional FHLBs. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $15.8 billion and $16.3 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.
Special Purpose Entity Funding Agreements, Reported in Policyholder Account Balances
We issue fixed and floating rate funding agreements which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. For the years ended December 31, 2021 and 2020, we issued $40.8 billion and $40.4 billion, respectively, and repaid $41.2 billion and $36.7 billion, respectively, under such funding agreements. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $39.5 billion and $39.9 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.
Federal Agricultural Mortgage Corporation Funding Agreements, Reported in Policyholder Account Balances
We have issued funding agreements to a subsidiary of Farmer Mac which are secured by a pledge of certain eligible agricultural mortgage loans. For the years ended December 31, 2021 and 2020, we issued $425 million and $250 million, respectively, and repaid $750 million and $425 million, respectively, under such funding agreements. At December 31, 2021 and 2020, total obligations outstanding under these funding agreements were $2.1 billion and $2.4 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.
Debt Issuances
See “- Liquidity and Capital Uses - Debt Repurchases, Redemptions and Exchanges” and Note 13 of the Notes to the Consolidated Financial Statements for information on senior note issuances.
Credit and Committed Facilities
See Note 13 of the Notes to the Consolidated Financial Statements for information on credit and committed facilities.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these facilities. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.
Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt excluding long-term debt relating to CSEs at:
December 31,
2021 2020
(In millions)
Short-term debt (1) $ 341 $ 393
Long-term debt (2) $ 13,933 $ 14,598
Collateral financing arrangement $ 766 $ 845
Junior subordinated debt securities $ 3,156 $ 3,153
__________________
(1)Includes $241 million and $293 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2021 and 2020, respectively. Certain subsidiaries have pledged assets to secure this debt.
(2)Includes $482 million and $474 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2021 and 2020, respectively. Certain investment subsidiaries have pledged assets to secure this debt.
Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. We believe we were in compliance with all applicable financial covenants at December 31, 2021.
Dispositions
See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.
Liquidity and Capital Uses
In addition to the general description of liquidity and capital uses in “- Summary of the Company’s Primary Sources and Uses of Liquidity and Capital” the Company’s primary uses of liquidity and capital are set forth below.
Preferred Stock Redemption
See Note 16 of the Notes to the Consolidated Financial Statements for information about the redemption of Series C preferred stock.
Common Stock Repurchases
See Note 16 of the Notes to the Consolidated Financial Statements for information relating to authorizations by the Board of Directors to repurchase MetLife, Inc. common stock, amounts of common stock repurchased pursuant to such authorizations for the years ended December 31, 2021 and 2020, and the amount remaining under such authorizations at December 31, 2021.
Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, and other legal and accounting factors. Restrictions on the payment of dividends that may arise under so-called “Dividend Stopper” provisions would also restrict MetLife, Inc.’s ability to repurchase common stock. See “- Dividends” for information about these restrictions. See also “Risk Factors - Capital Risks - We May Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs.”
Dividends
For the years ended December 31, 2021 and 2020, MetLife, Inc. paid dividends on its preferred stock of $195 million and $202 million, respectively. For the years ended December 31, 2021 and 2020, MetLife, Inc. paid dividends on its common stock of $1.6 billion and $1.7 billion, respectively. See Note 16 of the Notes to the Consolidated Financial Statements for information regarding the calculation and timing of these dividend payments.
The declaration and payment of common stock dividends are subject to the discretion of our Board of Directors, and will depend on MetLife, Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board.
“Dividend Stopper” Provisions in MetLife’s Preferred Stock and Junior Subordinated Debentures
MetLife, Inc.’s preferred stock and junior subordinated debentures contain “dividend stopper” provisions under which MetLife, Inc. may not pay dividends on instruments junior to those instruments if payments have not been made on those instruments. Moreover, MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures contain provisions that would limit the payment of dividends or interest on those instruments if MetLife, Inc. fails to meet certain tests (“Trigger Events”), to an amount not greater than the net proceeds from sales of common stock and other specified instruments during a period preceding the dividend declaration date or the interest payment date, as applicable. If such proceeds were under the circumstances insufficient to make such payments on those instruments, the dividend stopper provisions affecting common stock (and preferred stock, as applicable) would come into effect.
A “Trigger Event” would occur if:
•the RBC ratio of MetLife’s largest U.S. insurance subsidiaries in the aggregate (as defined in the applicable instrument) were to be less than 175% of the company action level based on the subsidiaries’ prior year annual financial statements filed (generally around March 1) with state insurance commissioners; or
•at the end of a quarter (“Final Quarter End Test Date”), consolidated GAAP net income for the four-quarter period ending two quarters before such quarter-end (the “Preliminary Quarter End Test Date”) is zero or a negative amount and the consolidated GAAP stockholders’ equity, minus AOCI (the “adjusted stockholders’ equity amount”), as of the Final Quarter End Test Date and the Preliminary Quarter End Test Date, declined by 10% or more from its level 10 quarters before the Final Quarter End Test Date (the “Benchmark Quarter End Test Date”).
Once a Trigger Event occurs for a Final Quarter End Test Date, the suspension of payments of dividends and interest (in the absence of sufficient net proceeds from the issuance of certain securities during specified periods) would continue until there is no Trigger Event at a subsequent Final Quarter End Test Date, and, if the test in the second paragraph above caused the Trigger Event, the adjusted stockholders’ equity amount is no longer 10% or more below its level at the Benchmark Quarter End Test Date that is associated with the Trigger Event. In the case of successive Trigger Events, the suspension would continue until MetLife satisfies these conditions for each of the Trigger Events.
The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions are met, elect to defer payment of interest. See Note 15 of the Notes to the Consolidated Financial Statements. Any such elective deferral would trigger the dividend stopper provisions.
Further, MetLife, Inc. is a party to certain replacement capital covenants which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of the junior subordinated debentures by requiring MetLife, Inc., with some limitations, to receive cash proceeds during a specified period from the sale of specified replacement securities prior to any repayment, redemption or purchase. See Note 15 of the Notes to the Consolidated Financial Statements for a description of such covenants.
Debt Repayments
For the years ended December 31, 2021 and 2020, following regulatory approval, MetLife Reinsurance Company of Charleston, a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $79 million and $148 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets. See Notes 13 and 14 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt and the collateral financing arrangement, respectively.
Debt Repurchases, Redemptions and Exchanges
We may from time to time seek to retire or purchase our outstanding debt through cash purchases, redemptions and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases, redemptions, or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not to repurchase or redeem any debt and the size and timing of any such repurchases or redemptions will be determined at our discretion.
See Note 13 of the Notes to the Consolidated Financial Statements for information about the redemption and cancellation of senior notes.
Support Agreements
MetLife, Inc. and several of its subsidiaries (each, an “Obligor”) are parties to various capital support commitments and guarantees with subsidiaries. Under these arrangements, each Obligor has agreed to cause the applicable entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules. See also “Guarantees” in Note 21 of the Notes to the Consolidated Financial Statements.
Insurance Liabilities
Insurance liabilities include future policy benefits, other policy-related balances, policyholder dividends payable and the policyholder dividend obligation, which are all reported on the consolidated balance sheet and are more fully described in Notes 1 and 4 of the Notes to the Consolidated Financial Statements. The sum of the estimated cash flows of $351.7 billion ($21.3 billion of which are estimated to occur in one year or less) exceeds the liability amounts of $219.6 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.
The estimated cash flows reflect future estimated cash payments and (i) are based on mortality, morbidity, lapse and other assumptions comparable with our experience and expectations of future payment patterns; and (ii) consider future premium receipts on current policies in-force. Estimated cash payments are undiscounted as to interest, net of estimated future premiums on in-force policies and gross of any reinsurance recoverable. Payment of amounts related to policyholder dividends left on deposit are projected based on assumptions of policyholder withdrawal activity.
Actual cash payments may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments.
For the majority of our insurance operations, estimated contractual obligations for future policy benefits and policyholder account balances are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state regulatory purposes. These cash flows are materially representative of the cash flows under GAAP. See “- Policyholder Account Balances.”
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, annuity and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender or lapse behavior differs somewhat by segment. In the MetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. For the years ended December 31, 2021 and 2020, general account surrenders and withdrawals from annuity products were $1.4 billion and $1.3 billion, respectively. In the RIS business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the RIS business products that provide customers with limited rights to accelerate payments, at December 31, 2021, there were funding agreements totaling $113 million that could be put back to the Company.
Pledged Collateral
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2021 and 2020, we had received pledged cash collateral from counterparties of $7.5 billion and $7.6 billion, respectively. At December 31, 2021 and 2020, we had pledged cash collateral to counterparties of $142 million and $266 million, respectively. See Note 9 of the Notes to the Consolidated Financial Statements for additional information about collateral pledged to us, collateral we pledge and derivatives subject to credit contingent provisions.
We pledge collateral and have had collateral pledged to us, and may be required from time to time to pledge additional collateral or be entitled to have additional collateral pledged to us, in connection with the collateral financing arrangement related to the reinsurance of closed block liabilities. See Note 14 of the Notes to the Consolidated Financial Statements.
We pledge collateral from time to time in connection with funding agreements and advance agreements. See Note 4 of the Notes to the Consolidated Financial Statements.
Securities Lending Transactions and Repurchase Agreements
See “- Investments - Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian Administered Programs.”
Litigation
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts accrued, when such an estimate can be made. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods. See Note 21 of the Notes to the Consolidated Financial Statements.
Acquisitions
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the acquisition of Versant Health.
MetLife, Inc.
Liquidity and Capital Management
Liquidity and capital are managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial obligations and are provided by a variety of sources, including a portfolio of liquid assets, a diversified mix of short- and long-term funding sources from the wholesale financial markets and the ability to borrow through credit and committed facilities. Liquidity is monitored through the use of internal liquidity risk metrics, including the composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, access to the financial markets for capital and debt transactions and exposure to contingent draws on MetLife, Inc.’s liquidity. MetLife, Inc. is an active participant in the global financial markets through which it obtains a significant amount of funding. These markets, which serve as cost-effective sources of funds, are critical components of MetLife, Inc.’s liquidity and capital management. Decisions to access these markets are based upon relative costs, prospective views of balance sheet growth and a targeted liquidity profile and capital structure. A disruption in the financial markets could limit MetLife, Inc.’s access to liquidity.
MetLife, Inc.’s ability to maintain regular access to competitively priced wholesale funds is fostered by its current credit ratings from the major credit rating agencies. We view our capital ratios, credit quality, stable and diverse earnings streams, diversity of liquidity sources and our liquidity monitoring procedures as critical to retaining such credit ratings. See “- The Company - Rating Agencies.”
Liquidity
For a summary of MetLife, Inc.’s liquidity, see “- The Company - Liquidity.”
Capital
For a summary of MetLife, Inc.’s capital, see “- The Company - Capital.” See also “- The Company - Liquidity and Capital Uses - Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchases.
Liquid Assets
At December 31, 2021 and 2020, MetLife, Inc., collectively with other MetLife holding companies, had $5.4 billion and $4.5 billion, respectively, in liquid assets. Of these amounts, $4.2 billion and $3.6 billion were held by MetLife, Inc. and $1.2 billion and $873 million were held by other MetLife holding companies at December 31, 2021 and 2020, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and a collateral financing arrangement.
Liquid assets held in non-U.S. holding companies are generated in part through dividends from non-U.S. insurance operations. Such dividends are subject to local insurance regulatory requirements, as discussed in “- Liquidity and Capital Sources - Dividends from Subsidiaries.” As a result of Tax Cuts and Jobs Act of 2017, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax. See Note 19 of the Notes to the Consolidated Financial Statements and “- Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
See “- Executive Summary - Consolidated Company Outlook,” for the targeted level of liquid assets at the holding companies.
MetLife, Inc. and Other MetLife Holding Companies Sources and Uses of Liquid Assets and Sources and Uses of Liquid Assets included in Free Cash Flow
MetLife, Inc.’s sources and uses of liquid assets, as well as sources and uses of liquid assets included in free cash flow are summarized as follows.
Year Ended December 31, 2021 Year Ended December 31, 2020
Sources and Uses of Liquid Assets Sources and Uses of Liquid Assets Included in Free Cash Flow Sources and Uses of Liquid Assets Sources and Uses of Liquid Assets Included in Free Cash Flow
(In millions)
MetLife, Inc. (Parent Company Only)
Sources:
Dividends and returns of capital from subsidiaries (1)
$ 4,837 $ 4,837 $ 4,327 $ 4,327
Long-term debt issued (2)
- - 990 990
Repayments on and (issuances of) loans to subsidiaries and related interest, net (3)
- - 50 50
Preferred stock issuance, net of redemption of preferred stock and preferred stock redemption premium (2) - - 958 458
Other, net (4), (5) 3,865 (156) - -
Total sources
8,702 4,681 6,325 5,825
Uses:
Capital contributions to subsidiaries 88 88 422 422
Long-term debt repaid - unaffiliated
500 - - -
Interest paid on debt and financing arrangements - unaffiliated
795 795 763 763
Dividends on common stock
1,647 - 1,657 -
Treasury stock acquired in connection with share repurchases
4,303 - 1,151 -
Dividends on preferred stock
195 195 202 202
Issuances of and (repayments on) loans to subsidiaries and related interest, net (3)
92 92 - -
Redemption of preferred stock and preferred stock redemption premium 500 - - -
Other, net (4), (5) - - 1,539 (249)
Total uses
8,120 1,170 5,734 1,138
Net increase (decrease) in liquid assets, MetLife, Inc. (Parent Company Only)
582 591
Liquid assets, beginning of year
3,595 3,004
Liquid assets, end of year
$ 4,177 $ 3,595
Free Cash Flow, MetLife, Inc. (Parent Company Only)
3,511 4,687
Net cash provided by operating activities, MetLife, Inc. (Parent Company Only)
$ 3,757 $ 3,479
Other MetLife Holding Companies
Sources:
Dividends and returns of capital from subsidiaries
$ 2,077 $ 2,077 $ 1,301 $ 1,301
Total sources
2,077 2,077 1,301 1,301
Uses:
Capital contributions to subsidiaries
24 24 55 55
Repayments on and (issuance of) loans to subsidiaries and affiliates and related interest, net
9 9 111 111
Dividends and returns of capital to MetLife, Inc.
1,300 1,300 1,200 1,200
Other, net (5) 379 420 247 612
Total uses
1,712 1,753 1,613 1,978
Net increase (decrease) in liquid assets, Other MetLife Holding Companies
365 (312)
Liquid assets, beginning of year
873 1,185
Liquid assets, end of year
$ 1,238 $ 873
Free Cash Flow, Other MetLife Holding Companies
324 (677)
Net increase (decrease) in liquid assets, All Holding Companies
$ 947 $ 279
Free Cash Flow, All Holding Companies (6) $ 3,835 $ 4,010
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(1)Dividends and returns of capital to MetLife, Inc. included $3.5 billion and $3.1 billion from operating subsidiaries and $1.3 billion and $1.2 billion from other MetLife holding companies for the years ended December 31, 2021 and 2020, respectively.
(2)Included in free cash flow is the portion of long-term debt issued and preferred stock issuance, net of redemption of preferred stock and preferred stock redemption premium that represents incremental debt to be at or below target leverage ratios.
(3)See MetLife, Inc. (Parent Company Only) Condensed Statements of Cash Flows included in Schedule II of the Financial Statement Schedules for information regarding the source of liquid assets from receipts on loans to subsidiaries (excluding interest) and the use of liquid assets related to the issuances of loans to subsidiaries (excluding interest).
(4)Other, net includes ($18) million and $296 million of net receipts (payments) by MetLife, Inc. to and from subsidiaries under a tax sharing agreement and tax payments to tax agencies for the years ended December 31, 2021 and 2020, respectively.
(5)Included in other, net is $3.9 billion from sales of businesses and $1.9 billion to fund business acquisitions for the years ended December 31, 2021 and 2020, respectively.
(6)See “- Non-GAAP and Other Financial Disclosures” for the reconciliation of net cash provided by operating activities of MetLife, Inc. to free cash flow of all holding companies.
Sources and Uses of Liquid Assets of MetLife, Inc.
The primary sources of MetLife, Inc.’s liquid assets are dividends and returns of capital from subsidiaries, issuances of long-term debt, issuances of common and preferred stock, and net receipts from subsidiaries under a tax sharing agreement. MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See “- Liquidity and Capital Sources - Dividends from Subsidiaries.”
The primary uses of MetLife, Inc.’s liquid assets are principal and interest payments on long-term debt, dividends on and repurchases of common and preferred stock, capital contributions to subsidiaries, funding of business acquisitions, income taxes and operating expenses. MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See “- Liquidity and Capital Uses - Support Agreements.”
In addition, MetLife, Inc. issues loans to subsidiaries or subsidiaries issue loans to MetLife, Inc. Accordingly, changes in MetLife, Inc. liquid assets include issuances of loans to subsidiaries, proceeds of loans from subsidiaries and the related repayment of principal and payment of interest on such loans. See “- Liquidity and Capital Sources - Affiliated Long-term Debt” and “- Liquidity and Capital Uses - Affiliated Capital and Debt Transactions.”
Sources and Uses of Liquid Assets of Other MetLife Holding Companies
The primary sources of liquid assets of other MetLife holding companies are dividends, returns of capital and remittances from their subsidiaries and branches, principally non-U.S. insurance companies; capital contributions received; receipts of principal and interest on loans to subsidiaries and affiliates and borrowings from subsidiaries and affiliates. MetLife, Inc.’s non-U.S. operations are subject to regulatory restrictions on the payment of dividends imposed by local regulators. See “- Liquidity and Capital Sources - Dividends from Subsidiaries.”
The primary uses of liquid assets of other MetLife holding companies are capital contributions paid to their subsidiaries and branches, principally non-U.S. insurance companies; loans to subsidiaries and affiliates; principal and interest paid on loans from subsidiaries and affiliates; dividends and returns of capital to MetLife, Inc. and the following items, which are reported within other, net: business acquisitions; and operating expenses.
Liquidity and Capital Sources
In addition to the description of liquidity and capital sources in “- The Company - Summary of the Company’s Primary Sources and Uses of Liquidity and Capital” and “- The Company - Liquidity and Capital Sources,” MetLife, Inc.’s primary sources of liquidity and capital are set forth below.
Dividends from Subsidiaries
MetLife, Inc. relies, in part, on dividends from its subsidiaries to meet its cash requirements. MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See Note 16 of the Notes to the Consolidated Financial Statements. The dividend limitation for U.S. insurance subsidiaries is generally based on the surplus to policyholders at the end of the immediately preceding calendar year and statutory net gain from operations for the immediately preceding calendar year. Statutory accounting practices, as prescribed by insurance regulators of various states in which we conduct business, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income tax, required investment liabilities, statutory reserve calculation assumptions, goodwill and surplus notes.
The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary U.S. insurance subsidiaries without insurance regulatory approval and the actual dividends paid:
2022 2021 2020
Company Permitted Without Approval (1) Paid (2) Permitted Without Approval (1) Paid (2) Permitted Without Approval (1)
(In millions)
Metropolitan Life Insurance Company $ 3,539 $ 3,393 $ 3,393 $ 2,832 $ 3,272
American Life Insurance Company $ 554 $ 1,135 $ 800 $ 1,200 (3) $ -
Metropolitan Property and Casualty Insurance Company N/A $ 35 (4) $ 222 $ 250 $ 114
Metropolitan Tower Life Insurance Company $ 163 $ - $ 82 $ - $ 149
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(1)Reflects dividend amounts that may be paid during the relevant year without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during such year, some or all of such dividends may require regulatory approval.
(2)Reflects all amounts paid, including those where regulatory approval was obtained as required.
(3)Includes a $341 million non-cash dividend.
(4)Consists of the stock of a subsidiary paid to MetLife, Inc. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company’s business dispositions.
In addition to the amounts presented in the table above, for the years ended December 31, 2021 and 2020, MetLife, Inc. also received from certain other subsidiaries cash dividends of $302 million and $29 million, respectively, as well as cash returns of capital of $13 million and $16 million, respectively.
The dividend capacity of our non-U.S. operations is subject to similar restrictions established by the local regulators. The non-U.S. regulatory regimes also commonly limit dividend payments to the parent company to a portion of the subsidiary’s prior year statutory income, as determined by the local accounting principles. The regulators of our non-U.S. operations, including the FSA, may also limit or not permit profit repatriations or other transfers of funds to the U.S. if such transfers are deemed to be detrimental to the solvency or financial strength of the non-U.S. operations, or for other reasons. Most of our non-U.S. subsidiaries are second tier subsidiaries which are owned by various non-U.S. holding companies. The capital and rating considerations applicable to our first tier subsidiaries may also impact the dividend flow into MetLife, Inc.
We proactively manage target and excess capital levels and dividend flows and forecast local capital positions as part of the financial planning cycle. The dividend capacity of certain U.S. and non-U.S. subsidiaries is also subject to business targets in excess of the minimum capital necessary to maintain the desired rating or level of financial strength in the relevant market. See “Risk Factors - Capital Risks - Our Subsidiaries May be Unable to Pay Dividends, a Major Component of Holding Company Free Cash Flow” and Note 16 of the Notes to the Consolidated Financial Statements.
Affiliated Long-term Debt
See “Senior Notes - Affiliated” in Note 4 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules for information on affiliated long-term debt.
Collateral Financing Arrangement and Junior Subordinated Debt Securities
For information on MetLife, Inc.’s collateral financing arrangement and junior subordinated debt securities, see Notes 14 and 15 of the Notes to the Consolidated Financial Statements, respectively.
Credit and Committed Facilities
See Note 13 of the Notes to the Consolidated Financial Statements for further information regarding the Company’s unsecured revolving credit facility and certain committed facilities.
Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt of MetLife, Inc. at:
December 31,
2021 2020
(In millions)
Long-term debt - unaffiliated $ 12,814 $ 13,463
Long-term debt - affiliated (1), (2) $ 1,884 $ 2,073
Junior subordinated debt securities $ 2,463 $ 2,461
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(1)In December 2021, ¥54.6 billion 3.1350% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥12.2 billion 1.588% due December 2026, (ii) ¥19.1 billion 1.7185% due December 2028 and (iii) ¥23.3 billion 1.850% due December 2031.
(2)In July 2021, ¥53.7 billion 2.9725% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥13.7 billion 1.610% due July 2026, (ii) ¥14.3 billion 1.755% due July 2028 and (iii) ¥25.7 billion 1.852% due July 2031.
Debt and Facility Covenants
Certain of MetLife, Inc.’s debt instruments and committed facilities, as well as its unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. MetLife, Inc. believes it was in compliance with all applicable financial covenants at December 31, 2021.
Dispositions
See Note 3 of the Notes to the Consolidated Financial Statements for information on MetLife, Inc.’s business dispositions.
Liquidity and Capital Uses
The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common stock, preferred stock and debt repurchases and/or redemptions, payment of general operating expenses and acquisitions. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable MetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock, contribute capital to its subsidiaries, repurchase its common stock and certain of its other securities, pay all general operating expenses and meet its cash needs under current market conditions and reasonably possible stress scenarios.
In addition to the description of liquidity and capital uses in “- The Company - Liquidity and Capital Uses,” MetLife, Inc.’s primary uses of liquidity and capital are set forth below.
Affiliated Capital and Debt Transactions
For the years ended December 31, 2021 and 2020, excluding acquisitions, MetLife, Inc. invested a net amount of $111 million and $425 million, respectively, in various subsidiaries.
MetLife, Inc. lends funds, as necessary, through credit agreements or otherwise to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements or to provide liquidity. MetLife, Inc. had loans to subsidiaries outstanding of $35 million and $0 at December 31, 2021 and 2020, respectively. In June 2020, a $100 million loan was repaid at maturity.
Debt Repayments
For information on MetLife, Inc.’s debt repayments, see “- The Company - Liquidity and Capital Uses - Debt Repayments.” MetLife, Inc. intends to repay or refinance, in whole or in part, all the debt that is due in 2022.
Maturities of Senior Notes
The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity, excluding any premium or discount and unamortized issuance costs, at December 31, 2021:
Year of Maturity Principal Interest Rate
(In millions)
Unaffiliated:
2023 $ 1,000 4.37%
2024 $ 1,000 3.60%
2024 $ 474 5.38%
2025 $ 500 3.00%
2025 $ 500 3.60%
2026 $ 219 0.50%
2029 - 2046 $ 9,198 Ranging from 0.77% to 6.50%
Affiliated:
2023 $ 324 1.60%
2025 $ 250 2.02%
2026 $ 139 1.64%
2026 $ 119 1.61%
2026 $ 106 1.59%
2028 - 2031 $ 946 Ranging from 1.72% to 1.85%
Support Agreements
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules.
Acquisitions
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the acquisition of Versant Health.
Adopted Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Future Adoption of Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance on a consolidated and segment basis that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business. Segment-specific financial measures are calculated using only the portion of consolidated results attributable to that specific segment.
The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
Non-GAAP financial measures: Comparable GAAP financial measures:
(i) adjusted premiums, fees and other revenues
(i) premiums, fees and other revenues
(ii) adjusted earnings (ii) net income (loss)
(iii) adjusted earnings available to common
shareholders (iii) net income (loss) available to MetLife, Inc.’s common shareholders
(iv) free cash flow of all holding companies
(iv) MetLife, Inc. (parent company only) net cash provided
by (used in) operating activities
(v) adjusted net investment income (v) net investment income
Any of these financial measures shown on a constant currency basis reflect the impact of changes in foreign currency exchange rates and are calculated using the average foreign currency exchange rates for the most recent period and applied to the comparable prior period (“constant currency basis”).
Reconciliations of these non-GAAP financial measures to the most directly comparable historical GAAP financial measures are included in “- Results of Operations” and “- Investments.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable effort to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income.
Our definitions of non-GAAP and other financial measures discussed in this report may differ from those used by other companies.
Adjusted earnings and related measures:
•adjusted earnings;
•adjusted earnings available to common shareholders; and
•adjusted earnings available to common shareholders on a constant currency basis.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings and components of, or other financial measures based on, adjusted earnings are also our GAAP measures of segment performance. Adjusted earnings and other financial measures based on adjusted earnings are also the measures by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax. Adjusted loss is defined as negative adjusted earnings. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends. For information relating to adjusted revenues and adjusted expenses, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.
In addition, adjusted earnings available to common shareholders excludes the impact of preferred stock redemption premium, which is reported as a reduction to net income (loss) available to MetLife, Inc.’s common shareholders.
Return on equity, allocated equity and related measures:
•Total MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as total MetLife, Inc.’s common stockholders’ equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment components of AOCI, net of income tax.
•Adjusted return on MetLife, Inc.’s common stockholders’ equity is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average common stockholders’ equity.
•Adjusted return on MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average common stockholders’ equity, excluding AOCI other than FCTA.
•Allocated equity is the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments and sub-segments based on local capital requirements and economic capital. See “- Risk Management- Economic Capital.” Allocated equity excludes the impact of AOCI other than FCTA.
The above measures represent a level of equity consistent with the view that, in the ordinary course of business, we do not plan to sell most investments for the sole purpose of realizing gains or losses.
Expense ratio and direct expense ratio:
•Expense ratio: other expenses, net of capitalization of DAC, divided by premiums, fees and other revenues.
•Direct expense ratio: adjusted direct expenses divided by adjusted premiums, fees and other revenues. Direct expenses are comprised of employee-related costs, third party staffing costs, and general and administrative expenses.
•Direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers: adjusted direct expenses excluding total notable items related to direct expenses, divided by adjusted premiums, fees and other revenues, excluding pension risk transfers.
The following additional information is relevant to an understanding of our performance results and outlook:
•We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity. Further, sales statistics for our Latin America, Asia and EMEA segments are on a constant currency basis.
•Near-term represents one to three years.
•We refer to observable forward yield curves as of a particular date in connection with making our estimates for future results. The observable forward yield curves at a given time are based on implied future interest rates along a range of interest rate durations. This includes the 10-year U.S. Treasury rate which we use as a benchmark rate to describe longer-term interest rates used in our estimates for future results.
•Asymmetrical and non-economic accounting refers to: (i) the portion of net derivative gains (losses) on embedded derivatives attributable to the inclusion of our credit spreads in the liability valuations, (ii) hedging activity that generates net derivative gains (losses) and creates fluctuations in net income because hedge accounting cannot be achieved and the item being hedged does not a have an offsetting gain or loss recognized in earnings, (iii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, and (iv) impact of changes in foreign currency exchange rates on the re-measurement of foreign denominated unhedged funding agreements and financing transactions to the U.S. dollar and the re-measurement of certain liabilities from non-functional currencies to functional currencies. We believe that excluding the impact of asymmetrical and non-economic accounting from total GAAP results enhances investor understanding of our performance by disclosing how these accounting practices affect reported GAAP results.
• Notable items reflect the unexpected impact of events that affect the Company’s results, but that were unknown and that the Company could not anticipate when it devised its business plan. Notable items also include certain items regardless of the extent anticipated in the business plan, to help investors have a better understanding of MetLife’s results and to evaluate and forecast those results. Notable items represent a positive (negative) impact to adjusted earnings available to common shareholders.
•The Company uses a measure of free cash flow to facilitate an understanding of its ability to generate cash for reinvestment into its businesses or use in non-mandatory capital actions. The Company defines free cash flow as the sum of cash available at MetLife’s holding companies from dividends from operating subsidiaries, expenses and other net flows of the holding companies (including capital contributions to subsidiaries), and net contributions from debt to be at or below target leverage ratios. This measure of free cash flow is prior to capital actions, such as common stock dividends and repurchases, debt reduction and mergers and acquisitions. Free cash flow should not be viewed as a substitute for net cash provided by (used in) operating activities calculated in accordance with GAAP. The free cash flow ratio is typically expressed as a percentage of annual adjusted earnings available to common shareholders. A reconciliation of net cash provided by operating activities of MetLife, Inc. (parent company only) to free cash flow of all holding companies for the years ended December 31, 2021 and 2020 is provided below.
Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc. to Free Cash Flow of All Holding Companies Years Ended December 31,
2021 2020
(In millions, except ratios)
MetLife, Inc. (parent company only) net cash provided by operating activities $ 3,757 $ 3,479
Adjustments from net cash provided by operating activities to free cash flow:
Add: Incremental debt to be at or below target leverage ratios - 1,448
Add: Capital contributions to subsidiaries (88) (422)
Add: Returns of capital from subsidiaries 7 16
Add: Repayments on and (issuances of) loans to subsidiaries, net (35) 100
Add: Investment portfolio and derivatives changes and other, net (130) 66
MetLife, Inc. (parent company only) free cash flow 3,511 4,687
Other MetLife, Inc. holding companies:
Add: Dividends and returns of capital from subsidiaries 2,077 1,301
Add: Capital contributions to subsidiaries (24) (55)
Add: Repayments on and (issuances of) loans to subsidiaries, net (9) (111)
Add: Other expenses (613) (644)
Add: Dividends and returns of capital to MetLife, Inc. (1,300) (1,200)
Add: Investment portfolio and derivative changes and other, net 193 32
Total other MetLife, Inc. holding companies free cash flow 324 (677)
Free cash flow of all holding companies $ 3,835 $ 4,010
Ratio of net cash provided by operating activities to consolidated net income (loss) available to MetLife, Inc.’s common shareholders:
MetLife, Inc. (parent company only) net cash provided by operating activities $ 3,757 $ 3,479
Consolidated net income (loss) available to MetLife, Inc.’s common
shareholders $ 6,353 $ 5,191
Ratio of net cash provided by operating activities (parent company only) to
consolidated net income (loss) available to MetLife, Inc.'s common
shareholders (1) 59 % 67 %
Ratio of free cash flow to adjusted earnings available to common shareholders:
Free cash flow of all holding companies (2) $ 3,835 $ 4,010
Consolidated adjusted earnings available to common shareholders (2) $ 7,954 $ 5,623
Ratio of free cash flow of all holding companies to consolidated adjusted
earnings available to common shareholders (2) 48 % 71 %
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(1)Including the free cash flow of other MetLife, Inc. holding companies of $324 million and ($677) million for the years ended December 31, 2021 and 2020, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 64% and 54%, respectively.
(2)i) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2021, was positively impacted by notable items, related to tax adjustments of $140 million, net of income tax, and litigation reserves and settlement costs of $66 million, net of income tax, offset by actuarial assumption review and other insurance adjustments of $140 million, net of income tax. Excluding these notable items from the denominator of the ratio, the adjusted free cash flow ratio for 2021, would be 49%.
ii) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2020 was negatively impacted by a notable item related to actuarial assumption review and other insurance adjustments of $203 million, net of income tax. Excluding this notable item from the denominator of the ratio, the adjusted free cash flow ratio for 2020 would be 69%.
Risk Management
We have an integrated process for managing risk, that is supported by a Risk Appetite Statement approved by the Board of Directors. Risk management is overseen and conducted through multiple Board and senior management risk committees (financial and non-financial). The risk committees are established at the enterprise, regional and local levels, as needed, to oversee capital and risk positions, approve ALM strategies and limits, and establish certain corporate risk standards and policies. The risk committees are comprised of senior leaders from the lines of business and corporate functions which ensures comprehensive coverage and sharing of risk reporting. The ERC is responsible for reviewing all material risks to the enterprise and deciding on actions, if necessary, in the event risks exceed desired tolerances, taking into consideration industry best practices and the current environment to resolve or mitigate those risks.
Three Lines of Defense
MetLife operates under the “Three Lines of Defense” model. Under this model, the lines of business and corporate functions are the first and primary line of defense in identifying, measuring, monitoring, managing, and reporting risks. Global Risk Management forms the second line of defense providing strategic advisory services and effective challenge and oversight to the business in the first line of defense. Internal Audit serves as the third line of defense, providing independent assurance and testing over the risk and control environment and related processes and controls.
Global Risk Management
Independent from the lines of business, the centralized Global Risk Management department, led by the CRO, coordinates across all risk committees to ensure that all material risks are properly identified, measured, monitored, managed and reported across the Company. The CRO reports to the CEO and is primarily responsible for maintaining and communicating the Company’s enterprise risk policies and for monitoring and analyzing all material risks.
Global Risk Management considers and monitors a full range of risks relating to the Company’s solvency, liquidity, earnings, business operations and reputation. Global Risk Management’s primary responsibilities consist of:
•implementing an enterprise risk framework, which outlines our enterprise approach for managing financial and non-financial risk;
•developing policies and procedures for identifying, measuring, monitoring, managing and reporting those risks identified in the enterprise risk framework;
•coordinating Own Risk Solvency Assessment for Board, senior management and regulator use;
•establishing appropriate corporate risk tolerance levels;
•measuring capital on an economic basis;
•mitigating compliance risk and establishing controls;
•integrating climate risk into MetLife’s risk management framework and developing impact assessment capabilities; and
•reporting to (i) the Finance and Risk Committee of MetLife, Inc.’s Board of Directors; (ii) the Compensation Committee of MetLife, Inc.’s Board of Directors; and (iii) the financial and non-financial senior management committees on various aspects of risk.
Key Risk Types
MetLife has defined each material risk to which it is exposed and has established individual frameworks to monitor, manage and report on the respective risk.
•Market Risk: is the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuations in financial market, real estate, and other economic factors. Market risk is comprised of interest rate risk, equity risk, foreign currency exchange rate risk, and spread risk.
•Credit Risk: is the risk of loss or credit rating downgrade arising from an obligor or counterparty with a direct or contingent financial obligation to MetLife that is either unable or unwilling to meet its obligation in full and on a timely basis. These risks arise from public fixed income assets, private loans including real estate, derivative transactions, bank deposits, reinsurance treaties and other similar contracts.
•Insurance Risk: is the risk of loss or adverse change in insurance liabilities from changes in the level, trend, and volatility of insurance and policyholder behavior experience varying from best estimate assumptions. These variances can be driven by catastrophic events such as pandemics or can be the result of misestimating base assumptions. Insurance risks to MetLife generally arise from mortality, morbidity, longevity, and policyholder behavior.
•Non-Financial Risk: is the risk of failed or inadequate internal processes, human errors, system errors or external events that may result in financial loss, non-financial damage, and/or non-compliance with applicable laws and regulations. Non-Financial risk captures operational and compliance risks, including risks such as business interruption, customer protection, financial crime, privacy, fraud and theft, and information security risk.
•Liquidity Risk: refers to the risk that MetLife is unable to raise cash necessary to meet current obligations.
Economic Capital
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in our business. Our economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards. For further information, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.
Asset/Liability Management
We actively manage our assets using an approach that is liability driven and balances quality, diversification, asset/liability matching, liquidity, concentration and investment return. The goals of the investment process are to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring that the assets and liabilities are reasonably aligned on a cash flow and duration basis. The ALM process is the shared responsibility of the ALM, Global Risk Management, and Investments departments, with the engagement of senior members of the business segments and Finance, and is governed by the ALM Committees. The ALM Committees’ duties include reviewing and approving investment guidelines and limits, approving significant portfolio and ALM strategies and providing oversight of the ALM process. The directives of the ALM Committees are carried out and monitored through ALM Working Groups which are set up to manage risk by geography, product or portfolio type. The ALM Steering Committee oversees the activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee reports to the ERC.
We establish portfolio guidelines that define ranges and limits related to asset allocation, interest rate risk, liquidity, concentration and other risks for each major business segment, legal entity or insurance product group. These guidelines support implementation of investment strategies used to adequately fund our liabilities within acceptable levels of risk. We also establish hedging programs and associated investment portfolios for different blocks of business. The ALM Working Groups monitor these strategies and programs through regular review of portfolio metrics, such as effective duration, yield curve sensitivity, convexity, value at risk, market sensitivities (to interest rates, equity market levels, equity volatility, and foreign currency exchange rates), stress scenario payoffs, liquidity, asset sector concentration and credit quality.
We manage credit risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit, market valuation and liquidity risk through industry and issuer diversification and asset allocation limits. These risk limits, approved annually by the Investment Risk Committee, promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure, as measured by our economic capital framework. For real estate assets, we manage credit and market risk through asset allocation limits and by diversifying by geography, property and product type.
Information Security Risk Management
We manage information security risk through MetLife’s Information Security Program (the “Program”), which is overseen by our enterprise Chief Information Security Officer (“CISO”), with collaboration across lines of businesses and corporate functions. The CISO is a senior-level executive responsible for establishing and executing the company’s information security strategy; the CISO regularly reports about information security risk to the ERC, the Audit Committee and the Board. The primary goal of the Program is to protect information and technology assets through physical, technical, and administrative safeguards. This includes monitoring, reporting, managing and remediating cyber threats. The Program aims to prevent data exfiltration, manipulation, and destruction, as well as system and transactional disruption. The Program’s threat-centric and risk-based approach for securing the MetLife environment is based on the cybersecurity framework developed by the U.S. Government’s National Institute of Standards and Technology.
Subsequent Events
See Note 22 of the Notes to the Consolidated Financial Statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following discussion on market risk should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management.”
Market Risk Exposures
We regularly analyze our exposure to interest rate, foreign currency exchange rate and equity market price risk. As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are materially exposed to changes in interest rates, foreign currency exchange rates and equity markets. We have exposure to market risk through our insurance operations and investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuation in the financial market and other economic factors.
Interest Rates
Our exposure to interest rate changes results most significantly from our holdings of fixed maturity securities AFS and derivatives, as well as our interest rate sensitive liabilities. The fixed maturity securities AFS include U.S. and foreign government bonds, securities issued by government agencies, corporate bonds, mortgage-backed securities and ABS, all of which are mainly exposed to changes in medium- and long-term interest rates. The interest rate sensitive liabilities for purposes of this disclosure include debt, policyholder account balances related to certain investment type contracts, and embedded derivatives on variable annuities with guaranteed minimum benefits which have the same type of interest rate exposure (medium- and long-term interest rates) as fixed maturity securities AFS. The interest rate sensitive liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. See “Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions.”
Foreign Currency Exchange Rates
Our exposure to fluctuations in foreign currency exchange rates against the U.S. dollar results from our holdings in non-U.S. dollar denominated fixed maturity and equity securities, mortgage loans, and certain liabilities, as well as through our investments in foreign subsidiaries. The foreign currency exchange rate liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. The principal currencies that create foreign currency exchange rate risk in our investment portfolios and liabilities are the Euro, the Japanese yen and the British pound. Selectively, we use U.S. dollar assets to support certain long-duration foreign currency liabilities. Through our investments in foreign subsidiaries and joint ventures, we are primarily exposed to the Japanese yen, the Euro, the Australian dollar, the British pound, the Mexican peso, the Chilean peso and the Korean won. In addition to hedging with foreign currency swaps, forwards and options, local surplus in some countries may be held entirely or in part in U.S. dollar assets, which further minimize exposure to foreign currency exchange rate fluctuation risk. We have matched much of our foreign currency liabilities in our foreign subsidiaries with their respective foreign currency assets, thereby reducing our risk to foreign currency exchange rate fluctuation. See “Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions.”
Equity Market
Along with investments in equity securities, we have exposure to equity market risk through certain liabilities that involve long-term guarantees on equity performance such as embedded derivatives on variable annuities with guaranteed minimum benefits and certain policyholder account balances. Equity exposures associated with real estate and limited partnership interests are excluded from this discussion as they are not considered financial instruments under GAAP.
Management of Market Risk Exposures
We use a variety of strategies to manage interest rate, foreign currency exchange rate and equity market risk, including the use of derivatives.
Interest Rate Risk Management
To manage interest rate risk, we analyze interest rate risk using various models, including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivatives. These projections involve evaluating the potential gain or loss on most of our in-force business under various increasing and decreasing interest rate environments. The NYDFS regulations require that we perform some of these analyses annually as part of our review of the sufficiency of our regulatory reserves. For several of our legal entities, we maintain segmented operating and surplus asset portfolios for the purpose of ALM and the allocation of investment income to product lines. In the U.S., for each segment, invested assets greater than or equal to the GAAP liabilities net of certain non-invested assets allocated to the segment are maintained, with any excess allocated to Corporate & Other. The business segments may reflect differences in legal entity, statutory line of business and any product market characteristic which may drive a distinct investment strategy with respect to duration, liquidity or credit quality of the invested assets. Certain smaller entities make use of unsegmented general accounts for which the investment strategy reflects the aggregate characteristics of liabilities in those entities. We measure relative sensitivities of the value of our assets and liabilities to changes in key assumptions utilizing internal models. These models reflect specific product characteristics and include assumptions based on current and anticipated experience regarding lapse, mortality, morbidity and interest crediting rates. In addition, these models include asset cash flow projections reflecting interest payments, sinking fund payments, principal payments, bond calls, mortgage loan prepayments and defaults.
We employ product design, pricing and ALM strategies to reduce the potential effects of interest rate movements. Product design and pricing strategies include the use of surrender charges or restrictions on withdrawals in some products and the ability to reset crediting rates for certain products. ALM strategies include the use of derivatives. We also use reinsurance to mitigate interest rate risk.
We also use common industry metrics, such as duration and convexity, to measure the relative sensitivity of assets and liability values to changes in interest rates. In computing the duration of liabilities, we consider all policyholder guarantees and how we intend to set indeterminate policy elements such as interest credits or dividends. Each asset portfolio or portfolio group has a duration target based on the liability duration and the investment objectives of that portfolio. Where a liability cash flow may exceed the maturity of available assets, we may support such liabilities with equity investments, derivatives or interest rate curve mismatch strategies.
Foreign Currency Exchange Rate Risk Management
MetLife has a well-established policy to manage foreign currency exchange rate exposures within its risk tolerance. In general, investments backing specific liabilities are currency matched. This is achieved through direct investments in matching currency or through the use of foreign currency exchange rate derivatives. Enterprise foreign currency exchange rate risk limits are established by the ERC. Management of each of our segments, with oversight from our FX Working Group and the ALM committee for the respective segment, is responsible for managing any foreign currency exchange rate exposure.
We use foreign currency swaps, forwards and options to mitigate the liability exposure, risk of loss and financial statement volatility associated with our investments in foreign subsidiaries, foreign currency denominated fixed income investments and the sale of certain insurance products.
Equity Market Risk Management
We manage equity market risk on an integrated basis with other risks through our ALM strategies, including the dynamic hedging with derivatives of certain variable annuity guarantee benefits, as well as reinsurance, in order to limit losses, minimize exposure to large risks, and provide additional capacity for future growth. We also manage equity market risk exposure in our investment portfolio through the use of derivatives. These derivatives include exchange-traded equity futures, equity index options contracts, TRRs and equity variance swaps. This risk is managed by our ALM Department in partnership with the Investments Department.
Hedging Activities
We use derivative contracts primarily to hedge a wide range of risks including interest rate risk, foreign currency exchange rate risk, and equity market risk. Derivative hedges are designed to reduce risk on an economic basis while considering their impact on financial results under different accounting regimes, including U.S. GAAP and local statutory accounting. Our derivative hedge programs vary depending on the type of risk being hedged. Some hedge programs are asset or liability specific while others are portfolio hedges that reduce risk related to a group of liabilities or assets. Our use of derivatives by major hedge programs is as follows:
•Risks Related to Guarantee Benefits - We use a wide range of derivative contracts to mitigate the risk associated with living guarantee benefits. These derivatives include equity and interest rate futures, interest rate swaps, currency futures/forwards, equity indexed options, TRRs, interest rate option contracts and equity variance swaps.
•Minimum Interest Rate Guarantees - For certain liability contracts, we provide the contractholder a guaranteed minimum interest rate. These contracts include certain fixed annuities and other insurance liabilities. We purchase interest rate caps and floors to reduce risk associated with these liability guarantees.
•Reinvestment Risk in Long-Duration Liability Contracts - Derivatives are used to hedge interest rate risk related to certain long-duration liability contracts. Hedges include interest rate swaps, swaptions and Treasury bond forwards.
•Foreign Currency Exchange Rate Risk - We use foreign currency swaps, futures, forwards and options to hedge foreign currency exchange rate risk. These hedges are generally used to swap foreign currency denominated bonds, investments in foreign subsidiaries or equity market exposures to U.S. dollars. Our foreign subsidiaries also use these hedges to swap non-local currency assets to local currency, to match liabilities.
•General ALM Hedging Strategies - In the ordinary course of managing our asset/liability risks, we use interest rate futures, interest rate swaps, interest rate caps, interest rate floors, and inflation swaps. These hedges are designed to reduce interest rate risk or inflation risk related to the existing assets or liabilities or related to expected future cash flows.
•Macro Hedge Program - We use equity options, equity TRRs, interest rate swaptions, interest rate swaps and Treasury lock to mitigate the potential loss of legal entity statutory capital under stress scenarios.
Risk Measurement: Sensitivity Analysis
We measure market risk related to our market sensitive assets and liabilities based on changes in interest rates, foreign currency exchange rates and equity market prices utilizing a sensitivity analysis. For purposes of this disclosure, a significant portion of the liabilities relating to insurance contracts is excluded, as discussed further below. This analysis estimates the potential changes in estimated fair value based on a hypothetical 10% change (increase or decrease) in interest rates, foreign currency exchange rates and equity market prices. We believe that a 10% change (increase or decrease) in these market rates and prices is reasonably possible in the near term. In performing the analysis summarized below, we used market rates at December 31, 2021. The sensitivity analysis separately calculates each of our market risk exposures (interest rate, foreign currency exchange rate and equity market) relating to our assets and liabilities. We modeled the impact of changes (increases and decreases) in market rates and prices on the estimated fair values of our market sensitive assets and liabilities and present the results with the most adverse level of market risk impact to the Company for each of these market risk exposures as follows:
•the net present values of our interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates;
•estimated fair values of our foreign currency exchange rate sensitive exposures due to a 10% change (appreciation or depreciation) in the value of the U.S. dollar compared to all other currencies; and
•the estimated fair value of our equity market sensitive exposures due to a 10% change (increase or decrease) in equity market prices.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure that our actual losses in any particular period will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis include:
•interest sensitive and foreign currency exchange rate sensitive liabilities do not include $217.5 billion, at carrying value, of insurance contracts. Management believes that the changes in the economic value of those contracts under changing interest rates and changing foreign currency exchange rates would offset a significant portion of the fair value changes of interest sensitive and foreign currency exchange rate sensitive assets;
•the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgage loans;
•sensitivities do not include the impact on asset or liability valuation of changes in market liquidity or changes in market credit spreads;
•foreign currency exchange rate risk is not isolated for certain embedded derivatives within host asset and liability contracts, as the risk on these instruments is reflected as equity;
•for the derivatives that qualify as hedges, and for certain other assets such as mortgage loans, the impact on reported earnings may be materially different from the change in market values;
•the analysis excludes liabilities pursuant to insurance contracts, as well as real estate holdings, private equity and hedge fund holdings; and
•the model assumes that the composition of assets and liabilities remains unchanged throughout the period.
Accordingly, we use such models as tools and not as substitutes for the experience and judgment of our management. Based on our analysis of the impact of a 10% change (increase or decrease) in market rates and prices, we have determined that such a change could have a material adverse effect on the estimated fair value of certain assets and liabilities from interest rate, foreign currency exchange rate and equity market exposures.
The table below illustrates the potential loss in estimated fair value for each market risk exposure based on market sensitive assets and liabilities at:
December 31, 2021
(In millions)
Interest rate risk
$ 4,989
Foreign currency exchange rate risk $ 7,239
Equity market risk
$ 123
The risk sensitivities derived used a 10% increase to interest rates, a 10% strengthening of the U.S. dollar against foreign currencies, and a 10% increase in equity prices. The potential losses in estimated fair value presented are for non-trading securities.
The table below provides additional detail regarding the potential loss in estimated fair value of our interest sensitive financial instruments due to a 10% increase in interest rates at:
December 31, 2021
Notional
Amount Estimated
Fair
Value (1) Assuming a
10% Increase
in Interest Rates
(In millions)
Assets
Fixed maturity securities AFS
$ 340,274 $ (4,562)
Equity securities
$ 1,269 (1)
FVO securities $ 1,602 (7)
Mortgage loans
$ 82,788 (353)
Policy loans
$ 10,751 (56)
Short-term investments
$ 7,176 (2)
Other invested assets
$ 1,984 (2)
Cash and cash equivalents
$ 20,047 -
Accrued investment income
$ 3,185 -
Premiums, reinsurance and other receivables
$ 2,454 (15)
Other assets
$ 291 (2)
Embedded derivatives within asset host contracts (2)
$ 38 -
Total assets
$ (5,000)
Liabilities (3)
Policyholder account balances
$ 122,932 $ 511
Payables for collateral under securities loaned and other transactions
$ 31,920 -
Short-term debt
$ 341 -
Long-term debt
$ 16,621 237
Collateral financing arrangement
$ 630 -
Junior subordinated debt securities
$ 4,447 57
Other liabilities
$ 2,835 43
Embedded derivatives within liability host contracts (2)
$ 649 77
Total liabilities
$ 925
Derivative Instruments
Interest rate swaps
$ 46,527 $ 5,692 $ (547)
Interest rate floors
$ 7,701 $ 145 (8)
Interest rate caps
$ 65,559 $ 124 20
Interest rate futures
$ 1,615 $ 4 3
Interest rate options
$ 11,754 $ 483 (68)
Interest rate forwards
$ 7,263 $ (56) (155)
Interest rate total return swaps
$ 1,048 $ 5 (33)
Synthetic GICs
$ 40,121 $ - -
Foreign currency swaps
$ 54,683 $ 185 (133)
Foreign currency forwards
$ 17,866 $ (688) 15
Currency futures
$ 839 $ (2) -
Currency options
$ 3,900 $ 139 (6)
Credit default swaps
$ 11,668 $ 65 -
Equity futures
$ 4,204 $ 7 -
Equity index options
$ 29,743 $ 546 (2)
Equity variance swaps
$ 699 $ 4 -
Equity total return swaps
$ 3,025 $ (39) -
Total derivative instruments
$ (914)
Net Change $ (4,989)
__________________
(1)Separate account assets and liabilities and Unit-linked investments and associated policyholder account balances, which are interest rate sensitive, are not included herein as any interest rate risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)Excludes $217.5 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments resulting from a 10% increase in interest rates.
Sensitivity to interest rates increased $1.0 billion to $5.0 billion at December 31, 2021 from $4.0 billion at December 31, 2020.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% appreciation in the U.S. dollar compared to all other currencies at:
December 31, 2021
Notional
Amount Estimated
Fair
Value (1) Assuming a 10% Appreciation in the U.S. Dollar
(In millions)
Assets
Fixed maturity securities AFS
$ 340,274 $ (9,984)
Equity securities
$ 1,269 (49)
FVO securities $ 1,602 (54)
Mortgage loans
$ 82,788 (870)
Policy loans
$ 10,751 (140)
Short-term investments
$ 7,176 (189)
Other invested assets
$ 1,984 (54)
Cash and cash equivalents
$ 20,047 (363)
Accrued investment income
$ 3,185 (70)
Premiums, reinsurance and other receivables
$ 2,454 (35)
Other assets
$ 291 (18)
Embedded derivatives within asset host contracts (2)
$ 38 (6)
Total assets
$ (11,832)
Liabilities (3)
Policyholder account balances
$ 122,932 $ 3,311
Payables for collateral under securities loaned and other transactions
$ 31,920 148
Long-term debt
$ 16,621 185
Other liabilities
$ 2,835 13
Embedded derivatives within liability host contracts (2)
$ 649 24
Total liabilities
$ 3,681
Derivative Instruments
Interest rate swaps
$ 46,527 $ 5,692 $ (77)
Interest rate floors
$ 7,701 $ 145 -
Interest rate caps
$ 65,559 $ 124 -
Interest rate futures
$ 1,615 $ 4 -
Interest rate options
$ 11,754 $ 483 (9)
Interest rate forwards
$ 7,263 $ (56) 8
Interest rate total return swaps
$ 1,048 $ 5 -
Synthetic GICs
$ 40,121 $ - -
Foreign currency swaps
$ 54,683 $ 185 1,841
Foreign currency forwards
$ 17,866 $ (688) (957)
Currency futures
$ 839 $ (2) (83)
Currency options
$ 3,900 $ 139 185
Credit default swaps
$ 11,668 $ 65 (6)
Equity futures
$ 4,204 $ 7 -
Equity index options
$ 29,743 $ 546 10
Equity variance swaps
$ 699 $ 4 -
Equity total return swaps
$ 3,025 $ (39) -
Total derivative instruments
$ 912
Net Change $ (7,239)
__________________
(1)Does not necessarily represent those financial instruments solely subject to foreign currency exchange rate risk. Separate account assets and liabilities and Unit-linked investments and associated policyholder account balances, which are foreign currency exchange rate sensitive, are not included herein as any foreign currency exchange rate risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)Excludes $217.5 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments resulting from a 10% appreciation in the U.S. dollar compared to all other currencies.
Sensitivity to foreign currency exchange rates decreased $1.2 billion to $7.2 billion at December 31, 2021 from $8.4 billion at December 31, 2020. These sensitivities exclude those liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments resulting from a 10% appreciation in the U.S. dollar compared to all other currencies.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% increase in equity prices at:
December 31, 2021
Notional
Amount Estimated
Fair
Value (1) Assuming a
10% Increase
in Equity
Prices
(In millions)
Assets
Equity securities
$ 1,269 $ 108
FVO securities $ 1,602 90
Other invested assets $ 1,984 27
Embedded derivatives within asset host contracts (2)
$ 38 (4)
Total assets
$ 221
Liabilities (3)
Policyholder account balances
$ 122,932 $ -
Embedded derivatives within liability host contracts (2)
$ 649 206
Total liabilities
$ 206
Derivative Instruments
Interest rate swaps
$ 46,527 $ 5,692 $ -
Interest rate floors
$ 7,701 $ 145 -
Interest rate caps
$ 65,559 $ 124 -
Interest rate futures
$ 1,615 $ 4 -
Interest rate options
$ 11,754 $ 483 -
Interest rate forwards
$ 7,263 $ (56) -
Interest rate total return swaps
$ 1,048 $ 5 -
Synthetic GICs
$ 40,121 $ - -
Foreign currency swaps
$ 54,683 $ 185 -
Foreign currency forwards
$ 17,866 $ (688) -
Currency futures
$ 839 $ (2) -
Currency options
$ 3,900 $ 139 -
Credit default swaps
$ 11,668 $ 65 -
Equity futures
$ 4,204 $ 7 (336)
Equity index options
$ 29,743 $ 546 39
Equity variance swaps
$ 699 $ 4 -
Equity total return swaps
$ 3,025 $ (39) (253)
Total derivative instruments
$ (550)
Net Change $ (123)
__________________
(1)Does not necessarily represent those financial instruments solely subject to equity price risk. Additionally, separate account assets and liabilities and Unit-linked investments and associated policyholder account balances, which are equity market sensitive, are not included herein as any equity market risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)Excludes $217.5 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances.
Sensitivity to equity market prices decreased $247 million to $123 million at December 31, 2021 from $370 million at December 31, 2020.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 34)
Financial Statements at December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 - Business, Basis of Presentation and Summary of Significant Accounting Policies
Note 2 - Segment Information
Note 3 - Acquisition and Dispositions
Note 4 - Insurance
Note 5 - Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
Note 6 - Reinsurance
Note 7 - Closed Block
Note 8 - Investments
Note 9 - Derivatives
Note 10 - Fair Value
Note 11 - Leases
Note 12 - Goodwill
Note 13 - Long-term and Short-term Debt
Note 14 - Collateral Financing Arrangement
Note 15 - Junior Subordinated Debt Securities
Note 16 - Equity
Note 17 - Other Revenues and Other Expenses
Note 18 - Employee Benefit Plans
Note 19 - Income Tax
Note 20 - Earnings Per Common Share
Note 21 - Contingencies, Commitments and Guarantees
Note 22 - Subsequent Events
Financial Statement Schedules at December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019:
Schedule I - Consolidated Summary of Investments - Other Than Investments in Related Parties
Schedule II - Condensed Financial Information (Parent Company Only)
Schedule III - Consolidated Supplementary Insurance Information
Schedule IV - Consolidated Reinsurance
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MetLife, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MetLife, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index to Consolidated Financial Statements, Notes and Schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fixed Maturity Securities Available-for-Sale - Fair Value of Level 3 Fixed Maturity Securities - Refer to Notes 1, 8, and 10 to the financial statements
Critical Audit Matter Description
The Company has investments in certain fixed maturity securities classified as available-for-sale whose fair values are based on unobservable inputs that are supported by little or no market activity. When a price is not available in the active market, from an independent pricing service, or from independent broker quotations, management values the security using internal matrix pricing or discounted cash flow techniques. These investments are categorized as Level 3 and had an estimated fair value of $5.9 billion as of December 31, 2021.
Given management uses considerable judgment when estimating the fair value of Level 3 fixed maturity securities determined using internal matrix pricing or discounted cash flow techniques, performing audit procedures to evaluate the estimate of fair value required a high degree of auditor judgment and an increased extent of effort. This audit effort included the use of professionals with specialized skills and knowledge, including our fair value specialists, to assist in performing procedures and evaluating the audit evidence obtained.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of Level 3 fixed maturity securities determined using internal matrix pricing or discounted cash flow techniques included, among others, the following:
•We tested the effectiveness of controls over the determination of fair value.
•We tested the accuracy and completeness of relevant security attributes, including credit ratings, maturity dates and coupon rates, used in the determination of Level 3 fair values.
•With the involvement of our fair value specialists, we developed independent fair value estimates for a sample of securities and compared our estimates to the Company’s estimates and evaluated differences. We developed our estimate by evaluating the observable and unobservable inputs used by management or developing independent inputs.
•We evaluated management’s ability to accurately estimate fair value by comparing management’s historical estimates to subsequent transactions, taking into account changes in market conditions subsequent to December 31, 2021.
Insurance Liabilities - Valuation of Future Policy Benefits for Long-Term Care Insurance - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company’s products include long-term care insurance. Liabilities for amounts payable under long-term care insurance are recorded in future policy benefits in the Company’s consolidated balance sheets. Such liabilities are established based on actuarial assumptions at the time policies are issued, which are intended to estimate the experience for the period the policy benefits are payable. Significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves, which are based on current assumptions. Management’s estimate of future policy benefits for long-term care insurance was $14.4 billion as of December 31, 2021.
Management applies considerable judgment in evaluating actual experience to determine whether a change in assumptions for long-term care insurance is warranted. Principal assumptions used in the valuation of future policy benefits for long-term care insurance include morbidity, policy lapse, investment returns and mortality.
Given the inherent uncertainty in selecting assumptions, we have determined that management’s evaluation of actual experience when estimating future policy benefits for long-term care insurance policies is a critical audit matter, which required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the judgments made and the reasonableness of the assumptions used in the valuation. The audit effort included the use of professionals with specialized skill and knowledge, including our actuarial specialists, to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assumptions used to determine the estimate of future policy benefits for long-term care insurance, included, among others, the following:
•We tested the effectiveness of the control over the assumptions used in the valuation of future policy benefits and the effectiveness of the controls over the underlying data.
•With the involvement of our actuarial specialists, we:
◦evaluated judgments applied by management in setting principal assumptions, including evaluating the results of experience studies used as the basis for setting those assumptions.
◦evaluated management’s estimate of, or developed an independent estimate of, future policy benefits, on a sample basis, and evaluated differences. This included confirming that assumptions were applied as intended.
◦evaluated the results of the Company’s annual premium deficiency tests.
Derivatives - Valuation of Embedded Derivative Liabilities - Refer to Notes 1, 4, 9, and 10 to the financial statements
Critical Audit Matter Description
The Company’s products include variable annuity contracts with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit adjusted for withdrawals. The guarantees on variable annuity contracts are accounted for as insurance liabilities or as embedded derivatives depending on how and when the benefit is paid. Guarantees accounted for as embedded derivatives include the non-life contingent portion of guaranteed minimum withdrawal benefits and certain non-life contingent portions of guaranteed minimum income benefits, and are recorded in policyholder account balances on the Company’s consolidated balance sheet. Embedded derivatives are measured at estimated fair value separately from the host variable annuity contract using actuarial and capital market assumptions that are updated annually. Management’s estimate of embedded derivative liabilities was $0.6 billion as of December 31, 2021.
Management applies considerable judgment in selecting assumptions used to estimate embedded derivative liabilities and changes in market conditions or variations in certain assumptions could result in significant fluctuations in the estimate. Principal assumptions include mortality, lapse, dynamic lapse, withdrawal, utilization, and risk-free rates and implied volatilities. The valuation of the embedded derivative liabilities is also based on complex calculations which are data intensive.
Given the inherent uncertainty in selecting assumptions and the complexity of the calculations, we have determined that management’s valuation of the embedded derivative liabilities is a critical audit matter which required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the judgments made and the reasonableness of the models and assumptions used in the valuation. The audit effort included the use of professionals with specialized skill and knowledge, including our valuation, modeling and actuarial specialists, to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of embedded derivative liabilities included, among others, the following:
•We tested the effectiveness of controls over the assumptions, including controls over the underlying data used in the valuation of embedded derivative liabilities.
•We tested the effectiveness of controls over the methodologies and models used for determining the embedded derivative liabilities.
•With the involvement of our valuation, modeling and actuarial specialists, we:
◦evaluated the methods, models, and judgments applied by management in the determination of principal assumptions and the calculation of the embedded derivative liabilities
◦evaluated the results of underlying experience studies, capital market projections, and judgments applied by management in setting the assumptions
◦developed an independent estimate of the embedded derivative liabilities, on a sample basis, and evaluated differences.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 17, 2022
We have served as the Company’s auditor since at least 1968; however, an earlier year could not be reliably determined.
MetLife, Inc.
Consolidated Balance Sheets
December 31, 2021 and 2020
(In millions, except share and per share data)
2021 2020
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $310,884 and $310,811, respectively; allowance for credit loss of $91 and $81, respectively)
$ 340,274 $ 354,809
Equity securities, at estimated fair value 1,269 1,079
Contractholder-directed equity securities and fair value option securities, at estimated fair value 12,142 13,319
Mortgage loans (net of allowance for credit loss of $634 and $590, respectively; includes $127 and $165, respectively, under the fair value option)
79,353 83,919
Policy loans 9,111 9,493
Real estate and real estate joint ventures (includes $240 and $169, respectively, under the fair value option and $175 and $128, respectively, of real estate held-for-sale)
12,216 11,933
Other limited partnership interests 14,625 9,470
Short-term investments, principally at estimated fair value 7,176 3,904
Other invested assets (includes $1,930 and $2,156, respectively, of leveraged and direct financing leases; $351 and $332, respectively, relating to variable interest entities and allowance for credit loss of $40 and $44, respectively)
18,655 20,593
Total investments 494,821 508,519
Cash and cash equivalents, principally at estimated fair value 20,047 19,795
Accrued investment income 3,185 3,388
Premiums, reinsurance and other receivables 17,149 17,870
Deferred policy acquisition costs and value of business acquired 16,061 16,389
Current income tax recoverable 184 -
Goodwill 9,535 10,112
Assets held-for-sale 7,238 7,418
Other assets 11,615 11,685
Separate account assets 179,873 199,970
Total assets $ 759,708 $ 795,146
Liabilities and Equity
Liabilities
Future policy benefits $ 199,721 $ 206,656
Policyholder account balances 203,473 205,176
Other policy-related balances 17,751 17,101
Policyholder dividends payable
478 587
Policyholder dividend obligation
1,682 2,969
Payables for collateral under securities loaned and other transactions
31,920 29,475
Short-term debt
341 393
Long-term debt 13,933 14,603
Collateral financing arrangement
766 845
Junior subordinated debt securities
3,156 3,153
Current income tax payable
- 129
Deferred income tax liability
9,693 11,008
Liabilities held-for-sale 6,634 4,650
Other liabilities 22,538 23,614
Separate account liabilities 179,873 199,970
Total liabilities
691,959 720,329
Contingencies, Commitments and Guarantees (Note 21)
Equity
MetLife, Inc.’s stockholders’ equity:
Preferred stock, par value $0.01 per share; $3,905 and $4,405, respectively, aggregate liquidation preference
- -
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,186,540,473 and 1,181,614,288 shares issued, respectively; 825,540,267 and 892,910,600 shares outstanding, respectively
12 12
Additional paid-in capital
33,511 33,812
Retained earnings
41,197 36,491
Treasury stock, at cost; 361,000,206 and 288,703,688 shares, respectively
(18,157) (13,829)
Accumulated other comprehensive income (loss) 10,919 18,072
Total MetLife, Inc.’s stockholders’ equity
67,482 74,558
Noncontrolling interests
267 259
Total equity
67,749 74,817
Total liabilities and equity
$ 759,708 $ 795,146
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2021, 2020 and 2019
(In millions, except per share data)
2021 2020 2019
Revenues
Premiums
$ 42,009 $ 42,034 $ 42,235
Universal life and investment-type product policy fees
5,756 5,603 5,603
Net investment income
21,395 17,117 18,868
Other revenues
2,619 1,849 1,842
Net investment gains (losses) 1,529 (110) 444
Net derivative gains (losses)
(2,228) 1,349 628
Total revenues
71,080 67,842 69,620
Expenses
Policyholder benefits and claims
43,954 41,461 41,461
Interest credited to policyholder account balances
5,538 5,214 6,464
Policyholder dividends
876 1,090 1,211
Other expenses
12,586 13,150 13,689
Total expenses
62,954 60,915 62,825
Income (loss) before provision for income tax 8,126 6,927 6,795
Provision for income tax expense (benefit)
1,551 1,509 886
Net income (loss)
6,575 5,418 5,909
Less: Net income (loss) attributable to noncontrolling interests
21 11 10
Net income (loss) attributable to MetLife, Inc.
6,554 5,407 5,899
Less: Preferred stock dividends
195 202 178
Preferred stock redemption premium 6 14 -
Net income (loss) available to MetLife, Inc.’s common shareholders
$ 6,353 $ 5,191 $ 5,721
Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
Basic
$ 7.36 $ 5.72 $ 6.10
Diluted
$ 7.31 $ 5.68 $ 6.06
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Net income (loss) $ 6,575 $ 5,418 $ 5,909
Other comprehensive income (loss):
Unrealized investment gains (losses), net of related offsets (8,171) 5,198 14,591
Unrealized gains (losses) on derivatives 137 (286) 60
Foreign currency translation adjustments (1,306) 1,169 (42)
Defined benefit plans adjustment 328 181 30
Other comprehensive income (loss), before income tax (9,012) 6,262 14,639
Income tax (expense) benefit related to items of other comprehensive income (loss) 1,862 (1,237) (3,324)
Other comprehensive income (loss), net of income tax (7,150) 5,025 11,315
Comprehensive income (loss) (575) 10,443 17,224
Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax
24 16 16
Comprehensive income (loss) attributable to MetLife, Inc. $ (599) $ 10,427 $ 17,208
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Consolidated Statements of Equity
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
Preferred
Stock Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock
at Cost Accumulated
Other
Comprehensive
Income (Loss) Total
MetLife, Inc.’s
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Balance at December 31, 2018 $ - $ 12 $ 32,474 $ 28,926 $ (10,393) $ 1,722 $ 52,741 $ 217 $ 52,958
Cumulative effects of changes in accounting principles, net of income tax 74 21 95 95
Treasury stock acquired in connection with share repurchases
(2,285) (2,285) (2,285)
Stock-based compensation
206 206 206
Dividends on preferred stock (178) (178) (178)
Dividends on common stock (declared per share of $1.740)
(1,643) (1,643) (1,643)
Change in equity of noncontrolling interests
- 5 5
Net income (loss)
5,899 5,899 10 5,909
Other comprehensive income (loss), net of income tax
11,309 11,309 6 11,315
Balance at December 31, 2019 - 12 32,680 33,078 (12,678) 13,052 66,144 238 66,382
Cumulative effects of changes in accounting principles, net of income tax (121) (121) (121)
Redemption of preferred stock (989) (989) (989)
Preferred stock redemption premium (14) (14) (14)
Preferred stock issuance 1,961 1,961 1,961
Treasury stock acquired in connection with share repurchases
(1,151) (1,151) (1,151)
Stock-based compensation
160 160 160
Dividends on preferred stock
(202) (202) (202)
Dividends on common stock (declared per share of $1.820)
(1,657) (1,657) (1,657)
Change in equity of noncontrolling interests
- 5 5
Net income (loss)
5,407 5,407 11 5,418
Other comprehensive income (loss), net of income tax
5,020 5,020 5 5,025
Balance at December 31, 2020 - 12 33,812 36,491 (13,829) 18,072 74,558 259 74,817
Redemption of preferred stock (494) (494) (494)
Preferred stock redemption premium (6) (6) (6)
Treasury stock acquired in connection with share repurchases
(4,328) (4,328) (4,328)
Stock-based compensation
193 193 193
Dividends on preferred stock
(195) (195) (195)
Dividends on common stock (declared per share of $1.900)
(1,647) (1,647) (1,647)
Change in equity of noncontrolling interests
- (16) (16)
Net income (loss)
6,554 6,554 21 6,575
Other comprehensive income (loss), net of income tax
(7,153) (7,153) 3 (7,150)
Balance at December 31, 2021 $ - $ 12 $ 33,511 $ 41,197 $ (18,157) $ 10,919 $ 67,482 $ 267 $ 67,749
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Cash flows from operating activities
Net income (loss) $ 6,575 $ 5,418 $ 5,909
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expenses
694 619 630
Amortization of premiums and accretion of discounts associated with investments, net
(855) (816) (999)
(Gains) losses on investments and from sales of businesses, net
(1,529) 110 (444)
(Gains) losses on derivatives, net
4,190 (656) (135)
(Income) loss from equity method investments, net of dividends or distributions
(3,051) 76 254
Interest credited to policyholder account balances
5,490 5,348 6,464
Universal life and investment-type product policy fees
(3,638) (3,664) (5,603)
Change in contractholder-directed equity securities and fair value option securities
(231) 131 (139)
Change in accrued investment income
(11) 104 8
Change in premiums, reinsurance and other receivables
389 842 (514)
Change in deferred policy acquisition costs and value of business acquired, net
(106) 101 (463)
Change in income tax
598 (11) 233
Change in other assets
(681) (361) 426
Change in insurance-related liabilities and policy-related balances
4,553 5,112 7,803
Change in other liabilities
71 (1,065) 71
Other, net
138 351 285
Net cash provided by (used in) operating activities
12,596 11,639 13,786
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturity securities available-for-sale
88,839 77,979 77,820
Equity securities
708 367 294
Mortgage loans
19,183 11,300 12,838
Real estate and real estate joint ventures
1,285 120 1,123
Other limited partnership interests
777 597 625
Purchases and originations of:
Fixed maturity securities available-for-sale
(97,368) (89,633) (87,455)
Equity securities
(451) (169) (130)
Mortgage loans
(14,961) (14,652) (17,657)
Real estate and real estate joint ventures
(1,375) (1,287) (1,962)
Other limited partnership interests
(3,227) (1,979) (1,674)
Cash received in connection with freestanding derivatives
3,453 4,847 2,914
Cash paid in connection with freestanding derivatives
(7,990) (4,247) (3,749)
Sales of businesses, net of cash and cash equivalents disposed of $611, $0 and $0, respectively
3,270 - -
Purchases of businesses, net of cash received of $0, $191 and $0, respectively
- (1,684) (32)
Net change in policy loans
228 250 5
Net change in short-term investments
(3,277) (341) 152
Net change in other invested assets
(235) (176) (567)
Other, net
(46) 139 (131)
Net cash provided by (used in) investing activities
$ (11,187) $ (18,569) $ (17,586)
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Consolidated Statements of Cash Flows - (continued)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Cash flows from financing activities
Policyholder account balances:
Deposits
$ 96,367 $ 93,497 $ 92,122
Withdrawals
(92,540) (85,251) (85,598)
Payables for collateral under securities loaned and other transactions:
Net change in payables for collateral under securities loaned and other transactions
1,883 3,538 2,019
Cash received for other transactions with tenors greater than three months
- 150 125
Cash paid for other transactions with tenors greater than three months
(100) (175) (200)
Long-term debt issued 29 1,124 1,382
Long-term debt repaid
(582) (99) (906)
Collateral financing arrangement repaid (79) (148) (67)
Financing element on certain derivative instruments and other derivative related transactions, net
270 (46) (126)
Treasury stock acquired in connection with share repurchases (4,303) (1,151) (2,285)
Preferred stock issued, net of issuance costs - 1,961 -
Redemption of preferred stock (494) (989) -
Preferred stock redemption premium (6) (14) -
Dividends on preferred stock (195) (202) (178)
Dividends on common stock
(1,647) (1,657) (1,643)
Other, net 22 191 (77)
Net cash provided by (used in) financing activities
(1,375) 10,729 4,568
Effect of change in foreign currency exchange rates on cash and cash equivalents balances
(478) 163 9
Change in cash and cash equivalents
(444) 3,962 777
Cash and cash equivalents, including subsidiaries held-for-sale, beginning of year 20,560 16,598 15,821
Cash and cash equivalents, including subsidiaries held-for-sale, end of year $ 20,116 $ 20,560 $ 16,598
Cash and cash equivalents, subsidiaries held-for-sale, beginning of year $ 765 $ - $ -
Cash and cash equivalents, subsidiaries held-for-sale, end of year $ 69 $ 765 $ -
Cash and cash equivalents, beginning of year $ 19,795 $ 16,598 $ 15,821
Cash and cash equivalents, end of year $ 20,047 $ 19,795 $ 16,598
Supplemental disclosures of cash flow information
Net cash paid (received) for:
Interest
$ 914 $ 891 $ 964
Income tax
$ 1,102 $ 787 $ 1,099
Business acquisitions (Note 3):
Assets $ - $ 2,190 $ -
Liabilities - 315 -
Cash paid, excluding transaction costs $ - $ 1,875 $ -
Subsidiaries held-for-sale (Note 3):
Assets held-for-sale $ 7,238 $ 7,418 $ -
Liabilities held-for-sale 6,634 4,650 -
Net assets held-for-sale $ 604 $ 2,768 $ -
Non-cash transactions:
Fixed maturity securities available-for-sale received in connection with pension risk transfer transactions $ 423 $ 2,037 $ 637
Operating lease liability associated with the recognition of right-of-use assets $ 63 $ 70 $ 341
Real estate and real estate joint ventures acquired in satisfaction of debt $ 174 $ 10 $ 32
Increase in equity securities due to in-kind distributions received from other limited partnership interests $ 380 $ 108 $ 44
Reclassification of certain other invested assets to contractholder-directed equity securities and fair value option securities $ 309 $ - $ -
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
Notes to the Consolidated Financial Statements
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“MetLife” and the “Company” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management. MetLife is organized into five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa (“EMEA”); and MetLife Holdings.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain, including uncertainties associated with the COVID-19 pandemic. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The accompanying consolidated financial statements include the accounts of MetLife, Inc. and its subsidiaries, as well as partnerships and joint ventures in which the Company has a controlling financial interest, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
Held-for-Sale
The Company classifies a business as held-for-sale when management has approved or received approval to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current estimated fair value and certain other specified criteria are met. The business classified as held-for-sale is recorded at the lower of the carrying value and estimated fair value, less cost to sell. If the carrying value of the business exceeds its estimated fair value, less cost to sell, a loss is recognized and reported in net investment gains (losses). Assets and liabilities related to the business classified as held-for-sale are separately reported in the Company's consolidated balance sheets in the period in which the business is classified as held-for-sale. See Note 3 for information on a held-for-sale business. If a component of the Company has either been disposed of or is classified as held-for-sale and represents a strategic shift that has or will have a major effect on the Company’s operations and financial results, the results of the component are reported in discontinued operations.
Separate Accounts
Separate accounts are established in conformity with insurance laws. Generally, the assets of the separate accounts cannot be used to settle the liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if:
•such separate accounts are legally recognized;
•assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities;
•investment objectives are directed by the contractholder; and
•all investment performance, net of contract fees and assessments, is passed through to the contractholder.
The Company reports separate account assets at their fair value which is based on the estimated fair values of the underlying assets comprising the individual separate account portfolios. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line on the statements of operations. Separate accounts credited with a contractual investment return are combined on a line-by-line basis with the Company’s general account assets, liabilities, revenues and expenses and the accounting for these investments is consistent with the methodologies
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
described herein for similar financial instruments held within the general account. Unit-linked separate account investments that are directed by contractholders but do not meet one or more of the other above criteria are included in Contractholder-directed equity securities.
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. Such fees are included in universal life and investment-type product policy fees on the statements of operations.
Reclassifications
Certain amounts in the prior years’ consolidated financial statements and related footnotes thereto have been reclassified to conform to the current year presentation as discussed throughout the Notes to the Consolidated Financial Statements.
Summary of Significant Accounting Policies
The following are the Company’s significant accounting policies with references to notes providing additional information on such policies and critical accounting estimates relating to such policies.
Accounting Policy
Note
Insurance 4
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles 5
Reinsurance 6
Investments 8
Derivatives 9
Fair Value 10
Goodwill 12
Employee Benefit Plans 18
Income Tax 19
Litigation Contingencies 21
Insurance
Future Policy Benefit Liabilities and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type and geographical area. These assumptions are established at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. For long duration insurance contracts, assumptions such as mortality, morbidity and interest rates are “locked in” upon the issuance of new business. However, significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves. Such reserves are determined based on the then current assumptions and do not include a provision for adverse deviation.
Premium deficiency reserves may also be established for short-duration contracts to provide for expected future losses. These reserves are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred for which claims have not been reported. The provisions for unreported claims are calculated using studies that measure the historical length of time between the incurred date of a claim and its eventual reporting to the Company. Anticipated investment income is considered in the calculation of premium deficiency losses for short-duration contracts.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Liabilities for universal and variable life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the life of the contract based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing deferred policy acquisition costs (“DAC”), and are thus subject to the same variability and risk as further discussed herein. The assumptions of investment performance and volatility for variable products are consistent with historical experience of appropriate underlying equity indices, such as the S&P Global Ratings (“S&P”) 500 Index. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
The Company regularly reviews its estimates of liabilities for future policy benefits and compares them with its actual experience. Differences result in changes to the liability balances with related charges or credits to benefit expenses in the period in which the changes occur.
Policyholder account balances relate to contracts or contract features where the Company has no significant insurance risk.
The Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit adjusted for withdrawals. These guarantees are accounted for as insurance liabilities or as embedded derivatives depending on how and when the benefit is paid. Specifically, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of a specific insurable event, or (ii) the policyholder to annuitize. Alternatively, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models.
Guarantees accounted for as insurance liabilities in future policy benefits include guaranteed minimum death benefits (“GMDBs”), the life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”), elective annuitizations of guaranteed minimum income benefits (“GMIBs”), and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero.
Guarantees accounted for as embedded derivatives in policyholder account balances include guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
Other Policy-Related Balances
Other policy-related balances include policy and contract claims, premiums received in advance, unearned revenue liabilities, obligations assumed under structured settlement assignments, policyholder dividends due and unpaid, policyholder dividends left on deposit and negative value of business acquired (“VOBA”).
The liability for policy and contract claims generally relates to incurred but not reported (“IBNR”) death, disability, dental and vision claims. In addition, included in other policy-related balances are claims which have been reported but not yet settled for death, disability, dental and vision. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of IBNR claims principally from analyses of historical patterns of claims by business line. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made.
The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premiums received in advance. These amounts are then recognized in premiums when due.
The unearned revenue liability relates to universal life and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and amortized using the product’s estimated gross profits and margins, similar to DAC as discussed further herein. Such amortization is recorded in universal life and investment-type product policy fees.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
See “- Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles” for a discussion of negative VOBA.
Recognition of Insurance Revenues and Deposits
Premiums related to traditional life, annuity contracts with life contingencies, long-duration accident & health, and credit insurance policies are recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated lives of the insurance policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments.
Premiums related to short-duration non-medical health and disability, accident & health, and certain credit insurance contracts are recognized on a pro rata basis over the applicable contract term.
Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of fees for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to earnings include interest credited and benefit claims incurred in excess of related policyholder account balances.
Prior to the disposition of the Company’s Property & Casualty business, premiums related to property & casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums, representing the portion of premium written related to the unexpired coverage, are included in future policy benefits. See Note 3 for information on the Company’s business dispositions.
All revenues and expenses are presented net of reinsurance, as applicable.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
•incremental direct costs of contract acquisition, such as commissions;
•the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed;
•other essential direct costs that would not have been incurred had a policy not been acquired or renewed; and
•the costs of direct-response advertising, the primary purpose of which is to elicit sales to customers who could be shown to have responded specifically to the advertising and that results in probable future benefits.
All other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
VOBA is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience with the purchased business may vary from these projections.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
DAC and VOBA are amortized as follows:
Products: In proportion to the following over estimated lives of the contracts:
•
Nonparticipating and non-dividend-paying traditional contracts:
Actual and expected future gross premiums.
• Term insurance
• Nonparticipating whole life insurance
• Traditional group life insurance
• Non-medical health insurance
• Accident & health insurance
• Participating, dividend-paying traditional contracts Actual and expected future gross margins.
• Fixed and variable universal life contracts Actual and expected future gross profits.
• Fixed and variable deferred annuity contracts
• Credit insurance contracts Actual and future earned premiums.
• Property & casualty insurance contracts (prior to the disposition of the Company’s Property and Casualty business. See Note 3)
• Other short-duration contracts
See Note 5 for additional information on DAC and VOBA amortization. Amortization of DAC and VOBA is included in other expenses.
The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated on the financial statements for reporting purposes.
The Company generally has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus whereby the policyholder’s initial account balance is increased by an amount equal to a specified percentage of the customer’s deposit; and (ii) the policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The amortization of sales inducements is included in policyholder benefits and claims. Each year, or more frequently if circumstances indicate a potential recoverability issue exists, the Company reviews deferred sales inducements (“DSI”) to determine the recoverability of the asset.
Value of distribution agreements acquired (“VODA”) is reported in other assets and represents the present value of expected future profits associated with the expected future business derived from the distribution agreements acquired as part of a business combination. Value of customer relationships acquired (“VOCRA”) is also reported in other assets and represents the present value of the expected future profits associated with the expected future business acquired through existing customers of the acquired company or business. The VODA and VOCRA associated with past business combinations are amortized over the assets’ useful lives ranging from nine to 40 years and such amortization is included in other expenses. Each year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews VODA and VOCRA to determine whether the asset is impaired.
For certain acquired blocks of business, the estimated fair value of the in-force contract obligations exceeded the book value of assumed in-force insurance policy liabilities, resulting in negative VOBA, which is presented separately from VOBA as an additional insurance liability. The estimated fair value of the in-force contract obligations is based on projections by each block of business. Negative VOBA is amortized over the policy period in proportion to the approximate consumption of losses included in the liability usually expressed in terms of insurance in-force or account value. Such amortization is recorded as an offset in other expenses.
Reinsurance
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer. The Company reviews all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is amortized on a basis consistent with the methodologies and assumptions used for amortizing DAC related to the underlying reinsured contracts. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums; and ceded (assumed) premiums, reinsurance and other receivables (future policy benefits) are established.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums. Ceded (assumed) unearned premiums are reflected as a component of premiums, reinsurance and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of insurance protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) in excess of the related insurance liabilities ceded (assumed) are recognized immediately as a loss and are reported in the appropriate line item within the statement of operations. Any gain on such retroactive agreement is deferred and is amortized as part of DAC, primarily using the recovery method.
Amounts currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts currently payable are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, consistent with credit loss guidance which requires recording an allowance for credit loss (“ACL”).
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other revenues.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate.
Investments
Net Investment Income
Net investment income includes primarily interest income, including amortization of premium and accretion of discount, prepayment fees, dividend income, rental income and equity method income and is net of related investment expenses. Net investment income also includes, to a lesser extent, (i) realized gains (losses) on investments sold or disposed and (ii) unrealized gains (losses) recognized in earnings, representing changes in estimated fair value, primarily for Unit-linked investments (defined below) and fair value option (“FVO”) securities (“FVO Securities”).
Net Investment Gains (Losses)
Net investment gains (losses) include primarily (i) realized gains (losses) from sales and disposals of investments, which are determined by specific identification, (ii) intent-to-sell impairment losses on fixed maturity securities available-for-sale (“AFS”) and impairment losses on all other asset classes, and to a lesser extent, (iii) recognized gains (losses). Recognized gains (losses) are primarily comprised of the change in the ACL and unrealized gains (losses) for certain investments for which changes in estimated fair value are recognized in earnings. Changes in the ACL includes both (i) provisions for credit loss on fixed maturity securities AFS, mortgage loans and leveraged and direct financing leases and (ii) subsequent changes in the ACL. Unrealized gains (losses), representing changes in estimated fair value recognized in earnings, primarily relate to equity securities and certain other limited partnership interests and real estate joint ventures.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Net investment gains (losses) also include non-investment portfolio gains (losses) which do not relate to the performance of the investment portfolio, including gains (losses) from sales and divestitures of businesses and impairment of property, equipment, leasehold improvements and right-of-use (“ROU”) lease assets.
Accrued Investment Income
Accrued investment income is presented separately on the consolidated balance sheet and excluded from the carrying value of the related investments, primarily fixed maturity securities and mortgage loans.
Fixed Maturity Securities
The majority of the Company’s fixed maturity securities are classified as AFS and are reported at their estimated fair value. Changes in the estimated fair value of these securities not recognized in earnings representing unrecognized unrealized investment gains (losses) are recorded as a separate component of other comprehensive income (loss) (“OCI”), net of policy-related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Sales of securities are determined on a specific identification basis.
Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premium and accretion of discount, and is based on the estimated economic life of the securities, which for mortgage-backed and asset-backed securities considers the estimated timing and amount of prepayments of the underlying loans. See Note 8 “- Fixed Maturity Securities AFS - Methodology for Amortization of Premium and Accretion of Discount on Structured Products.” The amortization of premium and accretion of discount also take into consideration call and maturity dates. Generally, the accrual of income is ceased and accrued investment income that is considered uncollectible is recognized as a charge within net investment gains (losses) when securities are impaired.
The Company periodically evaluates these securities for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value as described in Note 8 “- Fixed Maturity Securities AFS - Evaluation of Fixed Maturity Securities AFS for Credit Loss.”
After adoption of credit loss guidance on January 1, 2020, for securities in an unrealized loss position, a credit loss is recognized in earnings within net investment gains (losses) when it is anticipated that the amortized cost, excluding accrued investment income, will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized in earnings as a credit loss by establishing an ACL with a corresponding charge recorded in net investment gains (losses). However, the ACL is limited by the amount that the fair value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI as an unrecognized loss.
During the year ended December 31, 2019, prior to the adoption of credit loss guidance on January 1, 2020, the Company applied other than temporary impairment (“OTTI”) guidance for securities in an unrealized loss position. An OTTI was recognized in earnings within net investment gains (losses) when it was anticipated that the amortized cost would not be recovered. When either: (i) the Company had the intent to sell the security, or (ii) it was more likely than not that the Company would be required to sell the security before recovery, the reduction of amortized cost and the OTTI recognized in earnings was the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions existed, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected was recognized as a reduction of amortized cost and an OTTI in earnings. If the estimated fair value was less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to noncredit loss was recorded in OCI as an unrecognized loss.
The credit loss guidance adopted on January 1, 2020, replaced the model for purchased credit impaired (“PCI”) fixed maturity securities AFS and financing receivables and requires the establishment of an ACL at acquisition, which is added to the purchase price to establish the initial amortized cost of the investment and is not recognized in earnings.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Equity Securities
Equity securities are reported at their estimated fair value, with unrealized gains (losses) representing changes in estimated fair value recognized in net investment gains (losses). Sales of securities are determined on a specific identification basis. Dividends are recognized in net investment income when declared.
Contractholder-Directed Equity Securities and Fair Value Option Securities
Contractholder-directed equity securities and FVO Securities (collectively, “Unit-linked and FVO Securities”) are investments for which the FVO has been elected, or which are otherwise required to be carried at estimated fair value, and include:
•contractholder-directed investments supporting unit-linked variable annuity type liabilities (“Unit-linked investments”) which do not qualify for presentation and reporting as separate account summary total assets and liabilities. These investments are primarily equity securities (including mutual funds) and, to a lesser extent, fixed income investments and cash and cash equivalents. The investment returns on these investments inure to contractholders and are offset by a corresponding change in policyholder account balances through interest credited to policyholder account balances; and
•fixed maturity and equity securities held-for-investment by the general account to support asset and liability management strategies for certain insurance products and investments in certain separate accounts.
Realized gains (losses) on investments sold or disposed and unrealized gains (losses), representing changes in estimated fair value, are both recognized in net investment income for Unit-linked investments and FVO Securities. Sales of these investments are determined on a specific identification basis.
Mortgage Loans
After adoption of credit loss guidance on January 1, 2020, the Company recognizes an ACL in earnings within net investment gains (losses) at time of purchase based on expected lifetime credit loss on financing receivables carried at amortized cost, including, but not limited to, mortgage loans and leveraged and direct financing leases, in an amount that represents the portion of the amortized cost basis of such financing receivables that the Company does not expect to collect, resulting in financing receivables being presented at the net amount expected to be collected.
During the year ended December 31, 2019, prior to the adoption of credit loss guidance on January 1, 2020, the Company applied incurred loss guidance where credit loss was recognized in earnings within net investment gains (losses) when incurred (when it was probable, based on current information and events, that all amounts due under the loan agreement would not be collected).
The Company disaggregates its mortgage loan investments into three portfolio segments: commercial, agricultural and residential. Also included in commercial mortgage loans are revolving line of credit loans collateralized by commercial properties. The accounting policies that are applicable to all portfolio segments are presented below and the accounting policies related to each of the portfolio segments are included in Note 8.
Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of ACL. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premium and deferred expenses and accretion of discount and deferred fees.
The Company ceases to accrue interest when the collection of interest is not considered probable, which is based on a current evaluation of the status of the borrower, including the number of days past due. When a loan is placed on non-accrual status, uncollected past due accrued interest income that is considered uncollectible is charged-off against net investment income. Generally, the accrual of interest income resumes after all delinquent amounts are paid and management believes all future principal and interest payments will be collected. The Company records cash receipts on non-accruing loans in accordance with the loan agreement. The Company records charge-offs of mortgage loan balances not considered collectible upon the realization of a credit loss, for commercial and agricultural mortgage loans typically through foreclosure or after a decision is made to sell a loan, and for residential mortgage loans, typically after considering the individual consumer’s financial status. The charge-off is recorded in net investment gains (losses), net of amounts recognized in ACL. Cash recoveries on principal amounts previously charged-off are generally reported in net investment gains (losses).
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Also included in mortgage loans are residential mortgage loans for which the FVO was elected, and which are stated at estimated fair value. Changes in estimated fair value are recognized in net investment income.
Mortgage loans that are designated as held-for-sale, are carried at the lower of amortized cost or estimated fair value.
Policy Loans
Policy loans are stated at unpaid principal balances. Interest income is recognized as earned using the contractual interest rate. Generally, accrued interest is capitalized on the policy’s anniversary date. Valuation allowances are not established for policy loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal and accrued interest are deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy.
Real Estate
Real estate is stated at cost less accumulated depreciation. Depreciation is recognized on a straight-line basis, without any provision for salvage value, over the estimated useful life of the asset (typically up to 55 years). Rental income is recognized on a straight-line basis over the term of the respective leases. The Company periodically reviews its real estate for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. Properties whose carrying values are greater than their estimated undiscounted cash flows are written down to their estimated fair value, which is generally computed using the present value of expected future cash flows discounted at a rate commensurate with the underlying risks.
Real estate for which the Company commits to a plan to sell within one year and actively markets in its current condition for a reasonable price in comparison to its estimated fair value is classified as held-for-sale and is not depreciated. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs.
Real Estate Joint Ventures and Other Limited Partnership Interests
The Company uses the equity method of accounting or the FVO for real estate joint ventures and other limited partnership interests (“investee”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations but does not hold a controlling financial interest, including when the Company is not deemed the primary beneficiary of a VIE. Under the equity method, the Company recognizes in earnings within net investment income its share of the investee’s earnings. Contributions paid by the Company increase carrying value and distributions received by the Company reduce carrying value. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period.
The Company accounts for its interest in real estate joint ventures and other limited partnership interests in which it has virtually no influence over the investee’s operations at estimated fair value. Unrealized gains (losses), representing changes in estimated fair value of these investments, are recognized in earnings within net investment gains (losses). Due to the nature and structure of these investments, they do not meet the characteristics of an equity security in accordance with applicable accounting guidance.
The Company consolidates real estate joint ventures and other limited partnership interests of which it holds a controlling financial interest, or it is deemed the primary beneficiary of a VIE. Assets of certain of these consolidated other limited partnership interests and real estate joint ventures are recorded at estimated fair value. Unrealized gains (losses) representing changes in estimated fair value are recognized in net investment income.
The Company routinely evaluates its equity method investments for impairment. When it is determined an equity method investment has had a loss in value that is other than temporary, it is impaired. Such an impairment is charged to net investment gains (losses).
Short-term Investments
Short-term investments include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments included within short-term investments are stated at amortized cost less ACL, which approximates estimated fair value.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Other Invested Assets
Other invested assets consist principally of the following:
•Freestanding derivatives with positive estimated fair values which are described in “- Derivatives” below.
•Tax credit and renewable energy partnerships which derive a significant source of investment return in the form of income tax credits or other tax incentives. Where tax credits are guaranteed by a creditworthy third party, the investment is accounted for under the effective yield method. Otherwise, the investment is accounted for under the equity method. See Note 19.
•Annuities funding structured settlement claims represent annuities funding claims assumed by the Company in its capacity as a structured settlements assignment company. The annuities are stated at their contract value, which represents the present value of the future periodic claim payments to be provided. The net investment income recognized reflects the amortization of discount of the annuity at its implied effective interest rate.
•Direct financing leases net investment is equal to the minimum lease payment receivables plus the unguaranteed residual value, less the unearned income, less ACL. Income is recognized by applying the pre-tax internal rate of return to the investment balance. The Company regularly reviews its minimum lease payment receivables for credit loss and residual value for impairments. Certain direct financing leases are linked to inflation.
•Leveraged leases net investment is equal to the minimum lease payment receivables plus the unguaranteed residual value, less the unearned income, less ACL and is reported net of non-recourse debt. Income is recognized by applying the leveraged lease’s estimated rate of return to the net investment in the lease in those periods in which the net investment at the beginning of the period is positive. Leveraged leases derive investment returns in part from their income tax benefit. The Company regularly reviews its minimum lease payment receivables for credit loss and residual value for impairments.
•Investments in operating joint ventures that engage in insurance underwriting activities are accounted for under the equity method.
•Investments in Federal Home Loan Bank (“FHLB”) common stock are carried at redemption value and are considered restricted investments until redeemed by the respective regional FHLBs. Dividends are recognized in net investment income when declared.
•Funds withheld represent a receivable for amounts contractually withheld by ceding companies in accordance with reinsurance agreements. The Company recognizes interest on funds withheld at rates defined by the terms of the agreement which may be contractually specified or directly related to the underlying investments.
Securities Lending Transactions and Repurchase Agreements
The Company accounts for securities lending transactions and repurchase agreements as financing arrangements and the associated liability is recorded at the amount of cash received. The securities loaned or sold under these agreements are included in invested assets. Income and expenses associated with securities lending transactions and repurchase agreements are recognized as investment income and investment expense, respectively, within net investment income.
Securities Lending Transactions
The Company enters into securities lending transactions, whereby securities are loaned to unaffiliated financial institutions. The Company obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, and maintains it at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the Company’s consolidated financial statements. The Company monitors the ratio of the collateral held to the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained as necessary throughout the duration of the loan.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these agreements, the Company sells securities and receives cash in an amount generally equal to 85% to 100% of the estimated fair value of the securities sold at the inception of the transaction, with a simultaneous agreement to repurchase such securities at a future date or on demand in an amount equal to the cash initially received plus interest. The Company monitors the ratio of the cash held to the estimated fair value of the securities sold throughout the duration of the transaction and additional cash or securities are obtained as necessary. Securities sold under such transactions may be sold or re-pledged by the transferee.
Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivative’s carrying value in other invested assets or other liabilities.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in net derivative gains (losses) except as follows:
Statement of Operations Presentation: Derivative:
Policyholder benefits and claims • Economic hedges of variable annuity guarantees included in future policy benefits
Net investment income • Economic hedges of equity method investments in joint ventures
• Derivatives held within Unit-linked investments
• Economic hedges of FVO Securities which are linked to equity indices
Hedge Accounting
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement presentation of changes in estimated fair value of the hedging derivatives are as follows:
•Fair value hedge - a hedge of the estimated fair value of a recognized asset or liability - in the same line item as the earnings effect of the hedged item. The carrying value of the hedged recognized asset or liability is adjusted for changes in its estimated fair value due to the hedged risk.
•Cash flow hedge - a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability - in OCI and reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
•Net investment in a foreign operation (“NIFO”) hedge - in OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation.
The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item. Accruals on derivatives in net investment hedges are recognized in OCI.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurring, the changes in estimated fair value of derivatives recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in OCI pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable of occurring are recognized immediately in net investment gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company issues certain products, which include variable annuities, and investment contracts and is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
•the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
•the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
•a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition.
Subsequent to initial recognition, fair values are based on unadjusted quoted prices for identical assets or liabilities in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment are used to determine the estimated fair value of assets and liabilities. These unobservable inputs can be based on management’s judgment, assumptions or estimation and may not be observable in market activity. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing the assets.
Goodwill
Goodwill represents the future economic benefits arising from net assets acquired in a business combination that are not individually identified and recognized. Goodwill is calculated as the excess of cost over the estimated fair value of such net assets acquired, is not amortized, and is tested for impairment based on a fair value approach at least annually, or more frequently if events or circumstances indicate that there may be justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter based upon data as of the close of the second quarter. Goodwill associated with a business acquisition is not tested for impairment during the year the business is acquired unless there is a significant identified impairment event.
On January 1, 2020, the Company adopted accounting standards update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, using a prospective transition approach for goodwill impairment testing. The Company tests goodwill for impairment by either performing a qualitative assessment or a quantitative test. The qualitative impairment assessment is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company may elect not to perform the qualitative impairment assessment for some or all of its reporting units and perform a quantitative impairment test. In performing the quantitative impairment test, the Company may determine the fair values of its reporting units by applying a market multiple, discounted cash flow, and/or an actuarial-based valuation approach. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change.
The impairment test is performed at the reporting unit level, which is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company will consider income tax effects from any tax deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if applicable.
On an ongoing basis, the Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor defined benefit pension plans and other postretirement benefit plans covering eligible employees. Measurement dates used for all of the subsidiaries’ defined benefit pension and other postretirement benefit plans correspond with the fiscal year ends of sponsoring subsidiaries, which is December 31 for U.S. and non-U.S. subsidiaries.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company recognizes the funded status of each of its defined benefit pension and other postretirement benefit plans, measured as the difference between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation (“PBO”) for pension benefits and the accumulated postretirement benefit obligation (“APBO”) for other postretirement benefits in other assets or other liabilities.
Actuarial gains and losses result from differences between each plan’s actual experience and the assumed experience on plan assets or PBO/APBO during a particular period and are recorded in accumulated OCI (“AOCI”). To the extent such gains and losses exceed 10% of the greater of the PBO/APBO or the estimated fair value of plan assets, the excess is amortized into net periodic benefit costs, generally over the average projected future service years of the active employees. In addition, prior service costs (credit) are recognized in AOCI at the time of the amendment and then amortized to net periodic benefit costs over the average projected future service years of the active employees.
Net periodic benefit costs are determined using management’s estimates and actuarial assumptions and are comprised of service cost, interest cost, settlement and curtailment costs, expected return on plan assets, amortization of net actuarial (gains) losses, and amortization of prior service costs (credit). Fair value is used to determine the expected return on plan assets.
The subsidiaries also sponsor defined contribution plans for substantially all U.S. employees under which a portion of employee contributions is matched. Applicable matching contributions are made each payroll period. Accordingly, the Company recognizes compensation cost for current matching contributions. As all contributions are transferred currently as earned to the defined contribution plans, no liability for matching contributions is recognized on the balance sheets.
Income Tax
MetLife, Inc. and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. Non-includable subsidiaries file either separate individual corporate tax returns or separate consolidated tax returns.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established against deferred tax assets when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including:
•the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
•the jurisdiction in which the deferred tax asset was generated;
•the length of time that carryforward can be utilized in the various taxing jurisdictions;
•future taxable income exclusive of reversing temporary differences and carryforwards;
•future reversals of existing taxable temporary differences;
•taxable income in prior carryback years; and
•tax planning strategies.
The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period of change.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.
In December 2017, H.R.1, commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) was signed into law. See Note 19 for additional information on U.S. Tax Reform.
Litigation Contingencies
The Company is a defendant in a large number of litigation matters and is involved in a number of regulatory investigations. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Except as otherwise disclosed in Note 21, legal costs are recognized as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected on the Company’s consolidated financial statements.
Other Accounting Policies
Stock-Based Compensation
The Company grants certain employees and directors stock-based compensation awards under various plans, subject to vesting conditions. The Company recognizes compensation expense in an amount fixed at grant date or remeasured quarterly as described in Note 16. The Company generally recognizes this expense over the vesting period. However, the Company truncates the expense period to the date the employee attained age-and-service criteria to exercise or receive payment for the award regardless of continued employment. In such a case, the Company does not accelerate award exercise or payment timing. The Company also takes an estimation of forfeitures into account.
Cash and Cash Equivalents
The Company considers highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Securities included within cash equivalents are stated at estimated fair value, while other investments included within cash equivalents are stated at amortized cost which approximates estimated fair value.
Property, Equipment, Leasehold Improvements and Computer Software
Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets, as appropriate. The estimated life is generally 40 years for company occupied real estate property, from one to 25 years for leasehold improvements, and from three to seven years for all other property and equipment. The cost basis of the property, equipment and leasehold improvements was $2.7 billion and $2.8 billion at December 31, 2021 and 2020, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $1.6 billion and $1.5 billion at December 31, 2021 and 2020, respectively. Related depreciation and amortization expense was $192 million, $194 million and $207 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company recognized leasehold improvement impairment charges of $45 million, $0, and $24 million for the years ended December 31, 2021, 2020 and 2019, respectively. See Note 17 for further information on the 2019 impairment charges recorded as part of restructuring charges.
Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as certain internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized over a four-year period using the straight-line method. The cost basis of computer software was $4.0 billion and $3.7 billion at December 31, 2021 and 2020, respectively. Accumulated amortization of capitalized software was $2.7 billion and $2.5 billion at December 31, 2021 and 2020, respectively. Related amortization expense was $234 million, $207 million and $262 million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Leases
The Company, as lessee, has entered into various lease and sublease agreements for office space and equipment. At contract inception, the Company determines that an arrangement contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For contracts that contain a lease, the Company recognizes the ROU asset in Other assets and the lease liability in Other liabilities. The Company evaluates whether a ROU asset is impaired when events or changes in circumstances indicate that its carrying amount may not be recoverable. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the associated lease costs are recorded as an expense on a straight-line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are determined using the Company’s incremental borrowing rate based upon information available at commencement date to recognize the present value of lease payments over the lease term. ROU assets also include lease payments and excludes lease incentives. Lease terms may include options to extend or terminate the lease and are included in the lease measurement when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components. The Company does not separate lease and non-lease components and accounts for these items as a single lease component for all asset classes.
The majority of the Company’s leases and subleases are operating leases related to office space. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.
Other Revenues
Other revenues primarily include fees related to service contracts from customers for vision fee for service arrangements, prepaid legal plans, administrative services-only contracts, and investment management services. Substantially all of the revenue from the services is recognized over time as the applicable services are provided or are made available to the customers. The revenue recognized includes variable consideration to the extent it is probable that a significant reversal will not occur. In addition to the service fees, other revenues also include certain stable value fees and other miscellaneous revenues. These fees and miscellaneous revenues are recognized as earned.
Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries.
Foreign Currency
Assets, liabilities and operations of foreign affiliates and subsidiaries are recorded based on the functional currency of each entity. The determination of the functional currency is made based on the appropriate economic and management indicators. For most of the Company’s foreign operations, the local currency is the functional currency. For certain other foreign operations, such as Japan, the local currency and one or more other currencies qualify as functional currencies. Assets and liabilities of foreign affiliates and subsidiaries are translated from the functional currency to U.S. dollars at the exchange rates in effect at each year-end and revenues and expenses are translated at the average exchange rates during the year. The resulting translation adjustments are charged or credited directly to OCI, net of applicable taxes. Gains and losses from foreign currency transactions, including the effect of re-measurement of monetary assets and liabilities to the appropriate functional currency, are reported as part of net investment gains (losses) in the period in which they occur.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares, or their equivalent, outstanding during the period. Diluted earnings per common share include the dilutive effect of the assumed exercise or issuance of stock-based awards using the treasury stock method. Under the treasury stock method, exercise or issuance of stock-based awards is assumed to occur with the proceeds used to purchase common stock at the average market price for the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of ASUs to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. The following tables provide a description of ASUs recently issued by the FASB and the impact of their adoption on the Company’s consolidated financial statements.
Adopted Accounting Pronouncements
The table below describes the impacts of the ASUs adopted by the Company, effective January 1, 2021.
Standard Description Effective Date and Method of Adoption Impact on Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting; as clarified and amended by ASU 2021-01, Reference Rate Reform (Topic 848): Scope
The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with certain exceptions. ASU 2021-01 amends the scope of the recent reference rate reform guidance. New optional expedients allow derivative instruments impacted by changes in the interest rate used for margining, discounting, or contract price alignment to qualify for certain optional relief.
Effective for contract modifications made between March 12, 2020 and December 31, 2022.
The guidance has reduced the operational and financial impacts of contract modifications that replace a reference rate, such as London Interbank Offered Rate (“LIBOR”), affected by reference rate reform.
Contract modifications for invested assets and derivative instruments have occurred during 2021 and are expected to continue into 2022. Based on actions taken to date, the adoption of the guidance has not had a material impact on the Company’s consolidated financial statements. The Company does not expect the adoption of this guidance to have a material ongoing impact and will continue to evaluate the impacts of reference rate reform on contract modifications and hedging relationships through December 31, 2022.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
The guidance simplifies the accounting for income taxes by removing certain exceptions to the tax accounting guidance and providing clarification to other specific tax accounting guidance to eliminate variations in practice. Specifically, it removes the exceptions related to the a) incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, b) recognition of a deferred tax liability when foreign investment ownership changes from equity method investment to consolidated subsidiary and vice versa and c) use of interim period tax accounting for year-to-date losses that exceed anticipated losses. The guidance also simplifies the application of the income tax guidance for franchise taxes that are partially based on income and the accounting for tax law changes during interim periods, clarifies the accounting for transactions that result in a step-up in tax basis of goodwill, provides for the option to elect allocation of consolidated income taxes to entities disregarded by taxing authorities for their stand-alone reporting, and requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.
January 1, 2021. The Company adopted, using a prospective approach.
The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Future Adoption of Accounting Pronouncements
ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s consolidated financial statements or disclosures. ASUs issued but not yet adopted as of December 31, 2021 that are currently being assessed and may or may not have a material impact on the Company’s consolidated financial statements or disclosures are summarized in the table below.
Standard Description Effective Date and Method of Adoption Impact on Financial Statements
ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services-Insurance (Topic 944): Effective Date, as amended by ASU 2020-11, Financial Services-Insurance (Topic 944): Effective Date and Early Application
The guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The amendments in ASU 2019-09 defer the effective date of ASU 2018-12 to January 1, 2022 for all entities, and the amendments in ASU 2020-11 further defer the effective date of ASU 2018-12 for an additional year to January 1, 2023 for all entities.
January 1, 2023, to be applied retrospectively to January 1, 2021 (with early adoption permitted).
The Company’s implementation efforts and the evaluation of the impacts of the guidance continue to progress. Given the nature and extent of the required changes to a significant portion of the Company’s operations, the adoption of this guidance is expected to have a material impact on its financial position, results of operations, and disclosures, as well as systems, processes, and controls.
The Company expects to adopt the guidance effective January 1, 2023. The modified retrospective approach will be used, except in regard to market risk benefits where the Company will use the full retrospective approach.
The Company has created a governance framework and is managing a detailed implementation plan to support timely application of the guidance. The Company has made progress and continues to refine key accounting policy decisions, technology solutions and internal controls. These activities include, but are not limited to, modifications of actuarial valuation, accounting and financial reporting processes and systems including internal controls.
The most significant transition impacts are expected to be from: (i) the requirement to account for variable annuity guarantees as market risk benefits measured at fair value, (except for the changes in fair value already recognized under an existing accounting model) and (ii) adjustments to AOCI for the change in the current discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment contracts and the removal of shadow account balances associated with long-duration products.
Based on factors such as: (i) the measurement of market risk benefits at fair value; and (ii) the difference between the discount rate currently used for measuring the liability for future policy benefits for traditional and limited payment contracts compared to the observed upper medium grade investment yield at the date of transition for this guidance, the Company’s expected impact of adopting this guidance is anticipated to result in a reduction of total equity. The Company continues to evaluate the impact of the guidance on its consolidated financial statements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Standard Description Effective Date and Method of Adoption Impact on Financial Statements
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
The guidance requires entities to provide annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy and can include tax credits and other forms of government assistance. Entities are required to disclose information about (i) the nature of the transactions and the related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement that are affected by the transactions, including the associated amounts; and (iii) the significant terms and conditions of the transactions, including commitments and contingencies. Annual periods beginning January 1, 2022, to be applied prospectively (with early adoption permitted). The Company is currently evaluating the impact of the guidance on its annual disclosures to be included in its 2022 consolidated financial statements.
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
The guidance indicates how to determine whether a contract liability is recognized by the acquirer in a business combination and provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination.
January 1, 2023, to be applied prospectively (with early adoption permitted).
The Company is currently evaluating the impact of the guidance on its consolidated financial statements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information
MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other.
U.S.
The U.S. segment offers a broad range of protection products and services aimed at serving the financial needs of customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. The U.S. segment is organized into two businesses: Group Benefits and Retirement and Income Solutions (“RIS”). Prior to its disposition, the Property & Casualty business was included in the U.S. segment. See Note 3.
•The Group Benefits business offers products such as term, variable and universal life insurance, dental, group and individual disability, vision and accident & health insurance.
•The RIS business offers a broad range of life and annuity-based insurance and investment products, including stable value and pension risk transfer products, institutional income annuities, structured settlements, longevity reinsurance solutions, benefit funding solutions and capital markets investment products.
Asia
The Asia segment offers a broad range of products and services to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, accident & health insurance and retirement and savings.
Latin America
The Latin America segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, retirement and savings, accident & health insurance and credit insurance.
EMEA
The EMEA segment offers products to individuals, corporations, other institutions, and their respective employees, which include life insurance, accident & health insurance, retirement and savings and credit insurance.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses that the Company no longer actively markets in the United States. These include variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, and long-term care insurance.
Corporate & Other
Corporate & Other contains various start-up, developing and run-off businesses. Also included in Corporate & Other are: the excess capital, as well as certain charges and activities, not allocated to the segments (including external integration and disposition costs, internal resource costs for associates committed to acquisitions and dispositions and enterprise-wide strategic initiative restructuring charges), interest expense related to the majority of the Company’s outstanding debt, expenses associated with certain legal proceedings and income tax audit issues, the elimination of intersegment amounts (which generally relate to affiliated reinsurance, investment expenses and intersegment loans bearing interest rates commensurate with related borrowings), and the Company’s investment management business (through which the Company provides public fixed income, private capital and real estate investment solutions to institutional investors worldwide).
Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. Adjusted earnings should not be viewed as a substitute for net income (loss). The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
The financial measures of adjusted revenues and adjusted expenses focus on the Company’s primary businesses principally by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or will be sold or exited by MetLife but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses. Divested businesses also include the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MetLife that do not meet the criteria to be included in results of discontinued operations under GAAP. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted revenues:
•Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB fees”);
•Net investment income: (i) includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iii) excludes certain amounts related to contractholder-directed equity securities, (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP; and
•Other revenues is adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”).
The following additional adjustments are made to expenses, in the line items indicated, in calculating adjusted expenses:
•Policyholder benefits and claims and policyholder dividends excludes: (i) amortization of basis adjustments associated with de-designated fair value hedges of future policy benefits, (ii) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (iii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, (iv) benefits and hedging costs related to GMIBs (“GMIB costs”) and (v) market value adjustments associated with surrenders or terminations of contracts (“Market value adjustments”);
•Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes certain amounts related to net investment income earned on contractholder-directed equity securities;
•Amortization of DAC and VOBA excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB fees and GMIB costs and (iii) Market value adjustments;
•Amortization of negative VOBA excludes amounts related to Market value adjustments;
•Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
•Other expenses excludes: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements costs, and (iii) acquisition, integration and other costs. Other expenses includes TSA fees.
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the years ended December 31, 2021, 2020 and 2019 and at December 31, 2021 and 2020. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for adjusted earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s business.
The Company’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. The Company’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, net income (loss) or adjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
Year Ended December 31, 2021 U.S. Asia Latin
America EMEA MetLife
Holdings Corporate
& Other Total Adjustments Total
Consolidated
(In millions)
Revenues
Premiums $ 26,358 $ 6,421 $ 2,609 $ 2,271 $ 3,333 $ 35 $ 41,027 $ 982 $ 42,009
Universal life and investment-type product policy fees
1,140 1,814 1,109 395 1,101 2 5,561 195 5,756
Net investment income (1) 8,048 5,052 1,271 215 6,450 244 21,280 115 21,395
Other revenues 1,538 73 41 47 257 420 2,376 243 2,619
Net investment gains (losses)
- - - - - - - 1,529 1,529
Net derivative gains (losses)
- - - - - - - (2,228) (2,228)
Total revenues
37,084 13,360 5,030 2,928 11,141 701 70,244 836 71,080
Expenses
Policyholder benefits and claims and policyholder dividends
27,957 5,008 3,143 1,241 6,268 34 43,651 1,179 44,830
Interest credited to policyholder account balances
1,422 1,995 249 86 840 - 4,592 946 5,538
Capitalization of DAC
(65) (1,607) (414) (469) (33) (11) (2,599) (119) (2,718)
Amortization of DAC and VOBA
60 1,369 285 356 257 9 2,336 219 2,555
Amortization of negative VOBA
- (27) - (7) - - (34) - (34)
Interest expense on debt 7 - 5 - 5 902 919 1 920
Other expenses 3,632 3,388 1,401 1,324 992 562 11,299 564 11,863
Total expenses
33,013 10,126 4,669 2,531 8,329 1,496 60,164 2,790 62,954
Provision for income tax expense (benefit)
850 936 70 96 570 (591) 1,931 (380) 1,551
Adjusted earnings
$ 3,221 $ 2,298 $ 291 $ 301 $ 2,242 $ (204) 8,149
Adjustments to:
Total revenues
Total expenses
(2,790)
Provision for income tax (expense) benefit
Net income (loss) $ 6,575 $ 6,575
At December 31, 2021 U.S. Asia (2) Latin
America EMEA MetLife
Holdings Corporate
& Other Total
(In millions)
Total assets $ 282,741 $ 169,291 $ 59,763 $ 27,038 $ 179,551 $ 41,324 $ 759,708
Separate account assets $ 81,217 $ 10,241 $ 37,632 $ 3,098 $ 47,685 $ - $ 179,873
Separate account liabilities
$ 81,217 $ 10,241 $ 37,632 $ 3,098 $ 47,685 $ - $ 179,873
__________________
(1)Net investment income from equity method investments represents 23%, 30%, 7% and 26% of segment net investment income for the U.S., Asia, Latin America and MetLife Holdings segments, respectively.
(2)Total assets includes $142.7 billion of assets from the Company’s Japan operations which represents 19% of total consolidated assets.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
Year Ended December 31, 2020 U.S. Asia Latin
America EMEA MetLife
Holdings Corporate
& Other Total Adjustments Total
Consolidated
(In millions)
Revenues
Premiums $ 27,265 $ 6,571 $ 2,265 $ 2,259 $ 3,600 $ 22 $ 41,982 $ 52 $ 42,034
Universal life and investment-type product policy fees
1,070 1,892 994 433 1,073 3 5,465 138 5,603
Net investment income (1) 6,903 3,938 992 269 5,184 42 17,328 (211) 17,117
Other revenues 957 61 38 52 238 344 1,690 159 1,849
Net investment gains (losses)
- - - - - - - (110) (110)
Net derivative gains (losses)
- - - - - - - 1,349 1,349
Total revenues
36,195 12,462 4,289 3,013 10,095 411 66,465 1,377 67,842
Expenses
Policyholder benefits and claims and policyholder dividends
26,309 5,213 2,406 1,196 6,738 (3) 41,859 692 42,551
Interest credited to policyholder account balances
1,622 1,834 240 109 868 - 4,673 541 5,214
Capitalization of DAC
(453) (1,652) (362) (491) (39) (11) (3,008) (5) (3,013)
Amortization of DAC and VOBA
471 1,415 276 454 370 8 2,994 166 3,160
Amortization of negative VOBA
- (37) - (8) - - (45) - (45)
Interest expense on debt 7 - 4 1 6 895 913 - 913
Other expenses 4,162 3,481 1,318 1,344 942 625 11,872 263 12,135
Total expenses
32,118 10,254 3,882 2,605 8,885 1,514 59,258 1,657 60,915
Provision for income tax expense (benefit)
853 643 127 81 234 (556) 1,382 127 1,509
Adjusted earnings
$ 3,224 $ 1,565 $ 280 $ 327 $ 976 $ (547) 5,825
Adjustments to:
Total revenues
1,377
Total expenses
(1,657)
Provision for income tax (expense) benefit
(127)
Net income (loss) $ 5,418 $ 5,418
At December 31, 2020 U.S. Asia (2) Latin
America
EMEA MetLife
Holdings
Corporate
& Other Total
(In millions)
Total assets $ 291,483 $ 173,884 $ 75,047 $ 28,372 $ 184,566 $ 41,794 $ 795,146
Separate account assets $ 85,316 $ 10,825 $ 50,073 $ 6,083 $ 47,673 $ - $ 199,970
Separate account liabilities
$ 85,316 $ 10,825 $ 50,073 $ 6,083 $ 47,673 $ - $ 199,970
__________________
(1)Net investment income from equity method investments represents 5%, 12%,1% and 5% of segment net investment income for the U.S., Asia, Latin America and MetLife Holdings segments, respectively.
(2)Total assets includes $146.0 billion of assets from the Company’s Japan operations which represents 18% of total consolidated assets.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
Year Ended December 31, 2019 U.S. Asia Latin
America EMEA MetLife
Holdings Corporate
& Other Total Adjustments Total
Consolidated
(In millions)
Revenues
Premiums $ 26,801 $ 6,632 $ 2,723 $ 2,177 $ 3,748 $ 83 $ 42,164 $ 71 $ 42,235
Universal life and investment-type product policy fees
1,078 1,674 1,094 423 1,124 2 5,395 208 5,603
Net investment income (1) 7,021 3,691 1,271 291 5,281 275 17,830 1,038 18,868
Other revenues 887 56 44 54 253 291 1,585 257 1,842
Net investment gains (losses)
- - - - - - - 444 444
Net derivative gains (losses)
- - - - - - - 628 628
Total revenues
35,787 12,053 5,132 2,945 10,406 651 66,974 2,646 69,620
Expenses
Policyholder benefits and claims and policyholder dividends
26,165 5,185 2,623 1,176 6,970 73 42,192 480 42,672
Interest credited to policyholder account balances
1,984 1,710 332 98 905 - 5,029 1,435 6,464
Capitalization of DAC
(484) (1,913) (396) (505) (28) (12) (3,338) (20) (3,358)
Amortization of DAC and VOBA
475 1,288 291 428 299 6 2,787 109 2,896
Amortization of negative VOBA
- (25) - (8) - - (33) - (33)
Interest expense on debt 10 - 3 - 8 934 955 - 955
Other expenses 4,075 3,818 1,443 1,399 969 1,074 12,778 451 13,229
Total expenses
32,225 10,063 4,296 2,588 9,123 2,075 60,370 2,455 62,825
Provision for income tax expense (benefit)
724 585 227 75 249 (1,201) 659 227 886
Adjusted earnings
$ 2,838 $ 1,405 $ 609 $ 282 $ 1,034 $ (223) 5,945
Adjustments to:
Total revenues
2,646
Total expenses
(2,455)
Provision for income tax (expense) benefit
(227)
Net income (loss) $ 5,909 $ 5,909
__________________
(1)Net investment income from equity method investments represents 6%, 9%, 2% and 5% of segment net investment income for the U.S., Asia, Latin America and MetLife Holdings segments, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
2. Segment Information (continued)
The following table presents total premiums, universal life and investment-type product policy fees and other revenues by major product groups of the Company’s segments, as well as Corporate & Other:
Years Ended December 31,
2021 2020 2019
(In millions)
Life insurance $ 22,872 $ 21,256 $ 20,759
Accident & health insurance 17,498 15,346 15,159
Annuities 7,499 7,916 8,590
Other (1)
2,515 4,968 5,172
Total
$ 50,384 $ 49,486 $ 49,680
__________________
(1)Includes Property & Casualty insurance products which are no longer a significant product group after the disposal of the Property & Casualty business. See Note 3.
The following table presents total premiums, universal life and investment-type product policy fees and other revenues associated with the Company’s U.S. and foreign operations:
Years Ended December 31,
2021 2020 2019
(In millions)
U.S.
$ 35,252 $ 34,717 $ 34,433
Foreign:
Japan
6,426 6,750 6,608
Other
8,706 8,019 8,639
Total
$ 50,384 $ 49,486 $ 49,680
Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2021, 2020 and 2019.
3. Acquisition and Dispositions
Acquisition
Acquisition of Versant Health
On December 30, 2020, the Company completed its acquisition of all of the issued and outstanding capital stock of Versant Health, Inc. (“Versant Health”), a managed vision care company, for $1.8 billion in an all-cash transaction. Versant Health owns the well-established marketplace brands, Davis Vision and Superior Vision.
Of the purchase price, $323 million and $95 million was allocated to the fair value of tangible assets acquired and liabilities assumed, respectively, at the acquisition date. The tangible assets primarily included $189 million of cash.
Additionally, $890 million was allocated to goodwill, $790 million was allocated to VOCRA, and $115 million was allocated to other intangibles. The goodwill recorded includes the certain expected synergies, assembled workforce and other benefits that management believes will result from combining the operations of Versant Health with the operations of MetLife, including strengthening and differentiating the Company’s vision benefit offering, reported in the U.S. segment, with one of the industry’s broadest networks of providers and plan options. The value of VOCRA, included in other assets, reflects the estimated fair value of the expected future profits associated with Versant Health’s customer relationships acquired. VOCRA is amortized over the assets’ useful lives ranging from nine to 15 years.
The allocated purchase price also included deferred tax liabilities of $217 million, which are attributable to the intangible assets and liabilities, excluding goodwill, established at the acquisition date. No portion of goodwill is deductible for tax purposes.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
3. Acquisition and Dispositions (continued)
Total revenue of Versant Health represented less than 2% of pro forma total revenue of MetLife for each of the years ended December 31, 2020 and 2019 when evaluated as though the acquisition had occurred at the beginning of the earliest period presented.
Dispositions
Disposition of MetLife Seguros S.A.
In September 2021, the Company sold its wholly-owned Argentinian subsidiary, MetLife Seguros S.A. (“MetLife Seguros”). In connection with the sale, a loss of $205 million, net of income tax, was recorded for the year ended December 31, 2021, which is reflected in net investment gains (losses). At December 31, 2020, MetLife Seguros represented $201 million of total assets in the Latin America segment. MetLife Seguros results of operations are reported in the Latin America segment adjusted earnings through the date of sale.
Pending Disposition of MetLife Poland and Disposition of MetLife Greece
In July 2021, the Company entered into definitive agreements to sell its wholly-owned subsidiaries in Poland and Greece (collectively, “MetLife Poland and Greece”) to NN Group N.V. for $738 million in total consideration, including a pre-closing dividend of $43 million. In connection with the pending sale, an expected loss of $214 million, net of income tax, was recorded for the year ended December 31, 2021, which is reflected in net investment gains (losses). MetLife Poland and Greece results of operations are reported in the EMEA segment adjusted earnings through June 30, 2021. See Note 2 for information on accounting for divested business. In January 2022, the Company completed the sale of its wholly-owned subsidiaries in Greece. The Company expects the disposition of its wholly-owned subsidiaries in Poland to close in the first half of 2022 and is subject to regulatory approvals and satisfaction of other customary closing conditions.
MetLife Poland and Greece met the criteria in the second quarter of 2021 to be classified as held-for-sale but did not meet the criteria to be classified as discontinued operations. As a result, the related assets and liabilities are included in the separate held-for-sale line items of the asset and liability sections of the consolidated balance sheet.
The following table summarizes the assets and liabilities held-for-sale:
December 31, 2021
(In millions)
Assets:
Fixed maturity securities available-for-sale $ 2,043
Contractholder-directed equity securities 1,114
Other investments 118
Total investments 3,275
Cash and cash equivalents 69
Deferred policy acquisition costs and value of business acquired 138
Other 259
Separate account assets 3,497
Total assets held-for-sale $ 7,238
Liabilities:
Future policy benefits $ 916
Policyholder account balances 2,005
Other policy-related balances 103
Other 113
Separate account liabilities 3,497
Total liabilities held-for-sale $ 6,634
MetLife Poland and Greece income (loss) before provision for income tax as reflected in the consolidated statements of operations was $50 million, $30 million and $50 million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
3. Acquisition and Dispositions (continued)
Disposition of Metropolitan Property and Casualty Insurance Company
In December 2020, the Company entered into a definitive agreement to sell its wholly-owned subsidiary, Metropolitan Property and Casualty Insurance Company and certain of its wholly-owned subsidiaries (collectively, “MetLife P&C”) to Farmers Group, Inc. for $3.9 billion. In addition, the Company and the Farmers Exchanges have established a 10-year strategic partnership through which the Farmers Insurance Group will offer its personal line products on MetLife’s U.S. Group Benefits platform which commenced when the transaction closed. MetLife P&C results of operations are reported in the U.S. segment adjusted earnings through December 31, 2020. See Note 2 for more information on divested businesses. In April 2021, the Company completed the sale of MetLife P&C. As a result of the sale, the Company recognized a gain of $1.4 billion ($1.0 billion, net of income tax) in net investment gains (losses) for the year ended December 31, 2021, which includes customary purchase price adjustments recorded after the date of sale.
The disposition met the criteria to be classified as held-for-sale but did not meet the criteria to be classified as discontinued operations. As a result, the related assets and liabilities were included in the separate held-for-sale line items of the asset and liability sections of the consolidated balance sheet. The following table summarizes the assets and liabilities held-for-sale at December 31, 2020:
December 31, 2020
(In millions)
Assets:
Fixed maturity securities available-for-sale $ 4,096
Equity securities 57
Mortgage loans 355
Other invested assets 29
Total investments 4,537
Cash and cash equivalents 765
Accrued investment income 38
Premiums, reinsurance and other receivables 1,411
Deferred policy acquisition costs 196
Goodwill 328
Other assets 143
Total assets held-for-sale $ 7,418
Liabilities:
Future policy benefits $ 3,506
Other policy-related balances 33
Payables for collateral under securities loaned and other transactions 862
Other liabilities 249
Total liabilities held-for-sale $ 4,650
MetLife P&C income (loss) before provision for income tax as reflected in the consolidated statement of operations was $121 million, $399 million and $291 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Disposition of Joint-stock Company MetLife Insurance Company
In December 2020, the Company entered into an agreement to sell its wholly-owned Russian subsidiary, the Joint-stock Company MetLife Insurance Company (“MetLife Russia”). In connection with the sale, a loss of $133 million, net of income tax, was recorded for the year ended December 31, 2020 and is reflected in net investment gains (losses). At December 31, 2020, MetLife Russia represented $382 million of total assets in the EMEA segment. MetLife Russia results of operations are reported in the EMEA segment adjusted earnings through December 31, 2020. In January 2021, the Company completed the sale of MetLife Russia.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
3. Acquisition and Dispositions (continued)
Disposition of MetLife Seguros de Retiro S.A.
In October 2020, the Company sold one of its wholly-owned Argentinian subsidiaries, MetLife Seguros de Retiro S.A. (“MetLife Seguros de Retiro”). In connection with the sale, a loss of $162 million, net of income tax, was recorded for the year ended December 31, 2020. This loss was comprised of a $130 million pre-tax loss, which is reflected in net investment gains (losses). Additionally, the $162 million loss included a $32 million net tax charge, which is recorded in the provision for income tax expense (benefit) and included previously deferred tax items and losses which are not recognized for tax purposes. MetLife Seguros de Retiro’s results of operations are reported in the Latin America segment adjusted earnings through June 30, 2020. See Note 2 for information on accounting for divested businesses.
Disposition of MetLife Limited and Metropolitan Life Insurance Company of Hong Kong Limited
In June 2019, the Company entered into a definitive agreement to sell its two wholly-owned subsidiaries, MetLife Limited and Metropolitan Life Insurance Company of Hong Kong Limited (collectively, “MetLife Hong Kong”). As a result of the agreement, a loss of $140 million, net of income tax, was recorded for the year ended December 31, 2019. This loss was comprised of a $100 million pre-tax loss, which is reflected in net investment gains (losses) and included allocated goodwill of $71 million. Additionally, the $140 million loss included a $40 million net tax charge, which is recorded in the provision for income tax expense (benefit) and included previously deferred tax items and losses which are not recognized for tax purposes. MetLife Hong Kong’s results of operations are reported in the Asia segment adjusted earnings through June 30, 2019. See Note 2 for information on accounting for divested businesses. In June 2020, the Company completed the sale and recorded a gain of $11 million, net of income tax, for the year ended December 31, 2020, which resulted in a total loss on the sale of $129 million, net of income tax.
4. Insurance
Insurance Liabilities
Insurance liabilities are comprised of future policy benefits, policyholder account balances and other policy-related balances. Information regarding insurance liabilities by segment, as well as Corporate & Other, was as follows at:
December 31,
2021 2020
(In millions)
U.S.
$ 162,999 $ 162,524
Asia
125,839 126,912
Latin America
15,564 16,849
EMEA
13,031 17,252
MetLife Holdings
102,291 103,937
Corporate & Other
1,221 1,459
Total
$ 420,945 $ 428,933
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Future policy benefits are measured as follows:
Product Type: Measurement Assumptions:
Participating life
Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7% for U.S. businesses and less than 1% to 10% for non-U.S. businesses and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends for U.S. businesses.
Nonparticipating life
Aggregate of the present value of future expected benefit payments and related expenses less the present value of future expected net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 2% to 11% for U.S. businesses and less than 1% to 10% for non-U.S. businesses.
Individual and group
traditional fixed annuities
after annuitization
Present value of future expected payments. Interest rate assumptions used in establishing such liabilities range from 1% to 11% for U.S. businesses and less than 1% to 9% for non-U.S. businesses.
Non-medical health
insurance
The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 1% to 7% (primarily related to U.S. businesses).
Disabled lives
Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 2% to 8% for U.S. businesses and less than 1% to 9% for non-U.S. businesses.
Participating business represented 3% of the Company’s life insurance in-force at both December 31, 2021 and 2020. Participating policies represented 12%, 14% and 15% of gross traditional life insurance premiums for the years ended December 31, 2021, 2020 and 2019, respectively.
Policyholder account balances are equal to: (i) policy account values, which consist of an accumulation of gross premium payments and investment performance; (ii) credited interest, ranging from less than 1% to 8% for U.S. businesses and less than 1% to 10% for non-U.S. businesses, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Guarantees
The Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. GMABs, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 9. Guarantees accounted for as insurance liabilities include:
Guarantee: Measurement Assumptions:
GMDBs • A return of purchase payment upon death even if the account value is reduced to zero.
•
Present value of expected death benefits in excess of the projected account balance recognizing the excess ratably over the accumulation period based on the present value of total expected assessments.
• An enhanced death benefit may be available for an additional fee.
•
Assumptions are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk.
•
Investment performance and volatility assumptions are consistent with the historical experience of the appropriate underlying equity index, such as the S&P 500 Index.
•
Benefit assumptions are based on the average benefits payable over a range of scenarios.
GMIBs • After a specified period of time determined at the time of issuance of the variable annuity contract, a minimum accumulation of purchase payments, even if the account value is reduced to zero, that can be annuitized to receive a monthly income stream that is not less than a specified amount.
•
Present value of expected income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on present value of total expected assessments.
• Certain contracts also provide for a guaranteed lump sum return of purchase premium in lieu of the annuitization benefit.
•
Assumptions are consistent with those used for estimating GMDB liabilities.
•
Calculation incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder.
GMWBs • A return of purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that cumulative withdrawals in a contract year do not exceed a certain limit.
•
Expected value of the life contingent payments and expected assessments using assumptions consistent with those used for estimating the GMDB liabilities.
• Certain contracts include guaranteed withdrawals that are life contingent.
The Company also issues other annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal and variable life contracts was as follows:
Annuity Contracts Universal and Variable
Life Contracts
GMDBs and GMWBs GMIBs Secondary
Guarantees
Paid-Up
Guarantees
Total
(In millions)
Direct and Assumed:
Balance at January 1, 2019 $ 428 $ 898 $ 3,442 $ 359 $ 5,127
Incurred guaranteed benefits (1) 62 (3) 358 68 485
Paid guaranteed benefits (25) (1) (38) - (64)
Balance at December 31, 2019 465 894 3,762 427 5,548
Incurred guaranteed benefits (1) 195 240 602 26 1,063
Paid guaranteed benefits (21) (5) (99) (45) (170)
Balance at December 31, 2020 639 1,129 4,265 408 6,441
Incurred guaranteed benefits (1) 133 87 (37) 43 226
Paid guaranteed benefits (29) (7) (102) (47) (185)
Reclassified to liabilities held-for-sale (2) - (32) - - (32)
Balance at December 31, 2021 $ 743 $ 1,177 $ 4,126 $ 404 $ 6,450
Ceded:
Balance at January 1, 2019 $ - $ 10 $ 269 $ 251 $ 530
Incurred guaranteed benefits (4) - 80 30 106
Paid guaranteed benefits 4 - - - 4
Balance at December 31, 2019 - 10 349 281 640
Incurred guaranteed benefits (11) (3) 96 43 125
Paid guaranteed benefits 9 - (18) (32) (41)
Balance at December 31, 2020 (2) 7 427 292 724
Incurred guaranteed benefits (6) 2 57 30 83
Paid guaranteed benefits 8 - (33) (34) (59)
Reclassified to liabilities held-for-sale (2) - - - - -
Balance at December 31, 2021 $ - $ 9 $ 451 $ 288 $ 748
Net:
Balance at January 1, 2019 $ 428 $ 888 $ 3,173 $ 108 $ 4,597
Incurred guaranteed benefits 66 (3) 278 38 379
Paid guaranteed benefits (29) (1) (38) - (68)
Balance at December 31, 2019 465 884 3,413 146 4,908
Incurred guaranteed benefits 206 243 506 (17) 938
Paid guaranteed benefits (30) (5) (81) (13) (129)
Balance at December 31, 2020 641 1,122 3,838 116 5,717
Incurred guaranteed benefits 139 85 (94) 13 143
Paid guaranteed benefits (37) (7) (69) (13) (126)
Reclassified to liabilities held-for-sale (2) - (32) - - (32)
Balance at December 31, 2021 $ 743 $ 1,168 $ 3,675 $ 116 $ 5,702
__________________
(1)Secondary guarantees include the effects of foreign currency translation of ($260) million, $125 million and $23 million at December 31, 2021, 2020 and 2019, respectively.
(2)See Note 3 for information on the Company’s business dispositions.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Information regarding the Company’s guarantee exposure, which includes direct and assumed business, but excludes offsets from hedging or ceded reinsurance, if any, was as follows at:
December 31,
2021 2020
In the
Event of Death At
Annuitization In the
Event of Death At
Annuitization
(Dollars in millions)
Annuity Contracts:
Variable Annuity Guarantees:
Total account value (1), (2), (3)
$ 62,281 $ 23,121 $ 65,044 $ 24,170
Separate account value (1)
$ 42,043 $ 21,508 $ 42,585 $ 22,370
Net amount at risk (2)
$ 1,490 (4) $ 500 (5) $ 1,579 (4) $ 614 (5)
Average attained age of contractholders 68 years 66 years 68 years 66 years
Other Annuity Guarantees:
Total account value (1), (3)
N/A $ 5,002 N/A $ 6,030
Net amount at risk
N/A $ 196 (6) N/A $ 459 (6)
Average attained age of contractholders N/A 56 years N/A 50 years
December 31,
2021 2020
Secondary
Guarantees Paid-Up
Guarantees Secondary Guarantees Paid-Up
Guarantees
(Dollars in millions)
Universal and Variable Life Contracts:
Total account value (1), (3)
$ 13,678 $ 2,694 $ 13,426 $ 2,808
Net amount at risk (7)
$ 78,762 $ 12,657 $ 82,940 $ 13,557
Average attained age of policyholders 55 years 66 years 54 years 65 years
__________________
(1)The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.
(2)Includes amounts, which are not reported on the consolidated balance sheets, from assumed variable annuity guarantees from the Company’s former operating joint venture in Japan.
(3)Includes the contractholder’s investments in the general account and separate account, if applicable.
(4)Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.
(5)Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved.
(6)Defined as either the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date or the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. These amounts represent the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
(7)Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.
Guarantees - Separate Accounts
Account balances of contracts with guarantees were invested in separate account asset classes as follows at:
December 31,
2021 2020
(In millions)
Fund Groupings:
Equity
$ 29,346 $ 28,581
Balanced
17,393 18,385
Bond
5,041 5,567
Money Market
218 149
Total
$ 51,998 $ 52,682
Obligations Under Funding Agreements
The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. For the years ended December 31, 2021, 2020 and 2019, the Company issued $40.8 billion, $40.4 billion and $37.3 billion, respectively, and repaid $41.2 billion, $36.7 billion and $36.4 billion, respectively, of such funding agreements. At December 31, 2021 and 2020, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $39.5 billion and $39.9 billion, respectively.
Certain of the Company’s subsidiaries are or were members of regional FHLBs. Holdings of common stock of regional FHLBs, included in other invested assets, were as follows at:
December 31,
2021 2020
(In millions)
FHLB of New York
$ 769 $ 812
FHLB of Des Moines
$ - $ 2
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Certain subsidiaries have also entered into funding agreements with regional FHLBs and a subsidiary of the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The liability for such funding agreements is included in policyholder account balances. Information related to such funding agreements was as follows at:
Liability Collateral
December 31,
2021 2020 2021 2020
(In millions)
FHLB of New York (1) $ 15,750 $ 16,200 $ 17,981 (2) $ 18,539 (2)
Farmer Mac (3) $ 2,050 $ 2,375 $ 2,159 $ 2,450
FHLB of Des Moines (1) $ - $ 50 $ - $ 72 (2)
__________________
(1)Represents funding agreements issued to the applicable regional FHLB in exchange for cash and for which such regional FHLB has been granted a lien on certain assets, some of which are in the custody of such regional FHLB, including residential mortgage-backed securities (“RMBS”), to collateralize obligations under such funding agreements. The applicable subsidiary of the Company is permitted to withdraw any portion of the collateral in the custody of such regional FHLB as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by such subsidiary, the applicable regional FHLB’s recovery on the collateral is limited to the amount of such subsidiary’s liability to such regional FHLB.
(2)Advances are collateralized by mortgage-backed securities. The amount of collateral presented is at estimated fair value.
(3)Represents funding agreements issued to a subsidiary of Farmer Mac. The obligations under these funding agreements are secured by a pledge of certain eligible agricultural mortgage loans and may, under certain circumstances, be secured by other qualified collateral. The amount of collateral presented is at carrying value.
Liabilities for Unpaid Claims and Claim Expenses
The following is information about incurred and paid claims development by segment at December 31, 2021. Such amounts are presented net of reinsurance, and are not discounted. The tables present claims development and cumulative claim payments by incurral year. The development tables are only presented for significant short-duration product liabilities within each segment. In order to eliminate potential fluctuations related to foreign exchange rates, liabilities and payments denominated in a foreign currency have been translated using the 2021 year end spot rates for all periods presented. The information about incurred and paid claims development prior to 2021 is presented as supplementary information.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
U.S.
Group Life - Term
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2021
For the Years Ended December 31, Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims Cumulative
Number of
Reported
Claims
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Dollars in millions)
2012 $ 6,503 $ 6,579 $ 6,569 $ 6,546 $ 6,568 $ 6,569 $ 6,569 $ 6,572 $ 6,574 $ 6,575 $ 1 210,236
2013 6,637 6,713 6,719 6,720 6,730 6,720 6,723 6,724 6,726 2 212,892
2014 6,986 6,919 6,913 6,910 6,914 6,919 6,920 6,918 1 215,694
2015 7,040 7,015 7,014 7,021 7,024 7,025 7,026 2 218,188
2016 7,125 7,085 7,095 7,104 7,105 7,104 3 219,581
2017 7,432 7,418 7,425 7,427 7,428 6 260,807
2018 7,757 7,655 7,646 7,650 10 246,519
2019 7,935 7,900 7,907 13 246,245
2020 8,913 9,367 27 281,696
2021 10,555 1,029 221,955
Total 77,256
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance (74,255)
All outstanding liabilities for incurral years prior to 2012, net of reinsurance 21
Total unpaid claims and claim adjustment expenses, net of reinsurance $ 3,022
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In millions)
2012 $ 5,132 $ 6,472 $ 6,518 $ 6,532 $ 6,558 $ 6,565 $ 6,566 $ 6,569 $ 6,572 $ 6,572
2013 5,216 6,614 6,664 6,678 6,711 6,715 6,720 6,721 6,723
2014 5,428 6,809 6,858 6,869 6,902 6,912 6,915 6,916
2015 5,524 6,913 6,958 6,974 7,008 7,018 7,022
2016 5,582 6,980 7,034 7,053 7,086 7,096
2017 5,761 7,292 7,355 7,374 7,400
2018 6,008 7,521 7,578 7,595
2019 6,178 7,756 7,820
2020 6,862 9,103
2021 8,008
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 74,255
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2021:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10
Group Life - Term 77.5% 20.5% 0.7% 0.2% 0.4% 0.1% -% -% -% -%
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Group Long-Term Disability
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2021
For the Years Ended December 31, Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims Cumulative
Number of
Reported
Claims
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Dollars in millions)
2012 $ 966 $ 979 $ 980 $ 1,014 $ 1,034 $ 1,037 $ 1,021 $ 1,015 $ 1,011 $ 1,007 $ - 20,086
2013 1,008 1,027 1,032 1,049 1,070 1,069 1,044 1,032 1,025 - 21,139
2014 1,076 1,077 1,079 1,101 1,109 1,098 1,097 1,081 - 22,853
2015 1,082 1,105 1,093 1,100 1,087 1,081 1,067 - 21,213
2016 1,131 1,139 1,159 1,162 1,139 1,124 - 17,971
2017 1,244 1,202 1,203 1,195 1,165 - 16,324
2018 1,240 1,175 1,163 1,147 - 15,172
2019 1,277 1,212 1,169 7 15,318
2020 1,253 1,223 30 15,381
2021 1,552 687 10,503
Total 11,560
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
(5,943)
All outstanding liabilities for incurral years prior to 2012, net of reinsurance 1,559
Total unpaid claims and claim adjustment expenses, net of reinsurance
$ 7,176
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In millions)
2012 $ 43 $ 229 $ 365 $ 453 $ 524 $ 591 $ 648 $ 694 $ 730 $ 766
2013 43 234 382 475 551 622 676 722 764
2014 51 266 428 526 609 677 732 778
2015 50 264 427 524 601 665 718
2016 49 267 433 548 628 696
2017 56 290 476 579 655
2018 54 314 497 594
2019 57 342 522
2020 59 355
2021 95
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 5,943
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2021:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10
Group Long-Term Disability 4.8% 20.9% 15.0% 9.1% 7.2% 6.4% 5.2% 4.4% 3.8% 3.6%
Significant Methodologies and Assumptions
Group Life - Term and Group Long-Term Disability incurred but not paid (“IBNP”) liabilities are developed using a combination of loss ratio and development methods. Claims in the course of settlement are then subtracted from the IBNP liabilities, resulting in the IBNR liabilities. The loss ratio method is used in the period in which the claims are neither sufficient nor credible. In developing the loss ratios, any material rate increases that could change the underlying premium without affecting the estimated incurred losses are taken into account. For periods where sufficient and credible claim data exists, the development method is used based on the claim triangles which categorize claims according to both the period in which they were incurred and the period in which they were paid, adjudicated or reported. The end result is a triangle of known data that is used to develop known completion ratios and factors. Claims paid are then subtracted from the estimated ultimate incurred claims to calculate the IBNP liability.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims (IBNR and pending). This is expressed as a percentage of the underlying claims liability and is based on past experience and the anticipated future expense structure.
For Group Life - Term and Group Long-Term Disability, first year incurred claims and allocated loss adjustment expenses increased in 2021 compared to the 2020 incurral year due to the growth in the size of the business.
The assumptions used in calculating the unpaid claims and claim adjustment expenses for Group Life - Term and Group Long-Term Disability are updated annually to reflect emerging trends in claim experience.
Certain of our Group Life - Term customers have experience-rated contracts, whereby the group sponsor participates in the favorable and/or adverse claim experience, including favorable and/or adverse prior year development. Claim experience adjustments on these contracts are not reflected in the foregoing incurred and paid claim development tables, but are instead reflected as an increase (adverse experience) or decrease (favorable experience) to premiums on the consolidated statements of operations.
Liabilities for Group Life - Term unpaid claims and claim adjustment expenses are not discounted.
The liabilities for Group Long-Term Disability unpaid claims and claim adjustment expenses were $6.2 billion and $6.0 billion at December 31, 2021 and 2020, respectively. Using interest rates ranging from 2% to 8%, based on the incurral year, the total discount applied to these liabilities was $1.1 billion and $1.2 billion at December 31, 2021 and 2020, respectively. The amount of interest accretion recognized was $518 million, $452 million and $470 million for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts were reflected in policyholder benefits and claims.
For Group Life - Term, claims were based upon individual death claims. For Group Long-Term Disability, claim frequency was determined by the number of reported claims as identified by a unique claim number assigned to individual claimants. Claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.
The incurred and paid claims disclosed for the Group Life - Term product includes activity related to the product’s continued protection feature; however, the associated actuarial reserve for future benefit obligations under this feature is excluded from the liability for unpaid claims.
The Group Long-Term Disability IBNR, included in the development tables above, was developed using discounted cash flows, and is presented on a discounted basis.
Asia
Group Disability & Group Life
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2021
For the Years Ended December 31, Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims Cumulative
Number of
Reported
Claims
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Dollars in millions)
2012 $ 91 $ 97 $ 95 $ 110 $ 111 $ 114 $ 124 $ 118 $ 117 $ 117 $ 3 5,644
2013 138 140 161 156 156 164 164 168 168 9 6,554
2014 276 259 238 238 249 245 246 246 18 6,798
2015 260 249 252 245 257 259 262 21 6,708
2016 217 221 209 222 225 231 27 4,616
2017 282 262 270 289 297 40 5,268
2018 344 314 327 338 78 5,511
2019 372 347 364 127 5,321
2020 413 385 221 3,983
2021 394 311 2,474
Total 2,802
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance (1,947)
All outstanding liabilities for incurral years prior to 2012, net of reinsurance 12
Total unpaid claims and claim adjustment expenses, net of reinsurance $ 867
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In millions)
2012 $ 28 $ 60 $ 79 $ 92 $ 99 $ 104 $ 105 $ 108 $ 112 $ 114
2013 41 92 113 127 138 152 148 157 159
2014 65 134 167 188 211 212 223 228
2015 76 143 179 193 219 233 241
2016 61 126 143 179 194 204
2017 82 148 196 240 257
2018 90 166 224 260
2019 100 183 237
2020 91 164
2021 83
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 1,947
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2021:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
1 2 3 4 5 6 7 8 9 10
Group Disability & Group Life
25.6% 25.1% 13.9% 10.6% 7.3% 4.5% 1.5% 3.3% 2.3% 1.7%
Significant Methodologies and Assumptions
This business line consists of employer sponsored and industry sponsored Group Life and Group Disability risks.
For Group Life, the IBNR liability is determined by using the Bornhuetter-Ferguson Method, with factors derived by examining the experience of historical claims. A pending liability is also calculated for claims that have been reported but have not been paid. A claim eligibility ratio based on past experience is applied to the face amount of individual claims.
For Group Disability, the IBNR liability is calculated by applying a percentage to premiums in-force based on the expected delay as evidenced by the experience in the portfolio. The IBNR liability is then allocated back into different incurral years based on historical run-off patterns. As the benefit for this class of business is a regular series of payments, an additional reserve is required for the liability for ongoing benefit payments - claims in course of payment (“CICP”). The assumptions employed in the calculation of the CICP are adjusted for the Company’s own experience.
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims. This is expressed as a percentage of the underlying claims liability and is based on past experience and the future expense structure.
The assumptions used in calculating the unpaid claims and claim adjustment expenses for Group Disability and Group Life are updated annually to reflect emerging trends in claim experience.
No additional premiums or return premiums have been accrued as a result of the prior year development.
The liabilities for unpaid claims and claim adjustment expenses were $1.2 billion and $1.0 billion at December 31, 2021 and 2020, respectively. These amounts were discounted using interest rates ranging from 1% to 7%, based on the incurral year. The total discount applied to these liabilities was $73 million and $68 million at December 31, 2021 and 2020, respectively. The amount of interest accretion recognized was $22 million, $24 million and $20 million for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts were reflected in policyholder benefits and claims.
The Company tracks claim frequency by the number of reported claims as identified by a unique claim number assigned to individual claimants. Claim counts include claims that do not ultimately result in a liability. A liability is only established for those claims that are expected to result in a liability, based on historical factors.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Latin America
Protection Life
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2021
For the Years Ended December 31, Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims Cumulative
Number of
Reported
Claims
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Dollars in millions)
2012 $ 133 $ 180 $ 185 $ 186 $ 186 $ 184 $ 185 $ 186 $ 188 $ 188 $ - 27,664
2013 145 204 210 211 210 212 213 213 213 - 32,091
2014 218 333 342 313 316 316 317 317 - 40,904
2015 286 410 382 386 386 387 382 - 46,917
2016 302 395 407 413 414 415 - 40,751
2017 312 303 304 302 303 (1) 32,326
2018 290 280 278 280 (1) 30,855
2019 313 286 289 - 32,925
2020 473 474 23 41,053
2021 601 222 38,013
Total 3,462
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance (3,028)
All outstanding liabilities for incurral years prior to 2012, net of reinsurance 10
Total unpaid claims and claim adjustment expenses, net of reinsurance
$ 444
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In millions)
2012 $ 131 $ 178 $ 182 $ 183 $ 183 $ 183 $ 183 $ 185 $ 185 $ 188
2013 142 198 202 203 202 204 205 207 208
2014 194 291 296 299 302 305 306 307
2015 232 328 348 355 361 363 364
2016 214 383 401 408 411 413
2017 184 277 292 295 298
2018 146 248 259 263
2019 163 247 267
2020 205 410
2021 310
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 3,028
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2021:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years 1 2 3 4 5 6 7 8 9 10
Protection Life 57.4% 31.9% 3.9% 1.1% 0.6% 0.6% 0.3% 0.8% 0.2% 1.6%
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Protection Health
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2021
For the Years Ended December 31, Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims Cumulative
Number of
Reported
Claims
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(Dollars in millions)
2012 $ 200 $ 224 $ 226 $ 227 $ 227 $ 226 $ 226 $ 226 $ 226 $ 225 $ - 100,436
2013 216 244 246 246 244 244 244 244 244 - 104,332
2014 224 250 252 250 249 249 249 250 - 97,929
2015 193 219 221 220 219 220 220 - 87,412
2016 253 291 289 289 289 289 - 106,380
2017 366 341 342 341 341 - 121,221
2018 393 412 391 390 1 143,930
2019 131 170 164 4 130,963
2020 473 465 10 146,176
2021 608 38 121,301
Total 3,196
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance (3,100)
All outstanding liabilities for incurral years prior to 2012, net of reinsurance 4
Total unpaid claims and claim adjustment expenses, net of reinsurance
$ 100
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
(In millions)
2012 $ 200 $ 224 $ 226 $ 227 $ 227 $ 226 $ 226 $ 226 $ 226 $ 227
2013 216 244 246 246 243 244 244 244 244
2014 223 248 250 246 247 247 247 247
2015 193 219 218 219 219 219 220
2016 238 285 287 288 288 288
2017 299 337 339 339 340
2018 335 382 385 386
2019 110 155 158
2020 400 453
2021 537
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 3,100
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2021:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
1 2 3 4 5 6 7 8 9 10
Protection Health
85.2% 13.6% 0.7% -% (0.1%) -% 0.1% -% -% 0.4%
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Significant Methodologies and Assumptions
The Latin America segment establishes liabilities for unpaid losses, which are equal to the accumulation of unpaid reported claims, plus an estimate for claims IBNR.
In general terms, for both the Protection Life and Protection Health products, the methodology for IBNR is the Bornhuetter-Ferguson Method, with factors derived by examining the experience of historical claims. In the more recent incurral months, the credibility is higher on expected loss ratios and lower on claims calculated using the experience-derived factors. The credibility grows for the factors as incurral months become older.
For Protection Health products, claim duration can be very long due to the multiple incidences that may occur over time for a single claim. The number of claims reported per year is based on the original claim occurrence date for each individual claim. Any subsequent claims that are considered part of the original claim occurrence are not counted as a new claim. For Protection Life products, claims are based upon individual death claims.
The assumptions used in calculating the unpaid claims and claim adjustment expenses for Protection Life and Protection Health are updated annually to reflect emerging trends in claim experience.
Certain of our Protection Life customers have experience-rated contracts, whereby the group sponsor participates in the favorable and/or adverse claim experience, including favorable and/or adverse prior year development. Claim experience adjustments on these contracts are not reflected in the foregoing incurred and paid claim development tables, but are instead reflected as an increase (adverse experience) or decrease (favorable experience) to premiums on the consolidated statements of operations.
Liabilities for unpaid claims and claim adjustment expenses were not discounted.
For Protection Life and Protection Health products, claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses
The reconciliation of the net incurred and paid claims development tables to the liability for unpaid claims and claims adjustment expenses on the consolidated balance sheet was as follows at:
December 31, 2021
(In millions)
Short-Duration:
Unpaid claims and allocated claims adjustment expenses, net of reinsurance:
U.S.:
Group Life - Term $ 3,022
Group Long-Term Disability 7,176
Total $ 10,198
Asia - Group Disability & Group Life 867
Latin America:
Protection Life 444
Protection Health 100
Total 544
Other insurance lines - all segments combined 2,023
Total unpaid claims and allocated claims adjustment expenses, net of reinsurance 13,632
Reinsurance recoverables on unpaid claims:
U.S.:
Group Life - Term 14
Group Long-Term Disability 166
Total 180
Asia - Group Disability & Group Life 375
Latin America:
Protection Life 10
Protection Health 13
Total 23
Other insurance lines - all segments combined 291
Total reinsurance recoverable on unpaid claims 869
Total unpaid claims and allocated claims adjustment expense 14,501
Unallocated claims adjustment expenses 2
Discounting (1,205)
Liability for unpaid claims and claim adjustment liabilities - short-duration 13,298
Liability for unpaid claims and claim adjustment liabilities - all long-duration lines 6,715
Total liability for unpaid claims and claim adjustment expense (included in future policy benefits and other policy-related balances) (1) $ 20,013
__________________
(1)Excludes unpaid claims and allocated claims adjustment expense reclassified to liabilities held-for-sale. See Note 3 for information on the on the Company’s business dispositions.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
4. Insurance (continued)
Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Balance at January 1, $ 18,591 $ 19,216 $ 17,788
Less: Reinsurance recoverables
2,417 2,377 2,332
Net balance at January 1, 16,174 16,839 15,456
Incurred related to:
Current year
28,270 27,272 27,093
Prior years (1)
934 192 313
Total incurred
29,204 27,464 27,406
Paid related to:
Current year
(21,111) (20,230) (20,141)
Prior years
(7,256) (6,241) (5,882)
Total paid
(28,367) (26,471) (26,023)
Reclassified to liabilities held-for-sale (2) (55) (1,658) -
Dispositions (2) (64) - -
Net balance at December 31, 16,892 16,174 16,839
Add: Reinsurance recoverables
3,121 2,417 2,377
Balance at December 31, $ 20,013 $ 18,591 $ 19,216
__________________
(1)For the years ended December 31, 2021, 2020 and 2019, incurred claim activity and claim adjustment expenses associated with prior years increased due to events incurred in prior years but reported in the current year. The increase in the 2021 incurred claim activity and claim adjustment expenses associated with prior years is primarily due to the impacts from the COVID-19 pandemic, which are partially offset by additional premiums recorded for experience-rated contracts and are not reflected in the table above.
(2)See Note 3 for information on the Company’s business dispositions.
Separate Accounts
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $134.4 billion and $149.0 billion at December 31, 2021 and 2020, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $45.5 billion and $51.0 billion at December 31, 2021 and 2020, respectively. The latter category consisted primarily of guaranteed interest contracts (“GICs”). The average interest rate credited on these contracts was 2.18% and 2.55% at December 31, 2021 and 2020, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
See Note 1 for a description of capitalized acquisition costs.
Nonparticipating and Non-Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts (term insurance, nonparticipating whole life insurance, traditional group life insurance, non-medical health insurance, and accident & health insurance) over the appropriate premium paying period in proportion to the actual and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include provisions for adverse deviation, and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes.
Participating, Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected future gross margins. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The future gross margins are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. For participating contracts within the closed block (dividend-paying traditional contracts) future gross margins are also dependent upon changes in the policyholder dividend obligation. See Note 7. Of these factors, the Company anticipates that investment returns, expenses, persistency and other factor changes, as well as policyholder dividend scales, are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross margins exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also updates the actual amount of business in-force, which impacts expected future gross margins. When expected future gross margins are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross margins are above the previously estimated expected future gross margins. Each period, the Company also reviews the estimated gross margins for each block of business to determine the recoverability of DAC and VOBA balances.
Fixed and Variable Universal Life Contracts and Fixed and Variable Deferred Annuity Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses and persistency are reasonably likely to significantly impact the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
Credit Insurance and Other Short-Duration Contracts
The Company amortizes DAC for these contracts, which is primarily composed of commissions and certain underwriting expenses, in proportion to actual and future earned premium over the applicable contract term.
Factors Impacting Amortization
Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Returns that are higher than the Company’s long-term expectation produce higher account balances, which increases the Company’s future fee expectations and decreases future benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company’s long-term expectation. The Company’s practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. The Company monitors these events and only changes the assumption when its long-term expectation changes.
The Company also periodically reviews other long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, policyholder behavior and expenses to administer business. Management annually updates assumptions used in the calculation of estimated gross margins and profits which may have significantly changed. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.
Periodically, the Company modifies product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If such modification, referred to as an internal replacement, substantially changes the contract, the associated DAC or VOBA is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed.
Amortization of DAC and VOBA is attributed to net investment gains (losses) and net derivative gains (losses), and to other expenses for the amount of gross margins or profits originating from transactions other than investment gains and losses. Unrealized investment gains and losses represent the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
Information regarding DAC and VOBA was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
DAC:
Balance at January 1, $ 13,446 $ 14,790 $ 15,570
Capitalizations 2,718 3,013 3,358
Amortization related to:
Net investment gains (losses) and net derivative gains (losses) (100) (152) (117)
Other expenses (2,268) (2,773) (2,534)
Total amortization (2,368) (2,925) (2,651)
Unrealized investment gains (losses) 811 (1,312) (1,461)
Effect of foreign currency translation and other (861) 76 (26)
Reclassified to assets held-for-sale (1)
(103) (196) -
Balance at December 31, 13,643 13,446 14,790
VOBA:
Balance at January 1, 2,943 3,043 3,325
Amortization related to:
Net investment gains (losses) and net derivative gains (losses) - (2) -
Other expenses (187) (233) (245)
Total amortization (187) (235) (245)
Unrealized investment gains (losses) 11 (4) (4)
Effect of foreign currency translation and other (314) 139 (33)
Reclassified to assets held-for-sale (1)
(35) - -
Balance at December 31, 2,418 2,943 3,043
Total DAC and VOBA:
Balance at December 31, $ 16,061 $ 16,389 $ 17,833
__________________
(1)See Note 3 for information on the Company’s dispositions.
Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows at:
December 31,
2021 2020
(In millions)
U.S. $ 440 $ 434
Asia 9,339 9,333
Latin America 2,021 2,092
EMEA 1,623 1,787
MetLife Holdings 2,607 2,712
Corporate & Other 31 31
Total $ 16,061 $ 16,389
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
Information regarding other intangibles was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
DSI:
Balance at January 1,
$ 108 $ 158 $ 210
Capitalization
- 6 7
Amortization
(14) (37) (39)
Unrealized investment gains (losses)
20 (18) (20)
Effect of foreign currency translation and other (7) (1) -
Balance at December 31,
$ 107 $ 108 $ 158
VODA and VOCRA:
Balance at January 1,
$ 1,099 $ 335 $ 384
Acquisitions (1) - 814 -
Amortization
(100) (41) (42)
Effect of foreign currency translation and other (27) (9) (7)
Balance at December 31,
$ 972 $ 1,099 $ 335
Accumulated amortization
$ 575 $ 475 $ 434
Negative VOBA:
Balance at January 1,
$ 738 $ 750 $ 779
Amortization
(34) (45) (33)
Effect of foreign currency translation and other
(81) 33 4
Balance at December 31,
$ 623 $ 738 $ 750
Accumulated amortization
$ 3,342 $ 3,308 $ 3,263
__________________
(1)Primarily related to the acquisition of Versant Health. See Note 3.
The estimated future amortization expense (credit) to be reported in other expenses for the next five years is as follows:
VOBA
VODA and VOCRA
Negative VOBA
(In millions)
2022 $ 185 $ 90 $ (35)
2023 $ 180 $ 87 $ (34)
2024 $ 177 $ 85 $ (32)
2025 $ 166 $ 83 $ (31)
2026 $ 150 $ 81 $ (29)
6. Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by third parties. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
6. Reinsurance (continued)
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse the Company for the ceded amount in the event a claim is paid. Cessions under reinsurance agreements do not discharge the Company’s obligation as the primary insurer. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 8.
U.S.
For its Group Benefits business, the Company generally retains most of the risk and only cedes particular risk on certain client arrangements. The majority of the Company’s reinsurance activity within this business relates to client agreements for employer sponsored captive programs, risk-sharing agreements and multinational pooling. The risks ceded under these agreements are generally quota shares of group life and disability policies. The cessions vary from 50% to 100% of all the risks of the policies.
Prior to the disposition of the Company’s Property & Casualty business, the Company purchased reinsurance to manage its exposure to large losses (primarily catastrophe losses) and to protect statutory surplus. The Company ceded losses and premiums based upon the exposure of the policies subject to reinsurance. To manage exposure to large property & casualty losses, the Company purchased property catastrophe, casualty and property per risk excess of loss reinsurance protection. See Note 3 for more information on the Company’s business dispositions.
The Company’s RIS business has engaged in reinsurance activities on an opportunistic basis. In 2020, a U.S. life insurance subsidiary of the Company began reinsuring longevity risks for certain pension products issued by unaffiliated providers located in the United Kingdom (“U.K.”).
Asia, Latin America and EMEA
For selected large corporate clients, the Company reinsures group employee benefits or credit insurance business with various client-affiliated reinsurance companies, covering policies issued to the employees or customers of the clients. Additionally, the Company cedes and assumes risk with other insurance companies when either company requires a business partner with the appropriate local licensing to issue certain types of policies in certain jurisdictions. In these cases, the assuming company typically underwrites the risks, develops the products and assumes most or all of the risk. The Company also has reinsurance agreements in-force that reinsure a portion of the living and death benefit guarantees issued in connection with variable annuity products. Under these agreements, the Company pays reinsurance fees associated with the guarantees collected from policyholders, and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations. The Company may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements.
MetLife Holdings
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. The Company also assumes portions of the risk associated with certain whole life policies issued by a former affiliate and reinsures certain term life policies and universal life policies with secondary death benefit guarantees to such former affiliate.
For its other products, the Company has a reinsurance agreement in-force to reinsure the living and death benefit guarantees issued in connection with certain variable annuity guarantees from the Company’s former operating joint venture in Japan. Under this agreement, the Company receives reinsurance fees associated with the guarantees collected from policyholders, and provides reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
6. Reinsurance (continued)
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. For the U.S. and EMEA, the Company purchases catastrophe coverage to reinsure risks issued within territories that the Company believes are subject to the greatest catastrophic risks. For its other segments, the Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks. Excess of retention reinsurance agreements provide for a portion of a risk to remain with the direct writing company and quota share reinsurance agreements provide for the direct writing company to transfer a fixed percentage of all risks of a class of policies.
Reinsurance Recoverables
The Company reinsures its business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at December 31, 2021 and 2020, were not significant. A U.S. life insurance subsidiary of the Company also secured collateral from its counterparties to mitigate counterparty default risk related to its longevity reinsurance agreements.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $3.6 billion and $3.8 billion of unsecured reinsurance recoverable balances at December 31, 2021 and 2020, respectively.
At December 31, 2021, the Company had $6.3 billion of net ceded reinsurance recoverables. Of this total, $4.1 billion, or 65%, were with the Company’s five largest ceded reinsurers, including $1.9 billion of net ceded reinsurance recoverables which were unsecured. At December 31, 2020, the Company had $6.6 billion of net ceded reinsurance recoverables. Of this total, $4.2 billion, or 64%, were with the Company’s five largest ceded reinsurers, including $2.0 billion of net ceded reinsurance recoverables which were unsecured.
The Company has reinsured with an unaffiliated third-party reinsurer, 59.25% of the closed block through a modified coinsurance agreement. The Company accounts for this agreement under the deposit method of accounting. The Company, having the right of offset, has offset the modified coinsurance deposit with the deposit recoverable.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
6. Reinsurance (continued)
The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Premiums
Direct premiums
$ 41,259 $ 42,201 $ 42,513
Reinsurance assumed
2,907 2,032 2,020
Reinsurance ceded
(2,157) (2,199) (2,298)
Net premiums
$ 42,009 $ 42,034 $ 42,235
Universal life and investment-type product policy fees
Direct universal life and investment-type product policy fees
$ 6,271 $ 6,122 $ 6,109
Reinsurance assumed
45 50 56
Reinsurance ceded
(560) (569) (562)
Net universal life and investment-type product policy fees
$ 5,756 $ 5,603 $ 5,603
Policyholder benefits and claims
Direct policyholder benefits and claims
$ 44,035 $ 42,221 $ 42,094
Reinsurance assumed
2,570 1,745 1,584
Reinsurance ceded
(2,651) (2,505) (2,217)
Net policyholder benefits and claims
$ 43,954 $ 41,461 $ 41,461
Other expenses
Direct other expenses
$ 12,450 $ 13,013 $ 13,559
Reinsurance assumed
375 371 382
Reinsurance ceded
(239) (234) (252)
Net other expenses
$ 12,586 $ 13,150 $ 13,689
The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at:
December 31,
2021 2020
Direct Assumed Ceded Total
Balance
Sheet Direct Assumed Ceded Total
Balance
Sheet
(In millions)
Assets
Premiums, reinsurance and other receivables
$ 4,929 $ 1,789 $ 10,431 $ 17,149 $ 5,032 $ 2,107 $ 10,731 $ 17,870
Deferred policy acquisition costs and value of business acquired
16,151 227 (317) 16,061 16,482 230 (323) 16,389
Total assets
$ 21,080 $ 2,016 $ 10,114 $ 33,210 $ 21,514 $ 2,337 $ 10,408 $ 34,259
Liabilities
Future policy benefits
$ 195,915 $ 3,806 $ - $ 199,721 $ 203,000 $ 3,656 $ - $ 206,656
Policyholder account balances
203,391 82 - 203,473 204,906 270 - 205,176
Other policy-related balances
16,380 1,368 3 17,751 15,769 1,332 - 17,101
Other liabilities
15,519 2,139 4,880 22,538 16,283 2,417 4,914 23,614
Total liabilities
$ 431,205 $ 7,395 $ 4,883 $ 443,483 $ 439,958 $ 7,675 $ 4,914 $ 452,547
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
6. Reinsurance (continued)
Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance were $1.8 billion at both December 31, 2021 and 2020. The deposit liabilities on reinsurance were $1.4 billion at both December 31, 2021 and 2020.
7. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience.
The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years from the Demutualization Date.
The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the Demutualization Date. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the Demutualization Date (adjusted to eliminate the impact of related amounts in AOCI) represents the estimated maximum future earnings from the closed block expected to result from operations, attributed net of income tax, to the closed block. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block are greater than the expected cumulative earnings of the closed block, the Company will pay the excess to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
7. Closed Block (continued)
Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
December 31,
2021 2020
(In millions)
Closed Block Liabilities
Future policy benefits
$ 38,046 $ 38,758
Other policy-related balances
290 321
Policyholder dividends payable
253 337
Policyholder dividend obligation
1,682 2,969
Deferred income tax liability
210 130
Other liabilities
263 172
Total closed block liabilities
40,744 42,687
Assets Designated to the Closed Block
Investments:
Fixed maturity securities available-for-sale, at estimated fair value
25,669 27,186
Equity securities, at estimated fair value 21 24
Mortgage loans
6,417 6,807
Policy loans
4,191 4,355
Real estate and real estate joint ventures
565 559
Other invested assets
535 468
Total investments
37,398 39,399
Cash and cash equivalents
126 -
Accrued investment income
384 402
Premiums, reinsurance and other receivables
50 50
Current income tax recoverable
81 28
Total assets designated to the closed block
38,039 39,879
Excess of closed block liabilities over assets designated to the closed block
2,705 2,808
AOCI:
Unrealized investment gains (losses), net of income tax
2,562 3,524
Unrealized gains (losses) on derivatives, net of income tax
107 23
Allocated to policyholder dividend obligation, net of income tax
(1,329) (2,346)
Total amounts included in AOCI
1,340 1,201
Maximum future earnings to be recognized from closed block assets and liabilities
$ 4,045 $ 4,009
Information regarding the closed block policyholder dividend obligation was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Balance at January 1,
$ 2,969 $ 2,020 $ 428
Change in unrealized investment and derivative gains (losses)
(1,287) 949 1,592
Balance at December 31,
$ 1,682 $ 2,969 $ 2,020
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
7. Closed Block (continued)
Information regarding the closed block revenues and expenses was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Revenues
Premiums
$ 1,298 $ 1,498 $ 1,580
Net investment income
1,541 1,596 1,740
Net investment gains (losses)
(36) (25) (7)
Net derivative gains (losses)
18 (17) 12
Total revenues
2,821 3,052 3,325
Expenses
Policyholder benefits and claims
2,150 2,330 2,291
Policyholder dividends
621 791 924
Other expenses
96 104 111
Total expenses
2,867 3,225 3,326
Revenues, net of expenses before provision for income tax expense (benefit)
(46) (173) (1)
Provision for income tax expense (benefit)
(10) (36) (2)
Revenues, net of expenses and provision for income tax expense (benefit)
$ (36) $ (137) $ 1
MLIC charges the closed block with federal income taxes, state and local premium taxes and other state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan of Reorganization. MLIC also charges the closed block for expenses of maintaining the policies included in the closed block.
8. Investments
See Note 10 for information about the fair value hierarchy for investments and the related valuation methodologies.
Investment Risks and Uncertainties
Investments are exposed to the following primary sources of risk: credit, interest rate, liquidity, market valuation, currency and real estate risk. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of ACL and impairments, the recognition of income on certain investments and the potential consolidation of VIEs. The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the amounts presented within the consolidated financial statements.
The determination of ACL and impairments is highly subjective and is based upon quarterly evaluations and assessments of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.
The recognition of income on certain investments (e.g. structured securities, including mortgage-backed securities, asset-backed securities (“ABS”), certain structured investment transactions and FVO Securities) is dependent upon certain factors such as prepayments and defaults, and changes in such factors could result in changes in amounts to be earned.
Fixed Maturity Securities AFS
Fixed Maturity Securities AFS by Sector
The following table presents fixed maturity securities AFS by sector. U.S. corporate and foreign corporate sectors include redeemable preferred stock. RMBS includes agency, prime, alternative and sub-prime mortgage-backed securities. ABS includes securities collateralized by corporate loans and consumer loans. Municipals includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political subdivisions. Commercial mortgage-backed securities (“CMBS”) primarily includes securities collateralized by multiple commercial mortgage loans. RMBS, ABS and CMBS are, collectively, “Structured Products.”
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
December 31,
2021 2020
Amortized
Cost Gross Unrealized (1) Estimated
Fair
Value
Amortized
Cost Gross Unrealized (1) Estimated
Fair
Value
Sector Allowance for Credit Loss Gains
Losses Allowance for Credit Loss Gains
Losses
(In millions)
U.S. corporate
$ 82,694 $ (30) $ 10,651 $ 281 $ 93,034 $ 79,788 $ (44) $ 13,924 $ 252 $ 93,416
Foreign corporate
59,124 (28) 5,275 731 63,640 60,995 (16) 8,897 468 69,408
Foreign government
56,848 (19) 5,603 823 61,609 63,243 (21) 8,883 406 71,699
U.S. government and agency
41,068 - 5,807 276 46,599 39,094 - 8,095 89 47,100
RMBS
29,152 - 1,440 188 30,404 28,415 - 2,062 42 30,435
ABS
18,443 - 185 59 18,569 16,963 - 231 75 17,119
Municipals 11,761 - 2,464 13 14,212 10,982 - 2,746 6 13,722
CMBS
11,794 (14) 476 49 12,207 11,331 - 681 102 11,910
Total fixed maturity securities AFS
$ 310,884 $ (91) $ 31,901 $ 2,420 $ 340,274 $ 310,811 $ (81) $ 45,519 $ 1,440 $ 354,809
__________________
(1)Excludes gross unrealized gains (losses) related to assets held-for-sale; these unrealized gains (losses) are included in AOCI as no component of equity is held-for-sale. See Note 3 for information on the Company’s business dispositions.
Methodology for Amortization of Premium and Accretion of Discount on Structured Products
Amortization of premium and accretion of discount on Structured Products considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Products are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive and certain prepayment-sensitive Structured Products, the effective yield is recalculated on a prospective basis. For all other Structured Products, the effective yield is recalculated on a retrospective basis.
Maturities of Fixed Maturity Securities AFS
The amortized cost, net of ACL, and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at December 31, 2021:
Due in One
Year or Less Due After
One Year
Through
Five Years Due After
Five Years
Through
Ten Years Due After
Ten Years Structured
Products Total Fixed
Maturity
Securities
AFS
(In millions)
Amortized cost, net of ACL $ 7,513 $ 55,284 $ 58,215 $ 130,406 $ 59,375 $ 310,793
Estimated fair value $ 7,623 $ 57,395 $ 63,550 $ 150,526 $ 61,180 $ 340,274
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not due at a single maturity date have been presented in the year of final contractual maturity. Structured Products are shown separately, as they are not due at a single maturity.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position without an ACL by sector and aggregated by length of time that the securities have been in a continuous unrealized loss position.
December 31,
2021 2020
Less than 12 Months Equal to or Greater than 12 Months Less than 12 Months Equal to or Greater than 12 Months
Sector & Credit Quality Estimated
Fair Value Gross Unrealized Losses (1) Estimated
Fair Value Gross Unrealized Losses (1) Estimated
Fair Value Gross Unrealized Losses (1) Estimated
Fair Value Gross Unrealized Losses (1)
(Dollars in millions)
U.S. corporate $ 8,076 $ 165 $ 1,499 $ 116 $ 4,338 $ 196 $ 506 $ 50
Foreign corporate 10,011 404 2,834 327 4,856 321 1,255 147
Foreign government 7,812 319 5,377 502 6,795 305 836 100
U.S. government and agency 14,419 138 1,571 138 4,619 87 33 2
RMBS 10,363 158 417 30 1,531 27 152 14
ABS 8,150 39 804 20 3,428 26 2,842 49
Municipals 524 10 65 3 273 6 - -
CMBS 2,664 31 657 18 1,887 63 612 39
Total fixed maturity securities AFS $ 62,019 $ 1,264 $ 13,224 $ 1,154 $ 27,727 $ 1,031 $ 6,236 $ 401
Investment grade $ 58,358 $ 1,123 $ 12,022 $ 1,025 $ 24,572 $ 829 $ 5,841 $ 350
Below investment grade 3,661 141 1,202 129 3,155 202 395 51
Total fixed maturity securities AFS $ 62,019 $ 1,264 $ 13,224 $ 1,154 $ 27,727 $ 1,031 $ 6,236 $ 401
Total number of securities in an unrealized loss position 4,774 979 2,177 690
________________
(1)Excludes gross unrealized losses related to assets held-for-sale; these unrealized losses are included in AOCI as no component of equity is held-for-sale. See Note 3 for information on the Company’s business dispositions.
Evaluation of Fixed Maturity Securities AFS for Credit Loss
Evaluation and Measurement Methodologies
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the credit loss evaluation process include, but are not limited to: (i) the extent to which the estimated fair value has been below amortized cost, (ii) adverse conditions specifically related to a security, an industry sector or sub-sector, or an economically depressed geographic area, adverse change in the financial condition of the issuer of the security, changes in technology, discontinuance of a segment of the business that may affect future earnings, and changes in the quality of credit enhancement, (iii) payment structure of the security and likelihood of the issuer being able to make payments, (iv) failure of the issuer to make scheduled interest and principal payments, (v) whether the issuer, or series of issuers or an industry has suffered a catastrophic loss or has exhausted natural resources, (vi) whether the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost recovers, (vii) with respect to Structured Products, changes in forecasted cash flows after considering the changes in the financial condition of the underlying loan obligors and quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security, (viii) changes in the rating of the security by a rating agency, and (ix) other subjective factors, including concentrations and information obtained from regulators.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
The methodology and significant inputs used to determine the amount of credit loss are as follows:
•The Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows. The discount rate is generally the effective interest rate of the security at the time of purchase for fixed-rate securities and the spot rate at the date of evaluation of credit loss for floating-rate securities.
•When determining collectability and the period over which value is expected to recover, the Company applies considerations utilized in its overall credit loss evaluation process which incorporates information regarding the specific security, fundamentals of the industry and geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from management’s single best estimate, the most likely outcome in a range of possible outcomes, after giving consideration to a variety of variables that include, but are not limited to: payment terms of the security; the likelihood that the issuer can service the interest and principal payments; the quality and amount of any credit enhancements; the security’s position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; any private and public sector programs to restructure foreign government securities and municipals; and changes to the rating of the security or the issuer by rating agencies.
•Additional considerations are made when assessing the unique features that apply to certain Structured Products including, but not limited to: the quality of underlying collateral, historical performance of the underlying loan obligors, historical rent and vacancy levels, changes in the financial condition of the underlying loan obligors, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying loans or assets backing a particular security, changes in the quality of credit enhancement and the payment priority within the tranche structure of the security.
With respect to securities that have attributes of debt and equity (“perpetual hybrid securities”), consideration is given in the credit loss analysis as to whether there has been any deterioration in the credit of the issuer and the likelihood of recovery in value of the securities that are in a severe unrealized loss position. Consideration is also given as to whether any perpetual hybrid securities with an unrealized loss, regardless of credit rating, have deferred any dividend payments.
After the adoption of credit loss guidance on January 1, 2020, in periods subsequent to the recognition of an initial ACL on a security, the Company reassesses credit loss quarterly. Subsequent increases or decreases in the expected cash flow from the security result in corresponding decreases or increases in the ACL which are recognized in earnings and reported within net investment gains (losses); however, the previously recorded ACL is not reduced to an amount below zero. Full or partial write-offs are deducted from the ACL in the period the security, or a portion thereof, is considered uncollectible. Recoveries of amounts previously written off are recorded to the ACL in the period received. When the Company has the intent-to-sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, any ACL is written off and the amortized cost is written down to estimated fair value through a charge within net investment gains (losses), which becomes the new amortized cost of the security.
Methodologies used during the year ended December 31, 2019 to evaluate the recoverability of a security in an unrealized loss position using OTTI guidance were similar to those used after the adoption of credit loss guidance on January 1, 2020, except: (i) the length of time estimated fair value had been below amortized cost was considered for securities, and (ii) for non-functional currency denominated securities, the impact from weakening non-functional currencies on securities that were near maturity was considered in the evaluation. In addition, measurement methodologies were similar, except: (i) a fair value floor was not utilized to limit the credit loss recognized in earnings, (ii) the amortized cost of securities was adjusted for the OTTI to the expected recoverable amount and an ACL was not utilized, (iii) subsequent to a credit loss being recognized, increases in expected cash flows from the security did not result in an immediate increase in valuation recognized in earnings through net investment gains (losses) from reduction of the ACL instead such increases in value were recorded as unrecognized unrealized gains in OCI, and (iv) in periods subsequent to the recognition of OTTI on a security, the Company accounted for the impaired security as if it had been purchased on the measurement date of the impairment; accordingly, the discount (or reduced premium) based on the new cost basis was accreted over the remaining term of the security in a prospective manner based on the amount and timing of estimated future cash flows.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Evaluation of Fixed Maturity Securities AFS in an Unrealized Loss Position
Gross unrealized losses on securities without an ACL increased $986 million for the year ended December 31, 2021 to $2.4 billion primarily due to increases in interest rates and widening of credit spreads.
Gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater were $1.2 billion at December 31, 2021, or 48% of the total gross unrealized losses on securities without an ACL.
Investment Grade Fixed Maturity Securities AFS
Of the $1.2 billion of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater, $1.0 billion, or 89%, were related to 817 investment grade securities. Unrealized losses on investment grade securities are principally related to widening credit spreads since purchase and, with respect to fixed-rate securities, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities AFS
Of the $1.2 billion of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater, $129 million, or 11%, were related to 162 below investment grade securities. Unrealized losses on below investment grade securities are principally related to U.S. and foreign corporate securities (primarily industrial and consumer), foreign government securities and CMBS and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty, as well as with respect to fixed-rate securities, rising interest rates since purchase. Management evaluates U.S. and foreign corporate securities based on several factors such as expected cash flows, financial condition and near-term and long-term prospects of the issuers. Management evaluates foreign government securities based on several factors impacting the issuers such as expected cash flows, financial condition of the issuers and any country specific economic conditions or public sector programs to restructure foreign government securities. Management evaluates CMBS based on actual and projected cash flows after considering the quality of underlying collateral, credit enhancements, expected prepayment speeds, current and forecasted loss severity, the payment terms of the underlying assets backing a particular security and the payment priority within the tranche structure of the security.
Current Period Evaluation
At December 31, 2021, with respect to securities in an unrealized loss position without an ACL, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost. Based on the Company’s current evaluation of its securities in an unrealized loss position without an ACL, the Company concluded that these securities had not incurred a credit loss and should not have an ACL at December 31, 2021.
Future provisions for credit loss will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings and collateral valuation.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Rollforward of Allowance for Credit Loss for Fixed Maturity Securities AFS By Sector
The rollforward of ACL for fixed maturity securities AFS by sector is as follows:
U.S.
Corporate Foreign
Corporate Foreign
Government RMBS CMBS Total
For the Year Ended December 31, 2021 (In millions)
Balance at January 1, $ 44 $ 16 $ 21 $ - $ - $ 81
Additions:
ACL not previously recorded
48 26 - - 11 85
Changes for securities with previously recorded ACL 3 (4) - - 3 2
Reductions:
Securities sold or exchanged (52) (10) - - - (62)
Securities intended/required to be sold prior to recovery of amortized cost basis - - - - - -
Dispositions (1) - (2) - - (2)
Write-offs
(13) - - - - (13)
Balance at December 31, $ 30 $ 28 $ 19 $ - $ 14 $ 91
U.S.
Corporate Foreign
Corporate Foreign
Government RMBS CMBS Total
For the Year Ended December 31, 2020 (In millions)
Balance at January 1, $ - $ - $ - $ - $ - $ -
Additions:
ACL not previously recorded
81 18 139 2 - 240
Reductions:
Changes for securities with previously recorded ACL
(5) (2) (5) (2) - (14)
Securities sold or exchanged (31) - (102) - - (133)
Securities intended/required to be sold prior to recovery of amortized cost basis (1) - - - - (1)
Dispositions (1) - - (11) - - (11)
Write-offs
- - - - - -
Balance at December 31, $ 44 $ 16 $ 21 $ - $ - $ 81
________________
(1)In connection with the disposition of MetLife Seguros, ACL was reduced by $2 million for the year ended December 31, 2021. In connection with the disposition of MetLife Seguros de Retiro, ACL was reduced by $11 million for the year ended December 31, 2020. See Note 3 for additional information on the Company’s business dispositions.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Equity Securities
The following table presents equity securities by security type. Common stock includes common stock, exchange traded funds, mutual funds and real estate investment trusts.
December 31,
2021 2020
Cost Net Unrealized
Gains (Losses) (1) Estimated
Fair Value Cost Net Unrealized
Gains (Losses) (1) Estimated
Fair Value
Security Type
(Dollars in millions)
Common stock $ 784 $ 295 $ 1,079 $ 644 $ 135 $ 779
Non-redeemable preferred stock 189 1 190 297 3 300
Total
$ 973 $ 296 $ 1,269 $ 941 $ 138 $ 1,079
________________
(1)Represents cumulative changes in estimated fair value, recognized in earnings, and not in OCI.
Contractholder-Directed Equity Securities and FVO Securities
The following table presents these investments by asset type. Unit-linked investments are primarily equity securities (including mutual funds) and, to a lesser extent, fixed income investments and cash and cash equivalents.
December 31,
2021 2020
Cost or
Amortized
Cost Net Unrealized
Gains (Losses) (1) Estimated
Fair Value Cost or
Amortized
Cost Net Unrealized
Gains (Losses) (1) Estimated
Fair Value
Asset Type
(Dollars in millions)
Unit-linked investments
$ 8,643 $ 1,897 $ 10,540 $ 9,934 $ 1,774 $ 11,708
FVO Securities
1,243 359 1,602 1,405 206 1,611
Total
$ 9,886 $ 2,256 $ 12,142 $ 11,339 $ 1,980 $ 13,319
________________
(1)Represents cumulative changes in estimated fair value, recognized in earnings, and not in OCI.
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
December 31,
2021 2020
Portfolio Segment Carrying
Value % of
Total Carrying
Value % of
Total
(Dollars in millions)
Commercial
$ 50,553 63.7 % $ 52,434 62.5 %
Agricultural
18,111 22.8 18,128 21.6
Residential
11,196 14.1 13,782 16.4
Total amortized cost 79,860 100.6 84,344 100.5
Allowance for credit loss (634) (0.8) (590) (0.7)
Subtotal mortgage loans, net 79,226 99.8 83,754 99.8
Residential - FVO 127 0.2 165 0.2
Total mortgage loans, net
$ 79,353 100.0 % $ 83,919 100.0 %
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis, with changes in estimated fair value included in net investment income. See Note 10 for further information.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
The amount of net (discounts) premiums and deferred (fees) expenses, included within total amortized cost, primarily attributable to residential mortgage loans was ($759) million and ($946) million at December 31, 2021 and 2020, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural and residential mortgage loans at December 31, 2021 was $180 million, $161 million, and $86 million, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural and residential mortgage loans at December 31, 2020 was $209 million, $174 million and $108 million, respectively.
Purchases of mortgage loans, consisting primarily of residential mortgage loans, were $1.8 billion, $3.3 billion and $4.8 billion for the years ended December 31, 2021, 2020 and 2019, respectively.
Rollforward of Allowance for Credit Loss for Mortgage Loans by Portfolio Segment
The rollforward of ACL for mortgage loans, by portfolio segment, is as follows:
For the Years Ended December 31,
2021 2020 2019
Commercial Agricultural Residential Total Commercial Agricultural Residential Total Commercial Agricultural Residential Total
(In millions)
Balance at January 1, $ 252 $ 106 $ 232 $ 590 $ 246 $ 52 $ 55 $ 353 $ 238 $ 46 $ 58 $ 342
Adoption of credit loss guidance - - - - (118) 35 161 78 - - - -
Provision (release) 88 6 (27) 67 124 22 30 176 8 11 7 26
Initial credit losses on PCD loans (1) - - 3 3 - - 18 18 - - - -
Charge-offs, net of recoveries - (24) (2) (26) - (2) (32) (34) - (5) (10) (15)
HFS transfer - - - - - (1) - (1) - - - -
Balance at December 31, $ 340 $ 88 $ 206 $ 634 $ 252 $ 106 $ 232 $ 590 $ 246 $ 52 $ 55 $ 353
__________________
(1)Represents the initial credit losses accounted for as purchased financial assets with credit deterioration (“PCD”).
Allowance for Credit Loss Methodology
After the adoption of credit loss guidance on January 1, 2020, the Company records an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents the portion of the amortized cost basis of mortgage loans that the Company does not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In determining the Company’s ACL, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling mortgage loans that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of its mortgage loans adjusted for expected prepayments and any extensions, and (iii) considering past events and current and forecasted economic conditions. Each of the Company’s commercial, agricultural and residential mortgage loan portfolio segments are evaluated separately. The ACL is calculated for each mortgage loan portfolio segment based on inputs unique to each loan portfolio segment. On a quarterly basis, mortgage loans within a portfolio segment that share similar risk characteristics, such as internal risk ratings or consumer credit scores, are pooled for calculation of ACL. On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable) and reasonably expected troubled debt restructurings (“TDRs”) (i.e., the Company grants concessions to borrower that is experiencing financial difficulties) are evaluated individually for credit loss. The ACL for loans evaluated individually are established using the same methodologies for all three portfolio segments. For example, the ACL for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans, which are evaluated individually for credit loss, is recorded as a change in the ACL which is recorded on a quarterly basis as a charge or credit to earnings in net investment gains (losses).
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
During the year ended December 31, 2019, prior to the adoption of credit loss guidance on January 1, 2020, evaluation and measurement methodologies in determining the ACL were similar, except: (i) credit loss was recognized in earnings within net investment gains (losses) when incurred (when it was probable, based on current information and events, that all amounts due under the loan agreement would not be collected), (ii) pooling of loans with similar risk characteristics was permitted, but not required, (iii) forecasts of economic conditions were not considered in the evaluation, (iv) measurement of the expected lifetime credit loss over the contractual term, or expected term, was not considered in the measurement, and (v) the credit loss for loans evaluated individually could also be determined using either discounted cash flows using the loans’ original effective interest rate or observable market prices.
Commercial and Agricultural Mortgage Loan Portfolio Segments
Commercial and agricultural mortgage loan ACL are calculated in a similar manner. Within each loan portfolio segment, commercial and agricultural, loans are pooled by internal risk rating. Estimated lifetime loss rates, which vary by internal risk rating, are applied to the amortized cost of each loan, excluding accrued investment income, on a quarterly basis to develop the ACL. Internal risk ratings are based on an assessment of the loan’s credit quality, which can change over time. The estimated lifetime loss rates are based on several loan portfolio segment-specific factors, including (i) the Company’s experience with defaults and loss severity, (ii) expected default and loss severity over the forecast period, (iii) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, (iv) loan specific characteristics including loan-to-value (“LTV”) ratios, and (v) internal risk ratings. These evaluations are revised as conditions change and new information becomes available. The Company uses its several decades of historical default and loss severity experience which capture multiple economic cycles. The Company uses a forecast of economic assumptions for a two-year period for most of its commercial and agricultural mortgage loans, while a one-year period is used for loans originated in certain markets. After the applicable forecast period, the Company reverts to its historical loss experience using a straight-line basis over two years. For evaluations of commercial mortgage loans, in addition to historical experience, management considers factors that include the impact of a rapid change to the economy, which may not be reflected in the loan portfolio, recent loss and recovery trend experience as compared to historical loss and recovery experience, and loan specific characteristics including debt service coverage ratios (“DSCR”). In estimating expected lifetime credit loss over the term of its commercial mortgage loans, the Company adjusts for expected prepayment and extension experience during the forecast period using historical prepayment and extension experience considering the expected position in the economic cycle and the loan profile (i.e., floating rate, shorter-term fixed rate and longer-term fixed rate) and after the forecast period using long-term historical prepayment experience. For evaluations of agricultural mortgage loans, in addition to historical experience, management considers factors that include increased stress in certain sectors, which may be evidenced by higher delinquency rates, or a change in the number of higher risk loans. In estimating expected lifetime credit loss over the term of its agricultural mortgage loans, the Company’s experience is much less sensitive to the position in the economic cycle and by loan profile; accordingly, historical prepayment experience is used, while extension terms are not prevalent with the Company’s agricultural mortgage loans.
Commercial mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. Agricultural mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, as well as reviews on a geographic and property-type basis. The monitoring process for agricultural mortgage loans also focuses on higher risk loans.
For commercial mortgage loans, the primary credit quality indicator is the DSCR, which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. The Company also reviews the LTV ratio of its commercial mortgage loan portfolio. LTV ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio is routinely updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
For agricultural mortgage loans, the Company’s primary credit quality indicator is the LTV ratio. The values utilized in calculating this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.
Commitments to lend: After loans are approved, the Company makes commitments to lend and, typically, borrowers draw down on some or all of the commitments. The timing of mortgage loan funding is based on the commitment expiration dates. A liability for credit loss for unfunded commercial and agricultural mortgage loan commitments that are not unconditionally cancellable is recognized in earnings and is reported within net investment gains (losses). The liability is based on estimated lifetime loss rates as described above and the amount of the outstanding commitments, which for lines of credit, considers estimated utilization rates. When the commitment is funded or expires, the liability is adjusted accordingly.
Residential Mortgage Loan Portfolio Segment
The Company’s residential mortgage loan portfolio is comprised primarily of purchased closed end, amortizing residential mortgage loans, including both performing loans purchased within 12 months of origination and reperforming loans purchased after they have been performing for at least 12 months post-modification. Residential mortgage loans are pooled by loan type (i.e., new origination and reperforming) and pooled by similar risk profiles (including consumer credit score and LTV ratios). Estimated lifetime loss rates, which vary by loan type and risk profile, are applied to the amortized cost of each loan excluding accrued investment income on a quarterly basis to develop the ACL. The estimated lifetime loss rates are based on several factors, including (i) industry historical experience and expected results over the forecast period for defaults, (ii) loss severity, (iii) prepayment rates, (iv) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, and (v) loan pool specific characteristics including consumer credit scores, LTV ratios, payment history and home prices. These evaluations are revised as conditions change and new information becomes available. The Company uses industry historical experience which captures multiple economic cycles as the Company has purchased most of its residential mortgage loans in the last five years. The Company uses a forecast of economic assumptions for a two-year period for most of its residential mortgage loans. After the applicable forecast period, the Company immediately reverts to industry historical loss experience.
For residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in nonaccrual status which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Mortgage Loan Concessions
In response to the adverse economic impact of the COVID-19 pandemic, in 2021 and 2020, the Company granted concessions to certain of its commercial, agricultural and residential mortgage loan borrowers, including payment deferrals and other loan modifications. The Company has elected the option under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act, 2021 and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) (“Interagency Statement”) issued by bank regulatory agencies, not to account for or report qualifying concessions as TDRs and not to classify such loans as either past due or nonaccrual during the payment deferral period. Additionally, in accordance with the FASB’s published response to a COVID-19 pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. The Company records an ACL on this accrued interest income through earnings, which is reported within net investment gains (losses).
Commercial
For some commercial mortgage loan borrowers (principally in the retail and hotel sectors), the Company granted concessions which were primarily interest and principal payment deferrals generally ranging from three to four months and, to a much lesser extent, maturity date extensions. Deferred commercial mortgage loan interest and principal payments were $27 million at December 31, 2021.
Agricultural
For some agricultural mortgage loan borrowers (principally in the annual crops and agribusiness sectors), the Company granted concessions which were primarily principal payment deferrals generally ranging from three to 12
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
months, and covenant changes and, to a much lesser extent, maturity date extensions. Deferred agricultural mortgage loan interest and principal payments were $4 million at December 31, 2021.
Residential
For some residential mortgage loan borrowers, the Company granted concessions which were primarily three-month interest and principal payment deferrals. Deferred residential mortgage loan interest and principal payments were $18 million at December 31, 2021.
Troubled Debt Restructurings
The Company assesses loan concessions prior to the issuance of, or outside the scope of, the CARES Act, the Consolidated Appropriations Act, 2021 and the Interagency Statement on a case-by-case basis to evaluate whether a TDR has occurred. The Company may grant concessions to borrowers experiencing financial difficulties, which, if not significant, are not classified as TDRs, while more significant concessions are classified as TDRs. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates, and/or a reduction of accrued interest. The amount, timing and extent of the concessions granted are considered in determining any ACL recorded.
For both years ended December 31, 2021 and 2020, the Company did not have any commercial mortgage loans modified in a TDR; and did not have a significant amount of agricultural and residential mortgage loans modified in a TDR.
For both years ended December 31, 2021 and 2020, the Company did not have a significant amount of mortgage loans modified in a TDR with subsequent payment default.
Credit Quality of Mortgage Loans by Portfolio Segment
The amortized cost of commercial mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2021:
Credit Quality Indicator 2021 2020 2019 2018 2017 Prior Revolving
Loans Total % of
Total
(Dollars in millions)
LTV ratios:
Less than 65% $ 5,675 $ 4,970 $ 5,379 $ 5,650 $ 4,176 $ 10,873 $ 2,443 $ 39,166 77.5 %
65% to 75%
1,461 760 2,601 1,400 594 1,857 - 8,673 17.1
76% to 80%
3 50 414 200 161 218 - 1,046 2.1
Greater than 80%
- - 4 79 290 1,295 - 1,668 3.3
Total
$ 7,139 $ 5,780 $ 8,398 $ 7,329 $ 5,221 $ 14,243 $ 2,443 $ 50,553 100.0 %
DSCR:
> 1.20x
$ 6,418 $ 5,288 $ 7,682 $ 6,787 $ 4,780 $ 11,199 $ 2,164 $ 44,318 87.7 %
1.00x - 1.20x
272 133 76 258 29 1,000 - 1,768 3.5
<1.00x
449 359 640 284 412 2,044 279 4,467 8.8
Total
$ 7,139 $ 5,780 $ 8,398 $ 7,329 $ 5,221 $ 14,243 $ 2,443 $ 50,553 100.0 %
The amortized cost of agricultural mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2021:
Credit Quality Indicator 2021 2020 2019 2018 2017 Prior Revolving
Loans Total % of
Total
(Dollars in millions)
LTV ratios:
Less than 65% $ 2,483 $ 2,989 $ 1,855 $ 2,549 $ 922 $ 4,325 $ 968 $ 16,091 88.8 %
65% to 75% 329 383 234 205 40 579 120 1,890 10.4
76% to 80% - - - - - 11 - 11 0.1
Greater than 80% - - 76 - - 43 - 119 0.7
Total $ 2,812 $ 3,372 $ 2,165 $ 2,754 $ 962 $ 4,958 $ 1,088 $ 18,111 100.0 %
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
The amortized cost of residential mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2021:
Credit Quality Indicator 2021 2020 2019 2018 2017 Prior Revolving
Loans Total % of
Total
(Dollars in millions)
Performance indicators:
Performing $ 695 $ 460 $ 1,277 $ 583 $ 283 $ 7,448 $ - $ 10,746 96.0 %
Nonperforming (1) 2 5 54 20 4 365 - 450 4.0
Total $ 697 $ 465 $ 1,331 $ 603 $ 287 $ 7,813 $ - $ 11,196 100.0 %
__________________
(1)Includes residential mortgage loans in process of foreclosure of $70 million and $103 million at December 31, 2021 and 2020, respectively.
LTV ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. The amortized cost of commercial and agricultural mortgage loans with an LTV ratio in excess of 100% was $809 million, or 1% of total commercial and agricultural mortgage loans at December 31, 2021.
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both December 31, 2021 and 2020. The Company defines delinquency consistent with industry practice, when mortgage loans are past due more than two or more months, as applicable, by portfolio segment. The past due and nonaccrual mortgage loans at amortized cost, prior to ACL, by portfolio segment, were as follows:
Past Due Greater than 90 Days Past Due and Still
Accruing Interest Nonaccrual
Portfolio Segment December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
(In millions)
Commercial
$ 13 $ 10 $ 13 $ 7 $ 155 $ 317
Agricultural
124 252 16 20 225 266
Residential
450 556 8 64 442 534
Total
$ 587 $ 818 $ 37 $ 91 $ 822 $ 1,117
The amortized cost for nonaccrual commercial, agricultural and residential mortgage loans at beginning of year 2020 was $176 million, $137 million and $418 million, respectively. The amortized cost for nonaccrual commercial mortgage loans with no ACL was $0 and $168 million at December 31, 2021 and 2020, respectively. The amortized cost for nonaccrual agricultural mortgage loans with no ACL was $134 million and $178 million at December 31, 2021 and 2020, respectively. There were no nonaccrual residential mortgage loans without an ACL at either December 31, 2021 or 2020.
Purchased Investments with Credit Deterioration
Investments that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination are classified as PCD. The amortized cost for PCD investments is the purchase price plus an ACL for the initial estimate of expected lifetime credit losses established upon purchase. Subsequent changes in the ACL on PCD investments are recognized in earnings and are reported in net investment gains (losses). The non-credit discount or premium is accreted or amortized to net investment income on an effective yield basis.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
The following table reconciles the contractual principal to the purchase price of PCD investments:
For the Year Ended December 31, 2021
Contractual
Principal ACL at
Acquisition Non-Credit
(Discount)
Premium Purchase
Price
(In millions)
PCD residential mortgage loans $ 514 $ (3) $ 32 $ 543
Prior to the adoption of credit loss guidance for the recognition of credit losses on financial instruments, the Company applied applicable guidance for investments acquired with evidence of credit quality deterioration since origination, known as PCI investments. The Company’s PCI investments had an outstanding principal balance of $3.3 billion at December 31, 2019, which represents the contractually required principal and accrued interest payments whether or not currently due and a carrying value (estimated fair value of the investments plus accrued interest) of $2.7 billion at December 31, 2019. Accretion of accretable yield on PCI investments recognized in net investment income was $178 million for the year ended December 31, 2019.
Real Estate and Real Estate Joint Ventures
The Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, operating income and equity in earnings from equity method real estate joint ventures. Real estate investments, by income type, as well as income earned, were as follows at and for the periods indicated:
December 31, For the Years Ended December 31,
2021 2020 2021 2020 2019
Income Type Carrying Value Income
(In millions)
Leased real estate investments $ 5,146 $ 5,450 $ 429 $ 435 $ 380
Other real estate investments 474 419 199 133 192
Real estate joint ventures 6,596 6,064 326 (36) 104
Total real estate and real estate joint ventures
$ 12,216 $ 11,933 $ 954 $ 532 $ 676
The carrying value of real estate investments acquired through foreclosure was $181 million and $20 million at December 31, 2021 and 2020, respectively. Depreciation expense on real estate investments was $123 million, $123 million and $100 million for the years ended December 31, 2021, 2020 and 2019, respectively. Real estate investments were net of accumulated depreciation of $883 million and $1.1 billion at December 31, 2021 and 2020, respectively.
Leases
Leased Real Estate Investments - Operating Leases
The Company, as lessor, leases investment real estate, principally commercial real estate for office and retail use, through a variety of operating lease arrangements, which typically include tenant reimbursement for property operating costs and options to renew or extend the lease. In some circumstances, leases may include an option for the lessee to purchase the property. In addition, certain leases of retail space may stipulate that a portion of the income earned is contingent upon the level of the tenants’ revenues. The Company has elected a practical expedient of not separating non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs have the same timing and pattern of transfer as the related lease component, because they are incurred over the same period of time as the operating lease. Therefore, the combined component is accounted for as a single operating lease. Risk is managed through lessee credit analysis, property type diversification, and geographic diversification. Leased real estate investments and income earned, by property type, were as follows at and for the periods indicated:
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
December 31, For the Years Ended December 31,
2021 2020 2021 2020 2019
Property Type Carrying Value Income
(In millions)
Leased real estate investments:
Office
$ 2,322 $ 2,351 $ 196 $ 188 $ 175
Retail
938 1,147 75 93 102
Apartment
828 810 66 62 24
Land
635 621 28 25 21
Industrial
339 332 58 56 46
Hotel
84 96 6 5 7
Other
- 93 - 6 5
Total leased real estate investments
$ 5,146 $ 5,450 $ 429 $ 435 $ 380
Future contractual receipts under operating leases at December 31, 2021 were $304 million in 2022, $259 million in 2023, $217 million in 2024, $197 million in 2025, $167 million in 2026, $1.2 billion thereafter and, in total, were $2.3 billion.
Leveraged and Direct Financing Leases
The Company has diversified leveraged and direct financing lease portfolios. Its leveraged leases principally include renewable energy generation facilities, rail cars, commercial real estate and commercial aircraft, and its direct financing leases principally include commercial real estate. These assets are leased through a variety of lease arrangements, which may include options to renew or extend the lease and options for the lessee to purchase the property. Residual values are estimated using available third-party data at inception of the lease. Risk is managed through lessee credit analysis, asset allocation, geographic diversification, and ongoing reviews of estimated residual values, using available third-party data and, in certain leases, linking the amount of future rental receipts to changes in inflation rates. Generally, estimated residual values are not guaranteed by the lessee or a third-party.
Investment in leveraged and direct financing leases consisted of the following at:
December 31,
2021 2020
Leveraged
Leases Direct
Financing
Leases Leveraged
Leases Direct
Financing
Leases
(In millions)
Lease receivables, net (1) $ 542 $ 1,755 $ 597 $ 2,055
Estimated residual values 560 39 573 42
Subtotal 1,102 1,794 1,170 2,097
Unearned income (284) (642) (318) (749)
Investment in leases, before ACL 818 1,152 852 1,348
ACL (31) (9) (36) (8)
Investment in leases, net of ACL $ 787 $ 1,143 $ 816 $ 1,340
__________________
(1)Future contractual receipts under direct financing leases at December 31, 2021 were $100 million in 2022, $107 million in 2023, $91 million in 2024, $90 million in 2025, $102 million in 2026, $1.3 billion thereafter and, in total were $1.8 billion.
Lease receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 10 years, but in certain circumstances can be over 10 years, while the payment periods for direct financing
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
leases generally range from one to 25 years but in certain circumstances can be over 25 years. For lease receivables, the primary credit quality indicator is whether the lease receivable is performing or nonperforming, which is assessed monthly. The Company generally defines nonperforming lease receivables as those that are 90 days or more past due. At both December 31, 2021 and 2020, all leveraged lease receivables were performing. At December 31, 2021 and 2020, 99% and 96% of direct financing lease receivables were performing, respectively.
The deferred income tax liability related to leveraged leases was $272 million and $287 million at December 31, 2021 and 2020, respectively.
The components of income from investment in leveraged and direct financing leases, excluding net investment gains (losses), were as follows:
For the Years Ended December 31,
2021 2020 2019
Leveraged
Leases Direct
Financing
Leases Leveraged
Leases Direct
Financing
Leases Leveraged
Leases Direct
Financing
Leases
(In millions)
Lease investment income $ 34 $ 96 $ 39 $ 106 $ 48 $ 109
Less: Income tax expense 7 20 8 22 10 23
Lease investment income, net of income tax
$ 27 $ 76 $ 31 $ 84 $ 38 $ 86
After the adoption of credit loss guidance on January 1, 2020, the Company records an allowance for expected lifetime credit loss in earnings within investment gains (losses) in an amount that represents the portion of the investment in leases that the Company does not expect to collect, resulting in the investment in leases being presented at the net amount expected to be collected. In determining the ACL, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling leases that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of the lease, and (iii) considering past events and current and forecasted economic conditions. Leases with dissimilar risk characteristics are evaluated individually for credit loss. Expected lifetime credit loss on leveraged lease receivables is estimated using a probability of default and loss given default model, where the probability of default incorporates third party credit ratings of the lessee and the related historical default data. Direct financing leases principally relate to leases of commercial real estate; accordingly, expected lifetime credit loss is estimated on such lease receivables consistent with the methodology for commercial mortgage loans (see “- Mortgage Loans - Allowance for Credit Loss Methodology”). The Company also assesses the non-guaranteed residual values for recoverability by comparison to the current estimated fair value of the leased asset and considers other relevant market information such as independent third-party forecasts, consulting, asset brokerage and investment banking reports and data, comparable market transactions, and factors such as the competitive dynamics impacting specific industries, technological change and obsolescence, government and regulatory rules, tax policy, potential environmental liabilities and litigation.
During the year ended December 31, 2019, prior to the adoption of credit loss guidance on January 1, 2020, lease impairment losses were recognized in earnings within investment gains (losses) as incurred. Under the incurred loss model, if all amounts due under the lease agreement would not be collected based on current information and events, an impairment loss was recognized in earnings. The impairment loss was recorded as a reduction of the investment in lease and within net investment gains (losses).
Other Invested Assets
Other invested assets is comprised primarily of freestanding derivatives with positive estimated fair values (see Note 9), tax credit and renewable energy partnerships, annuities funding structured settlement claims (see Note 1), direct financing and leveraged leases (see “- Leveraged and Direct Financing Leases”), operating joint ventures (see Note 1) and FHLB common stock (see “- Invested Assets on Deposit, Held in Trust and Pledged as Collateral”).
Tax Credit Partnerships
The carrying value of tax credit partnerships was $947 million and $1.1 billion at December 31, 2021 and 2020, respectively. Losses from tax credit partnerships included within net investment income were $195 million, $226 million and $240 million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Cash Equivalents
Cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $9.0 billion and $9.7 billion, principally at estimated fair value, at December 31, 2021 and 2020, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities AFS and derivatives and the effect on policyholder liabilities, DAC, VOBA and DSI that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
December 31,
2021 2020 2019
(In millions)
Fixed maturity securities AFS
$ 29,461 $ 44,415 $ 30,083
Derivatives
2,061 1,924 2,209
Other
389 267 310
Subtotal
31,911 46,606 32,602
Amounts allocated from:
Policyholder liabilities (4,978) (10,797) (3,039)
DAC, VOBA and DSI
(3,208) (4,050) (2,716)
Subtotal
(8,186) (14,847) (5,755)
Deferred income tax benefit (expense)
(6,031) (8,009) (6,850)
Net unrealized investment gains (losses)
17,694 23,750 19,997
Net unrealized investment gains (losses) attributable to noncontrolling interests
(23) (20) (16)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
$ 17,671 $ 23,730 $ 19,981
The changes in net unrealized investment gains (losses) were as follows:
For the Years Ended December 31,
2021 2020 2019
(In millions)
Balance at January 1, $ 23,730 $ 19,981 $ 8,655
Cumulative effects of changes in accounting principles, net of income tax - - 21
Unrealized investment gains (losses) during the year
(14,695) 14,004 18,778
Unrealized investment gains (losses) relating to:
Policyholder liabilities 5,819 (7,758) (2,642)
DAC, VOBA and DSI
842 (1,334) (1,485)
Deferred income tax benefit (expense)
1,978 (1,159) (3,340)
Net unrealized investment gains (losses)
17,674 23,734 19,987
Net unrealized investment gains (losses) attributable to noncontrolling interests
(3) (4) (6)
Balance at December 31, $ 17,671 $ 23,730 $ 19,981
Change in net unrealized investment gains (losses)
$ (6,056) $ 3,753 $ 11,332
Change in net unrealized investment gains (losses) attributable to noncontrolling interests
(3) (4) (6)
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
$ (6,059) $ 3,749 $ 11,326
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Concentrations of Credit Risk
Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at estimated fair value at December 31, 2021 and 2020, were in fixed income securities of the Japanese government and its agencies of $32.7 billion and $35.8 billion, respectively, and in fixed income securities of the South Korean government and its agencies of $7.1 billion and $8.0 billion, respectively.
Securities Lending Transactions and Repurchase Agreements
Securities, Collateral and Reinvestment Portfolio
A summary of these transactions and agreements accounted for as secured borrowings were as follows:
December 31,
2021 2020
Securities (1) Securities (1)
Agreement Type Estimated
Fair Value Cash
Collateral
Received from
Counterparties (2) Reinvestment
Portfolio at
Estimated
Fair Value Estimated
Fair Value Cash
Collateral
Received from
Counterparties (2) Reinvestment
Portfolio at
Estimated
Fair Value
(In millions)
Securities lending $ 20,654 $ 21,055 $ 21,319 $ 18,262 $ 18,628 $ 18,884
Repurchase agreements
$ 3,416 $ 3,325 $ 3,357 $ 3,276 $ 3,210 $ 3,251
__________________
(1)These securities are included within fixed maturity securities AFS and short-term investments.
(2)The liability for cash collateral is included within payables for collateral under securities loaned and other transactions.
Contractual Maturities
Contractual maturities of these transactions and agreements accounted for as secured borrowings were as follows:
December 31,
2021 2020
Remaining Maturities Remaining Maturities
Security Type Open (1) 1 Month
or Less Over 1 Month to 6 Months Over 6 Months to 1 Year Total Open (1) 1 Month
or Less Over 1 Month to 6 Months Over 6 Months to 1 Year Total
(In millions)
Cash collateral liability by security type:
Securities lending:
U.S. government and agency
$ 5,900 $ 7,052 $ 7,055 $ - $ 20,007 $ 2,946 $ 10,553 $ 4,009 $ - $ 17,508
Foreign government
- 285 762 - 1,047 - 291 826 - 1,117
U.S. corporate 1 - - - 1 3 - - - 3
Total $ 5,901 $ 7,337 $ 7,817 $ - $ 21,055 $ 2,949 $ 10,844 $ 4,835 $ - $ 18,628
Repurchase agreements:
U.S. government and agency
$ - $ 3,325 $ - $ - $ 3,325 $ - $ 3,210 $ - $ - $ 3,210
__________________
(1)The related security could be returned to the Company on the next business day, which would require the Company to immediately return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell investments to meet the return obligation, it may have difficulty selling such collateral that is invested in a timely manner, be forced to sell investments in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
The securities lending and repurchase agreements reinvestment portfolios consist principally of high quality, liquid, publicly-traded fixed maturity securities AFS, short-term investments, cash equivalents or cash. If the securities, or the reinvestment portfolio become less liquid, liquidity resources within the general account are available to meet any potential cash demands when securities are put back by the counterparty.
Invested Assets on Deposit, Held in Trust and Pledged as Collateral
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans, which are presented at carrying value and were as follows at:
December 31,
2021 2020
(In millions)
Invested assets on deposit (regulatory deposits)
$ 1,872 $ 1,933
Invested assets held in trust (external reinsurance agreements) (1) 1,114 1,124
Invested assets pledged as collateral (2) 24,261 25,884
Total invested assets on deposit, held in trust and pledged as collateral
$ 27,247 $ 28,941
__________________
(1)Represents assets held in trust related to third-party reinsurance agreements. Excludes assets held in trust related to reinsurance agreements between wholly-owned subsidiaries of $2.1 billion and $2.4 billion at December 31, 2021 and 2020, respectively.
(2)The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 4), derivative transactions (see Note 9), secured debt and short-term debt related to repurchase agreements (see Note 13), and a collateral financing arrangement (see Note 14).
See “- Securities Lending Transactions and Repurchase Agreements” for information regarding securities supporting securities lending transactions and repurchase agreements and Note 7 for information regarding investments designated to the closed block. In addition, the Company’s investment in FHLB common stock, included within other invested assets, which is considered restricted until redeemed by the issuers, was $769 million and $814 million, at redemption value, at December 31, 2021 and 2020, respectively.
Collectively Significant Equity Method Investments
The Company holds investments in real estate joint ventures, real estate funds and other limited partnership interests consisting of private equity funds, hedge funds, real estate joint ventures, real estate funds and other funds. The portion of these investments accounted for under the equity method had a carrying value of $23.5 billion at December 31, 2021. The Company’s maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $7.6 billion at December 31, 2021. Except for certain real estate joint ventures and certain funds, the Company’s investments in its remaining real estate funds and other limited partnership interests are generally of a passive nature in that the Company does not participate in the management of the entities.
As described in Note 1, the Company generally recognizes its share of earnings in its equity method investments within net investment income using a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. Aggregate net investment income from these equity method investments exceeded 10% of the Company’s consolidated pre-tax income (loss) for the three most recent annual periods.
The following aggregated summarized financial data reflects the latest available financial information and does not represent the Company’s proportionate share of the assets, liabilities, or earnings of such entities. Aggregate total assets of these entities totaled $1.1 trillion and $704.5 billion at December 31, 2021 and 2020, respectively. Aggregate total liabilities of these entities totaled $149.4 billion and $99.4 billion at December 31, 2021 and 2020, respectively. Aggregate net income (loss) of these entities totaled $231.0 billion, $41.6 billion and $47.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income, including recurring investment income and realized and unrealized investment gains (losses).
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to investment related VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at:
December 31,
2021 2020
Asset Type Total
Assets (1) Total
Liabilities
Total
Assets (1) Total
Liabilities
(In millions)
Investment funds (1) $ 292 $ 1 $ 258 $ 1
Renewable energy partnership (1) 79 - 87 -
Other investments (2) 1 - 4 5
Total
$ 372 $ 1 $ 349 $ 6
__________________
(1) Assets of the investment funds and renewable energy partnership primarily consisted of other invested assets.
(2) Assets of other investments primarily consisted of other assets at December 31, 2021, and cash and cash equivalents at December 31, 2020.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
December 31,
2021 2020
Asset Type Carrying
Amount Maximum
Exposure
to Loss (1) Carrying
Amount Maximum
Exposure
to Loss (1)
(In millions)
Fixed maturity securities AFS (2) $ 62,654 $ 62,654 $ 60,115 $ 60,115
Other limited partnership interests
13,287 20,720 8,355 14,911
Other invested assets
1,257 1,314 1,320 1,404
Other investments
776 926 619 639
Total
$ 77,974 $ 85,614 $ 70,409 $ 77,069
__________________
(1)The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax credits guaranteed by third parties of $5 million and $3 million at December 31, 2021 and 2020, respectively. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
(2)For variable interests in Structured Products included within fixed maturity securities AFS, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
As described in Note 21, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs for each of the years ended December 31, 2021, 2020 and 2019.
The Company securitizes certain residential mortgage loans and acquires an interest in the related RMBS issued. While the Company has a variable interest in the issuer of the securities, it is not the primary beneficiary of the issuer of the securities since it does not have any rights to remove the servicer or veto rights over the servicer’s actions. The resulting gains (losses) from the securitizations are included within net investment gains (losses). The estimated fair value of the related RMBS acquired in connection with the securitizations is included in the carrying amount and maximum exposure to loss for Structured Products presented in the table above.
The Company did not securitize any loans during 2021. The carrying value and the estimated fair value of residential mortgage loans securitized during the year ended December 31, 2020 were $308 million and $313 million, respectively. Gains on securitizations were $5 million and $24 million for the years ended December 31, 2020 and 2019, respectively, which are included within net investment gains (losses). The estimated fair value of RMBS acquired in connection with these securitizations was $0 and $43 million at December 31, 2021 and 2020, respectively.
See Note 10 for information on how the estimated fair value of mortgage loans and RMBS is determined, the valuation approaches and key inputs, their placement in the fair value hierarchy, and for certain RMBS, quantitative information about the significant unobservable inputs and the sensitivity of their estimated fair value to changes in those inputs.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Net Investment Income
The composition of net investment income by asset type was as follows:
For the Years Ended December 31,
Asset Type 2021 2020 2019
(In millions)
Fixed maturity securities AFS
$ 10,996 $ 11,304 $ 11,886
Equity securities
36 50 61
FVO Securities 167 140 184
Mortgage loans
3,435 3,518 3,782
Policy loans
474 498 512
Real estate and real estate joint ventures
954 532 676
Other limited partnership interests
4,927 1,000 825
Cash, cash equivalents and short-term investments
103 213 457
Operating joint ventures
77 93 84
Other
223 255 348
Subtotal investment income 21,392 17,603 18,815
Less: Investment expenses
949 1,054 1,422
Subtotal, net
20,443 16,549 17,393
Unit-linked investments 952 568 1,475
Net investment income
$ 21,395 $ 17,117 $ 18,868
Net investment income included realized and unrealized gains (losses) recognized in earnings of $1.1 billion, $655 million, and $1.5 billion for the years ended December 31, 2021, 2020 and 2019, respectively. The amount includes realized gains (losses) on sales and disposals, primarily related to FVO Securities and Unit-linked investments, of $518 million, $422 million and $467 million for the years ended December 31, 2021, 2020 and 2019, respectively. The amount also includes unrealized gains (losses), representing changes in estimated fair value, recognized in earnings, primarily related to FVO Securities and Unit-linked investments, of $616 million, $233 million and $1.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively.
Changes in estimated fair value subsequent to purchase of FVO Securities and Unit-linked investments still held as of the end of the respective periods and included in net investment income were $730 million, $489 million and $1.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively.
Net investment income from equity method investments, comprised primarily of real estate joint ventures, other limited partnership interests, tax credit and renewable energy partnerships and operating joint ventures, was $5.1 billion, $829 million and $795 million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Net Investment Gains (Losses)
Net Investment Gains (Losses) by Asset Type and Transaction Type
The composition of net investment gains (losses) by asset type and transaction type was as follows:
For the Years Ended December 31,
Asset Type 2021 2020 2019
(In millions)
Fixed maturity securities AFS $ 66 $ 297 $ 267
Equity securities 108 (137) 134
Mortgage loans (18) (213) (11)
Real estate and real estate joint ventures (excluding changes in estimated fair value)
502 7 399
Other limited partnership interests (excluding changes in estimated fair value)
(6) (15) 6
Other gains (losses) 131 198 (142)
Subtotal
783 137 653
Change in estimated fair value of other limited partnership interests and real estate joint ventures 45 (4) (14)
Non-investment portfolio gains (losses) 701 (243) (195)
Subtotal
746 (247) (209)
Net investment gains (losses) $ 1,529 $ (110) $ 444
Transaction Type
Realized gains (losses) on investments sold or disposed $ 711 $ 634 $ 854
Impairment (losses) (24) (63) (261)
Recognized gains (losses):
Change in allowance for credit loss recognized in earnings (86) (280) (23)
Unrealized net gains (losses) recognized in earnings 227 (158) 69
Total recognized gains (losses) 141 (438) 46
Non-investment portfolio gains (losses) 701 (243) (195)
Net investment gains (losses) $ 1,529 $ (110) $ 444
Net realized investment gains (losses) of $1.2 billion, $1.1 billion and $1.3 billion for the years ended December 31, 2021, 2020 and 2019, respectively, represent realized gains (losses) on sales and disposals from all invested asset classes, including realized gains (losses) on sales and disposals recognized in net investment income, primarily related to FVO Securities and Unit-linked investments.
Changes in estimated fair value subsequent to purchase of equity securities still held as of the end of the period included in net investment gains (losses) were $77 million, ($127) million and $122 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Other gains (losses) included $88 million and $129 million reclassified from AOCI to earnings due to the sale of certain investments that were hedged in qualifying cash flow hedges for the years ended December 31, 2021 and 2020, respectively. Other gains (losses) also included a leveraged lease gain of $87 million for the year ended December 31, 2020. Other gains (losses) included tax credit partnership impairment (losses) of ($92) million, leveraged lease impairment (losses) of ($30) million and a renewable energy partnership disposal gain of $46 million for the year ended December 31, 2019.
See Note 3 for information regarding the impact of the Company’s business dispositions included within non-investment portfolio gains (losses).
Net investment gains (losses) includes gains (losses) from foreign currency transactions of ($10) million, $79 million and ($124) million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
8. Investments (continued)
Fixed Maturity Securities AFS and Equity Securities - Composition of Net Investment Gains (Losses)
The composition of net investment gains (losses) for these securities is as follows:
For the Years Ended December 31,
Fixed Maturity Securities AFS
2021 2020 2019
(In millions)
Proceeds
$ 54,612 $ 40,809 $ 51,052
Gross investment gains
$ 761 $ 1,125 $ 889
Gross investment (losses)
(656) (674) (493)
Realized gains (losses) on sales and disposals 105 451 396
Net credit loss (provision) release (change in ACL recognized in earnings) (15) (91) -
Impairment (loss) (1), (2) (24) (63) (129)
Net credit loss (provision) release and impairment (loss) (39) (154) (129)
Net investment gains (losses)
$ 66 $ 297 $ 267
Equity Securities
Realized gains (losses) on sales and disposals $ (69) $ 16 $ 50
Unrealized net gains (losses) recognized in earnings 177 (153) 84
Net investment gains (losses) $ 108 $ (137) $ 134
__________________
(1)Impairment (loss) by sector for foreign government, consumer corporate, industrial corporate, RMBS and finance corporate securities for the year ended December 31, 2019 were ($81) million, ($23) million, ($22) million, ($2) million and ($1) million, respectively. See “- Rollforward of Allowance for Credit Loss for Fixed Maturity Securities AFS By Sector.” Due to the adoption of credit loss guidance on January 1, 2020, prior period OTTI (loss) is presented as impairment (loss).
(2)After adoption of new guidance on January 1, 2020, impairment (loss) was comprised of intent-to-sell and direct write down losses; prior to January 1, 2020, it was comprised of OTTI losses and intent-to-sell losses.
9. Derivatives
Accounting for Derivatives
See Note 1 for a description of the Company’s accounting policies for derivatives and Note 10 for information about the fair value hierarchy for derivatives.
Derivative Strategies
The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company uses credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the cash markets.
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.
The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. government and agency, or other fixed maturity securities AFS. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.
A synthetic GIC is a contract that simulates the performance of a traditional GIC through the use of financial instruments. The contractholder owns the underlying assets, and the Company provides a guarantee (or “wrap”) on the participant funds for an annual risk charge. The Company’s maximum exposure to loss on synthetic GICs is the notional amount, in the event the values of all of the underlying assets were reduced to zero. The Company’s risk is substantially lower due to contractual provisions that limit the portfolio to high quality assets, which are pre-approved and monitored for compliance, as well as the collection of risk charges. In addition, the crediting rates reset periodically to amortize market value gains and losses over a period equal to the duration of the wrapped portfolio, subject to a 0% floor. While plan participants may transact at book value, contractholder withdrawals may only occur immediately at market value, or at book value paid over a period of time per contract provisions. Synthetic GICs are not designated as hedging instruments.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Foreign Currency Exchange Rate Derivatives
The Company uses foreign currency exchange rate derivatives, including foreign currency swaps, foreign currency forwards, currency options and exchange-traded currency futures, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. The Company also uses foreign currency derivatives to hedge the foreign currency exchange rate risk associated with certain of its net investments in foreign operations.
In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow and nonqualifying hedging relationships.
In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company utilizes foreign currency forwards in fair value, NIFO hedges and nonqualifying hedging relationships.
The Company enters into currency options that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the foreign currency exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related to the Company’s non-U.S. subsidiaries. The Company utilizes currency options in NIFO hedges and nonqualifying hedging relationships.
To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities, and to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded currency futures in nonqualifying hedging relationships.
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives Determinations Committee determines that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency, or other fixed maturity securities AFS. These credit default swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the underlying equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. The Company utilizes equity index options in nonqualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. The Company utilizes equity variance swaps in nonqualifying hedging relationships.
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.
In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Primary Risks Managed by Derivatives
The following table presents the primary underlying risk exposure, gross notional amount and estimated fair value of the Company’s derivatives, excluding embedded derivatives, held at:
Primary Underlying Risk Exposure December 31,
2021 2020
Estimated Fair Value Estimated Fair Value
Gross
Notional
Amount Assets Liabilities Gross
Notional
Amount Assets Liabilities
(In millions)
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate swaps
Interest rate
$ 3,550 $ 2,164 $ 6 $ 3,186 $ 3,224 $ 4
Foreign currency swaps
Foreign currency exchange rate
801 11 23 1,106 8 78
Foreign currency forwards
Foreign currency exchange rate
1,636 - 58 1,936 24 -
Subtotal
5,987 2,175 87 6,228 3,256 82
Cash flow hedges:
Interest rate swaps
Interest rate
4,117 6 1 4,750 44 -
Interest rate forwards
Interest rate
6,889 89 119 7,377 513 120
Foreign currency swaps
Foreign currency exchange rate
41,095 1,600 1,557 38,604 1,549 2,017
Subtotal
52,101 1,695 1,677 50,731 2,106 2,137
NIFO hedges:
Foreign currency forwards
Foreign currency exchange rate
- - - 164 - 3
Currency options
Foreign currency exchange rate
3,000 139 - 3,600 70 -
Subtotal
3,000 139 - 3,764 70 3
Total qualifying hedges
61,088 4,009 1,764 60,723 5,432 2,222
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps
Interest rate
38,860 3,644 115 49,561 3,683 38
Interest rate floors
Interest rate
7,701 145 - 12,701 350 -
Interest rate caps
Interest rate
65,559 124 - 40,730 13 -
Interest rate futures
Interest rate
1,615 4 - 1,498 - 2
Interest rate options
Interest rate
11,754 493 10 17,746 502 5
Interest rate forwards
Interest rate
374 - 26 351 - 10
Interest rate total return swaps
Interest rate
1,048 9 4 1,048 - 59
Synthetic GICs
Interest rate
40,121 - - 38,646 - -
Foreign currency swaps
Foreign currency exchange rate
12,787 768 614 13,265 603 693
Foreign currency forwards
Foreign currency exchange rate
16,230 36 666 15,643 209 310
Currency futures
Foreign currency exchange rate
839 - 2 914 3 -
Currency options
Foreign currency exchange rate
900 - - 1,350 - -
Credit default swaps - purchased
Credit
3,042 13 113 2,978 9 121
Credit default swaps - written
Credit
8,626 177 12 9,609 196 -
Equity futures
Equity market
4,204 12 5 5,427 14 38
Equity index options
Equity market
29,743 1,004 458 22,954 834 437
Equity variance swaps
Equity market
699 17 13 716 15 12
Equity total return swaps
Equity market
3,025 11 50 3,294 3 282
Total non-designated or nonqualifying derivatives
247,127 6,457 2,088 238,431 6,434 2,007
Total
$ 308,215 $ 10,466 $ 3,852 $ 299,154 $ 11,866 $ 4,229
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 2021 and 2020. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
The Effects of Derivatives on the Consolidated Statements of Operations and Comprehensive Income (Loss)
The following table presents the consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow, NIFO, nonqualifying hedging relationships and embedded derivatives:
Year Ended December 31, 2021
Net
Investment
Income Net
Investment
Gains
(Losses) Net
Derivative
Gains
(Losses) Policyholder
Benefits and
Claims Interest
Credited to
Policyholder
Account
Balances Other
Expenses OCI
(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)
$ 6 $ - $ - $ (456) $ - $ - N/A
Hedged items
(6) - - 406 - - N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)
50 (191) - - - - N/A
Hedged items
(44) 185 - - - - N/A
Amount excluded from the assessment of hedge effectiveness
- - - - - - N/A
Subtotal
6 (6) - (50) - - N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A $ (599)
Amount of gains (losses) reclassified from AOCI into income
56 84 - - - 3 (143)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A 500
Amount of gains (losses) reclassified from AOCI into income
8 (403) - - - 2 393
Foreign currency transaction gains (losses) on hedged items
- 401 - - - - -
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A (14)
Amount of gains (losses) reclassified from AOCI into income
- - - - - - -
Subtotal
64 82 - - - 5 137
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1) N/A N/A N/A N/A N/A N/A 97
Non-derivative hedging instruments N/A N/A N/A N/A N/A N/A 42
Subtotal
N/A N/A N/A N/A N/A N/A 139
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)
2 - (1,992) (49) - - N/A
Foreign currency exchange rate derivatives (1)
- - (986) 2 - - N/A
Credit derivatives - purchased (1)
- - 9 - - - N/A
Credit derivatives - written (1)
- - 41 - - - N/A
Equity derivatives (1)
(56) - (1,280) (302) - - N/A
Foreign currency transaction gains (losses) on hedged items
- - 249 - - - N/A
Subtotal
(54) - (3,959) (349) - - N/A
Earned income on derivatives
151 - 984 213 (159) - -
Embedded derivatives (2)
N/A N/A 747 - N/A N/A N/A
Total
$ 167 $ 76 $ (2,228) $ (186) $ (159) $ 5 $ 276
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Year Ended December 31, 2020
Net
Investment
Income Net
Investment
Gains
(Losses) Net
Derivative
Gains
(Losses) Policyholder
Benefits and
Claims Interest
Credited to
Policyholder
Account
Balances Other
Expenses OCI
(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)
$ (10) $ - $ - $ 360 $ - $ - N/A
Hedged items
12 - - (399) - - N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)
(46) 98 - - - - N/A
Hedged items
44 (93) - - - - N/A
Amount excluded from the assessment of hedge effectiveness
- (47) - - - - N/A
Subtotal
- (42) - (39) - - N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A $ 1,277
Amount of gains (losses) reclassified from AOCI into income
36 121 - - - 2 (159)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A (445)
Amount of gains (losses) reclassified from AOCI into income
4 851 - - - 2 (857)
Foreign currency transaction gains (losses) on hedged items
- (765) - - - - -
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A (102)
Amount of gains (losses) reclassified from AOCI into income
- - - - - - -
Subtotal
40 207 - - - 4 (286)
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1) N/A N/A N/A N/A N/A N/A 36
Non-derivative hedging instruments N/A N/A N/A N/A N/A N/A (20)
Subtotal
N/A N/A N/A N/A N/A N/A 16
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)
(6) - 2,149 55 - - N/A
Foreign currency exchange rate derivatives (1)
- - (323) (3) - - N/A
Credit derivatives - purchased (1)
- - (28) - - - N/A
Credit derivatives - written (1)
- - (106) - - - N/A
Equity derivatives (1)
(28) - (1,151) (203) - - N/A
Foreign currency transaction gains (losses) on hedged items
- - (8) - - - N/A
Subtotal
(34) - 533 (151) - - N/A
Earned income on derivatives
217 - 926 190 (152) - -
Embedded derivatives (2)
N/A N/A (110) - N/A N/A N/A
Total
$ 223 $ 165 $ 1,349 $ - $ (152) $ 4 $ (270)
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Year Ended December 31, 2019
Net
Investment
Income Net
Investment
Gains
(Losses) Net
Derivative
Gains
(Losses) Policyholder
Benefits and
Claims Interest
Credited to
Policyholder
Account
Balances Other
Expenses OCI
(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)
$ (3) $ - $ - $ 339 $ 1 $ - N/A
Hedged items
4 - - (369) - - N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)
(55) 24 - - - - N/A
Hedged items
56 (23) - - - - N/A
Amount excluded from the assessment of hedge effectiveness
- (72) - - - - N/A
Subtotal
2 (71) - (30) 1 - N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A $ 622
Amount of gains (losses) reclassified from AOCI into income
23 4 - - - 2 (29)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A (278)
Amount of gains (losses) reclassified from AOCI into income
(4) 240 - - - 2 (238)
Foreign currency transaction gains (losses) on hedged items
- (236) - - - - -
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI
N/A N/A N/A N/A N/A N/A 6
Amount of gains (losses) reclassified from AOCI into income
1 - - - - - (1)
Subtotal
20 8 - - - 4 82
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1) N/A N/A N/A N/A N/A N/A (32)
Non-derivative hedging instruments N/A N/A N/A N/A N/A N/A (4)
Subtotal
N/A N/A N/A N/A N/A N/A (36)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)
(3) - 1,263 39 - - N/A
Foreign currency exchange rate derivatives (1)
- - (346) 2 - - N/A
Credit derivatives - purchased (1)
- - (38) - - - N/A
Credit derivatives - written (1)
- - 248 - - - N/A
Equity derivatives (1)
- - (1,339) (205) - - N/A
Foreign currency transaction gains (losses) on hedged items
- - 55 - - - N/A
Subtotal
(3) - (157) (164) - - N/A
Earned income on derivatives
237 - 513 138 (147) - -
Embedded derivatives (2)
N/A N/A 272 - N/A N/A N/A
Total
$ 256 $ (63) $ 628 $ (56) $ (146) $ 4 $ 46
__________________
(1)Excludes earned income on derivatives.
(2)The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were ($17) million, ($10) million and ($116) million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated investments.
The following table presents the balance sheet classification, carrying amount and cumulative fair value hedging adjustments for items designated and qualifying as hedged items in fair value hedges:
Balance Sheet Line Item Carrying Amount
of the Hedged
Assets/(Liabilities) Cumulative Amount
of Fair Value Hedging Adjustments
Included in the Carrying Amount of Hedged
Assets/(Liabilities) (1)
December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
(In millions)
Fixed maturity securities AFS $ 2,164 $ 2,699 $ (1) $ (1)
Mortgage loans $ 634 $ 952 $ 3 $ 20
Future policy benefits $ (4,735) $ (5,512) $ (877) $ (1,307)
__________________
(1)Includes ($161) million and ($1) million of hedging adjustments on discontinued hedging relationships at December 31, 2021 and 2020, respectively.
For the Company’s foreign currency forwards, the change in the estimated fair value of the derivative related to the changes in the difference between the spot price and the forward price is excluded from the assessment of hedge effectiveness. The Company has elected to record changes in estimated fair value of excluded components in earnings. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed rate investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed rate borrowings.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into income. These amounts were ($1) million, $21 million and $58 million for the years ended December 31, 2021, 2020 and 2019, respectively.
At December 31, 2021 and 2020, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed seven years and eight years, respectively.
At December 31, 2021 and 2020, the balance in AOCI associated with cash flow hedges was $2.1 billion and $1.9 billion, respectively.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2021, the Company expected to reclassify ($91) million of deferred net gains (losses) on derivatives in AOCI to earnings within the next 12 months.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
NIFO Hedges
The Company uses foreign currency exchange rate derivatives, which may include foreign currency forwards and currency options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company also designates a portion of its foreign-denominated debt as a non-derivative hedging instrument of its net investments in foreign operations. The Company assesses hedge effectiveness of its derivatives based upon the change in forward rates and assesses its non-derivative hedging instruments based upon the change in spot rates. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.
At December 31, 2021 and 2020, the cumulative foreign currency translation gain (loss) recorded in AOCI related to NIFO hedges was $303 million and $164 million, respectively. At December 31, 2021 and 2020, the carrying amount of debt designated as a non-derivative hedging instrument was $365 million and $407 million, respectively.
See Note 13 for additional information on foreign-denominated debt.
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the effects of derivatives on the consolidated statements of operations and comprehensive income (loss) table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
December 31,
2021 2020
Rating Agency Designation of Referenced
Credit Obligations (1) Estimated
Fair Value
of Credit
Default
Swaps Maximum
Amount of
Future
Payments under
Credit Default
Swaps
Weighted
Average
Years to
Maturity (2)
Estimated
Fair Value
of Credit
Default
Swaps Maximum
Amount of
Future
Payments under
Credit Default
Swaps
Weighted
Average
Years to
Maturity (2)
(Dollars in millions)
Aaa/Aa/A
Single name credit default swaps (3)
$ 4 $ 159 3.1 $ 5 $ 208 2.7
Credit default swaps referencing indices
17 1,191 2.5 27 1,779 2.5
Subtotal
21 1,350 2.6 32 1,987 2.5
Baa
Single name credit default swaps (3)
2 101 3.4 3 249 2.5
Credit default swaps referencing indices
146 6,988 5.0 156 7,318 5.5
Subtotal
148 7,089 5.0 159 7,567 5.4
Ba
Single name credit default swaps (3)
1 82 1.2 - - -
Credit default swaps referencing indices
(1) 20 5.0 - - -
Subtotal
- 102 2.0 - - -
B
Credit default swaps referencing indices
5 55 4.0 5 55 5.0
Subtotal
5 55 4.0 5 55 5.0
Caa3
Credit default swaps referencing indices (9) 30 4.5 - - -
Subtotal (9) 30 4.5 - - -
Total
$ 165 $ 8,626 4.6 $ 196 $ 9,609 4.8
__________________
(1)The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2)The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
(3)Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or municipals.
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties in jurisdictions in which it understands that close-out netting should be enforceable and establishing and monitoring exposure limits. The Company’s OTC-bilateral derivative transactions are governed by International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, close-out netting permits the Company (subject to financial regulations such as the Orderly Liquidation Authority under Title II of Dodd-Frank) to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions and to apply collateral to the obligations, without application of the automatic stay, upon the counterparty’s bankruptcy. All of the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its OTC-bilateral derivatives as required by applicable law. Additionally, effective September 1, 2021, the Company is required to pledge initial margin for certain new OTC-bilateral derivative transactions to third party custodians.
The Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by brokers and central clearinghouses to such derivatives.
See Note 10 for a description of the impact of credit risk on the valuation of derivatives.
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
December 31,
2021 2020
Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement Assets Liabilities Assets Liabilities
(In millions)
Gross estimated fair value of derivatives:
OTC-bilateral (1)
$ 10,132 $ 3,798 $ 11,348 $ 4,111
OTC-cleared (1)
448 24 593 20
Exchange-traded
16 7 17 40
Total gross estimated fair value of derivatives presented on the consolidated balance sheets (1)
10,596 3,829 11,958 4,171
Gross amounts not offset on the consolidated balance sheets:
Gross estimated fair value of derivatives: (2)
OTC-bilateral
(2,204) (2,204) (2,926) (2,926)
OTC-cleared
(6) (6) (7) (7)
Exchange-traded
(2) (2) - -
Cash collateral: (3), (4)
OTC-bilateral
(6,948) - (6,842) -
OTC-cleared
(421) (13) (530) (5)
Exchange-traded
- (3) - (23)
Securities collateral: (5)
OTC-bilateral
(891) (1,473) (1,453) (1,100)
OTC-cleared
- (5) - (1)
Exchange-traded
- (2) - (1)
Net amount after application of master netting agreements and collateral
$ 124 $ 121 $ 200 $ 108
__________________
(1)At December 31, 2021 and 2020, derivative assets included income (expense) accruals reported in accrued investment income or in other liabilities of $130 million and $92 million, respectively, and derivative liabilities included (income) expense accruals reported in accrued investment income or in other liabilities of ($23) million and ($58) million, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
(2)Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
(3)Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives, where the centralized clearinghouse treats variation margin as collateral, is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet. For certain collateral agreements, cash collateral is pledged to the Company as initial margin on its OTC-bilateral derivatives.
(4)The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 2021 and 2020, the Company received excess cash collateral of $172 million and $265 million, respectively, and provided excess cash collateral of $126 million and $238 million, respectively, which is not included in the table above due to the foregoing limitation.
(5)Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2021, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At December 31, 2021 and 2020, the Company received excess securities collateral with an estimated fair value of $160 million and $231 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 2021 and 2020, the Company provided excess securities collateral with an estimated fair value of $243 million and $269 million, respectively, for its OTC-bilateral derivatives, $1.2 billion and $2.1 billion, respectively, for its OTC-cleared derivatives, and $185 million and $318 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. Substantially all of the Company’s netting agreements for derivatives contain provisions that require both the Company and the counterparty to maintain a specific investment grade credit rating from each of Moody’s and S&P. If a party’s credit or financial strength rating, as applicable, were to fall below that specific investment grade credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives. A small number of these arrangements also include credit-contingent provisions that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of MetLife, Inc. and/or the counterparty. At December 31, 2021, the amount of collateral not provided by the Company due to the existence of these thresholds was $15 million.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
9. Derivatives (continued)
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged.
December 31,
2021 2020
Derivatives Subject to Credit-Contingent Provisions Derivatives Not Subject to Credit-Contingent Provisions Total Derivatives Subject to Credit-Contingent Provisions Derivatives Not Subject to Credit-Contingent Provisions Total
(In millions)
Estimated fair value of derivatives in a net liability position (1) $ 1,386 $ 209 $ 1,595 $ 1,182 $ 3 $ 1,185
Estimated fair value of collateral provided:
Fixed maturity securities AFS
$ 1,370 $ 221 $ 1,591 $ 1,222 $ 2 $ 1,224
__________________
(1)After taking into consideration the existence of netting agreements.
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives.
The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:
December 31,
Balance Sheet Location 2021 2020
(In millions)
Embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits Premiums, reinsurance and other receivables $ 38 $ 55
Embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits Policyholder account balances $ 324 $ 651
Assumed guaranteed minimum benefits Policyholder account balances 98 283
Funds withheld on ceded reinsurance Other liabilities 57 100
Fixed annuities with equity indexed returns Policyholder account balances 165 138
Other guarantees Policyholder account balances 5 24
Embedded derivatives within liability host contracts $ 649 $ 1,196
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value
When developing estimated fair values, the Company considers three broad valuation approaches: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation approach to use, given what is being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities AFS.
Level 2
Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. The Company’s ability to sell securities, as well as the price ultimately realized for these securities, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities.
Considerable judgment is often required in interpreting the market data used to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:
December 31, 2021 (1)
Fair Value Hierarchy
Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities AFS:
U.S. corporate
$ - $ 81,266 $ 11,768 $ 93,034
Foreign corporate
- 49,973 13,667 63,640
Foreign government
- 61,518 91 61,609
U.S. government and agency
25,482 21,117 - 46,599
RMBS
7 27,270 3,127 30,404
ABS
- 16,707 1,862 18,569
Municipals
- 14,212 - 14,212
CMBS
- 11,325 882 12,207
Total fixed maturity securities AFS
25,489 283,388 31,397 340,274
Equity securities
931 187 151 1,269
Unit-linked and FVO Securities (2) 9,173 2,068 901 12,142
Short-term investments (3) 5,607 950 3 6,560
Residential mortgage loans - FVO
- - 127 127
Other investments
- 61 898 959
Derivative assets: (4)
Interest rate
4 6,577 97 6,678
Foreign currency exchange rate
- 2,551 3 2,554
Credit
- 173 17 190
Equity market
12 1,025 7 1,044
Total derivative assets
16 10,326 124 10,466
Embedded derivatives within asset host contracts (5) - - 38 38
Separate account assets (6) 76,312 101,424 2,137 179,873
Total assets (7) $ 117,528 $ 398,404 $ 35,776 $ 551,708
Liabilities
Derivative liabilities: (4)
Interest rate
$ - $ 259 $ 22 $ 281
Foreign currency exchange rate
2 2,676 242 2,920
Credit
- 113 12 125
Equity market
5 521 - 526
Total derivative liabilities
7 3,569 276 3,852
Embedded derivatives within liability host contracts (5) - - 649 649
Separate account liabilities (6) 7 12 6 25
Total liabilities
$ 14 $ 3,581 $ 931 $ 4,526
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
December 31, 2020 (1)
Fair Value Hierarchy
Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities AFS:
U.S. corporate
$ - $ 83,214 $ 10,202 $ 93,416
Foreign corporate
- 55,509 13,899 69,408
Foreign government
- 71,582 117 71,699
U.S. government and agency
23,180 23,920 - 47,100
RMBS
- 27,133 3,302 30,435
ABS
- 15,734 1,385 17,119
Municipals - 13,722 - 13,722
CMBS
- 11,308 602 11,910
Total fixed maturity securities AFS
23,180 302,122 29,507 354,809
Equity securities
636 293 150 1,079
Unit-linked and FVO Securities (2) 10,559 2,059 701 13,319
Short-term investments (3) 2,762 568 43 3,373
Residential mortgage loans - FVO
- - 165 165
Other investments
83 229 573 885
Derivative assets: (4)
Interest rate
- 7,840 489 8,329
Foreign currency exchange rate
3 2,287 176 2,466
Credit
- 180 25 205
Equity market
14 830 22 866
Total derivative assets
17 11,137 712 11,866
Embedded derivatives within asset host contracts (5) - - 55 55
Separate account assets (6) 91,850 107,035 1,085 199,970
Total assets (7) $ 129,087 $ 423,443 $ 32,991 $ 585,521
Liabilities
Derivative liabilities: (4)
Interest rate
$ 2 $ 168 $ 68 $ 238
Foreign currency exchange rate
- 3,063 38 3,101
Credit
- 121 - 121
Equity market
38 719 12 769
Total derivative liabilities
40 4,071 118 4,229
Embedded derivatives within liability host contracts (5) - - 1,196 1,196
Separate account liabilities (6) 12 8 6 26
Total liabilities
$ 52 $ 4,079 $ 1,320 $ 5,451
__________________
(1)Excludes amounts reclassified to assets held-for-sale or liabilities held-for-sale. Assets held-for-sale and liabilities held-for-sale are valued on a basis consistent with similar assets and liabilities described herein. See Note 3 for information on the Company’s business dispositions.
(2)Unit-linked and FVO Securities were primarily comprised of Unit-linked investments at both December 31, 2021 and 2020.
(3)Short-term investments as presented in the tables above differ from the amounts presented on the consolidated balance sheets because certain short-term investments are not measured at estimated fair value on a recurring basis.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
(4)Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.
(5)Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities on the consolidated balance sheets.
(6)Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets. Separate account liabilities presented in the tables above represent derivative liabilities.
(7)Total assets included in the fair value hierarchy exclude other limited partnership interests that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient. At December 31, 2021 and 2020, the estimated fair value of such investments was $99 million and $75 million, respectively.
The following describes the valuation methodologies used to measure assets and liabilities at fair value.
Investments
Securities, Short-term Investments and Other Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management’s judgment.
When quoted prices in active markets are not available, the determination of estimated fair value of securities is based on market standard valuation methodologies, giving priority to observable inputs. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. When observable inputs are not available, the market standard valuation methodologies rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs can be based in large part on management’s judgment or estimation and cannot be supported by reference to market activity. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such investments.
The estimated fair value of short-term investments and other investments is determined on a basis consistent with the methodologies described herein.
The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below. The primary valuation approaches are the market approach, which considers recent prices from market transactions involving identical or similar assets or liabilities, and the income approach, which converts expected future amounts (e.g. cash flows) to a single current, discounted amount. The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable inputs.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Fixed maturity securities AFS
U.S. corporate and Foreign corporate securities
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market approach.
Key Inputs:
Key Inputs:
• quoted prices in markets that are not active
• illiquidity premium
• benchmark yields; spreads off benchmark yields; new issuances; issuer ratings • delta spread adjustments to reflect specific credit-related issues
• trades of identical or comparable securities; duration
• credit spreads
• privately-placed securities are valued using the additional key inputs:
• quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
• market yield curve; call provisions
• observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer
•
independent non-binding broker quotations
• delta spread adjustments to reflect specific credit-related issues
Foreign government securities, U.S. government and agency securities and Municipals
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market approach.
Key Inputs:
Key Inputs:
• quoted prices in markets that are not active
• independent non-binding broker quotations
• benchmark U.S. Treasury yield or other yields
• quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
• the spread off the U.S. Treasury yield curve for the identical security
• issuer ratings and issuer spreads; broker-dealer quotations • credit spreads
• comparable securities that are actively traded
Structured Products
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market and income approaches.
Key Inputs:
Key Inputs:
• quoted prices in markets that are not active • credit spreads
• spreads for actively traded securities; spreads off benchmark yields
• quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
• expected prepayment speeds and volumes
• current and forecasted loss severity; ratings; geographic region
• independent non-binding broker quotations
• weighted average coupon and weighted average maturity
• credit ratings
• average delinquency rates; DSCR
• credit ratings
• issuance-specific information, including, but not limited to:
• collateral type; structure of the security; vintage of the loans
• payment terms of the underlying assets
• payment priority within the tranche; deal performance
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Equity securities
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market and income approaches.
Key Input:
Key Inputs:
• quoted prices in markets that are not considered active
• credit ratings; issuance structures
• quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
• independent non-binding broker quotations
Unit-linked and FVO Securities, Short-term investments and Other investments
Valuation Approaches: Principally the market and income approaches. Valuation Approaches: Principally the market and income approaches.
Key Inputs: Key Inputs:
• Unit-linked and FVO Securities include mutual fund interests without readily determinable fair values given prices are not published publicly. Valuation of these mutual funds is based upon quoted prices or reported NAV provided by the fund managers, which were based on observable inputs.
• Unit-linked and FVO Securities, short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS and equity securities described above; accordingly, the valuation approaches and unobservable inputs used in their valuation are also similar to those described above. Other investments also include certain real estate joint ventures and use the valuation approach and key inputs as described for other limited partnership interests below.
• Short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS and equity securities described above; accordingly, the valuation approaches and observable inputs used in their valuation are also similar to those described above.
Residential mortgage loans - FVO
• N/A Valuation Approaches: Principally the market approach.
Valuation Techniques and Key Inputs: These investments are based primarily on matrix pricing or other similar techniques that utilize inputs from mortgage servicers that are unobservable or cannot be derived principally from, or corroborated by, observable market data.
Separate account assets and Separate account liabilities (1)
Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly
Key Input: • N/A
• quoted prices or reported NAV provided by the fund managers
Other limited partnership interests
•
N/A Valued giving consideration to the underlying holdings of the partnerships and adjusting, if appropriate.
Key Inputs:
• liquidity; bid/ask spreads; performance record of the fund manager
• other relevant variables that may impact the exit value of the particular partnership interest
__________________
(1)Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. The estimated fair value of fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents is determined on a basis consistent with the assets described under “- Securities, Short-term Investments and Other Investments” and “- Derivatives - Freestanding Derivatives.”
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models.
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such derivatives.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is, in part, due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Freestanding Derivatives
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2 measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
Instrument Interest Rate Foreign Currency
Exchange Rate Credit Equity Market
Inputs common to Level 2 and Level 3 by instrument type
•
swap yield curves
•
swap yield curves
•
swap yield curves
•
swap yield curves
•
basis curves
•
basis curves
•
credit curves
•
spot equity index levels
•
interest rate volatility (1)
•
currency spot rates
•
recovery rates
•
dividend yield curves
•
cross currency basis curves
•
equity volatility (1)
•
currency volatility (1)
Level 3
•
swap yield curves (2)
•
swap yield curves (2)
•
swap yield curves (2)
•
dividend yield curves (2)
•
basis curves (2)
•
basis curves (2)
•
credit curves (2)
•
equity volatility (1), (2)
•
repurchase rates
•
cross currency basis curves (2)
•
credit spreads
•
correlation between model inputs (1)
•
interest rate volatility (1), (2) •
currency correlation
•
repurchase rates
•
currency volatility (1)
•
independent non-binding broker quotations
__________________
(1)Option-based only.
(2)Extrapolation beyond the observable limits of the curve(s).
Embedded Derivatives
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees, annuity contracts, and investment risk within funds withheld related to certain reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The Company calculates the fair value of these embedded derivatives, which is estimated as the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, projecting future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income.
The Company ceded the risk associated with certain of the GMIBs previously described. These reinsurance agreements contain embedded derivatives which are included within premiums, reinsurance and other receivables on the consolidated balance sheets with changes in estimated fair value reported in net derivative gains (losses) or policyholder benefits and claims depending on the statement of operations classification of the direct risk. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously for the guarantees directly written by the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance is determined based on the change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the funds withheld liability. The estimated fair value of the underlying assets is determined as described in “- Investments - Securities, Short-term Investments and Other Investments.” The estimated fair value of these embedded derivatives is included, along with their funds withheld hosts, in other liabilities on the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses). Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
The Company issues certain annuity contracts which allow the policyholder to participate in returns from equity indices. These equity indexed features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The estimated fair value of the embedded equity indexed derivatives, based on the present value of future equity returns to the policyholder using actuarial and present value assumptions including expectations concerning policyholder behavior, is calculated by the Company’s actuarial department. The calculation is based on in-force business and uses standard capital market techniques, such as Black-Scholes, to calculate the value of the portion of the embedded derivative for which the terms are set. The portion of the embedded derivative covering the period beyond where terms are set is calculated as the present value of amounts expected to be spent to provide equity indexed returns in those periods. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.
Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which utilize significant inputs that may include swap yield curves, currency exchange rates and implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield curves and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Reinsurance ceded on certain guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. The valuation techniques and significant market standard unobservable inputs used in their valuation are similar to those described above in “- Direct and assumed guaranteed minimum benefits” and also include counterparty credit spreads.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity.
Transfers into or out of Level 3:
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
December 31, 2021 December 31, 2020 Impact of
Increase in Input
on Estimated
Fair Value (2)
Valuation Techniques Significant
Unobservable Inputs Range Weighted
Average (1) Range Weighted
Average (1)
Fixed maturity securities AFS (3)
U.S. corporate and foreign corporate
• Matrix pricing
•
Offered quotes (4)
1 - 165 109 - - 186 117 Increase
• Market pricing
•
Quoted prices (4)
- - 117 100 - - 116 98 Increase
• Consensus pricing
•
Offered quotes (4)
99 - 104 100 54 - 104 101 Increase
RMBS
• Market pricing
•
Quoted prices (4)
- - 121 99 - - 159 98 Increase (5)
ABS
• Market pricing
•
Quoted prices (4)
3 - 110 102 1 - 112 100 Increase (5)
Derivatives
Interest rate
• Present value techniques
•
Swap yield (6)
151 - 200 188 92 - 184 149 Increase (7)
•
Repurchase rates (8)
- - - - (12) - 1 (6) Decrease (7)
•
Volatility (9) 1% - 1% 1% - - - - Increase (7)
Foreign currency exchange rate
• Present value techniques
•
Swap yield (6)
2 - 305 134 (309) - 248 (144) Increase (7)
Credit
• Present value techniques
•
Credit spreads (10) 96 - 133 109 96 - 99 98 Decrease (7)
• Consensus pricing
•
Offered quotes (11)
Equity market
• Present value techniques or option pricing models
•
Volatility (12) -% - -% -% 21% - 29% 28% Increase (7)
•
Correlation (13) -% - -% -% 10% - 30% 10%
Embedded derivatives
Direct, assumed and ceded guaranteed minimum benefits
• Option pricing techniques
•
Mortality rates:
Ages 0 - 40
0% - 0.17% 0.08% 0% - 0.17% 0.06% Decrease (14)
Ages 41 - 60
0.03% - 0.75% 0.27% 0.03% - 0.75% 0.30% Decrease (14)
Ages 61 - 115
0.12% - 100% 2.08% 0.12% - 100% 1.90% Decrease (14)
•
Lapse rates:
Durations 1 - 10
0.25% - 100% 6.30% 0.25% - 100% 6.86% Decrease (15)
Durations 11 - 20
0.50% - 100% 5.22% 0.50% - 100% 5.18% Decrease (15)
Durations 21 - 116
0.50% - 100% 5.22% 0.50% - 100% 5.18% Decrease (15)
•
Utilization rates
0% - 22% 0.22% 0% - 22% 0.17% Increase (16)
•
Withdrawal rates
0% - 20% 3.72% 0% - 20% 3.98% (17)
•
Long-term equity volatilities
7.69% - 25% 18.60% 8.33% - 27% 18.70% Increase (18)
•
Nonperformance risk spread
0.04% - 1.45% 0.35% 0.04% - 1.18% 0.40% Decrease (19)
__________________
(1)The weighted average for fixed maturity securities AFS and derivatives is determined based on the estimated fair value of the securities and derivatives. The weighted average for embedded derivatives is determined based on a combination of account values and experience data.
(2)The impact of a decrease in input would have resulted in the opposite impact on estimated fair value. For embedded derivatives, changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.
(3)Significant increases (decreases) in expected default rates in isolation would have resulted in substantially lower (higher) valuations.
(4)Range and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars of par.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
(5)Changes in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
(6)Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(7)Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
(8)Ranges represent different repurchase rates utilized as components within the valuation methodology and are presented in basis points.
(9)Ranges represent the underlying interest rate volatility quoted in percentage points. Since this valuation methodology uses an equivalent of LIBOR for secured overnight financing rate volatility, presenting a range is more representative of the unobservable input used in the valuation.
(10)Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps.
(11)At both December 31, 2021 and 2020, independent non-binding broker quotations were used in the determination of less than 1% of the total net derivative estimated fair value.
(12)Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(13)Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase (decrease) the significance of the change in valuations.
(14)Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(15)Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(16)The utilization rate assumption estimates the percentage of contractholders with GMIBs or a lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(17)The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(18)Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
(19)Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.
Generally, all other classes of assets and liabilities classified within Level 3 that are not included in the preceding table use the same valuation techniques and significant unobservable inputs as previously described for Level 3. The sensitivity of the estimated fair value to changes in the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in the preceding table. The valuation techniques and significant unobservable inputs used in the fair value measurement for the more significant assets measured at estimated fair value on a nonrecurring basis and determined using significant unobservable inputs (Level 3) are summarized in “- Nonrecurring Fair Value Measurements.”
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
The following tables summarize the change of all assets (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fixed Maturity Securities AFS
Corporate (7) Foreign
Government Structured
Products Municipals Equity
Securities Unit-linked and FVO
Securities
(In millions)
Balance, January 1, 2020 $ 14,229 $ 117 $ 4,458 $ 7 $ 430 $ 625
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) (88) (2) 49 - 12 67
Total realized/unrealized gains (losses) included in AOCI 1,774 (1) 41 - - -
Purchases (3) 5,013 29 1,975 - 11 47
Sales (3) (1,107) (8) (918) - (156) (101)
Issuances (3) - - - - - -
Settlements (3) - - - - - -
Transfers into Level 3 (4) 4,985 6 127 - - 154
Transfers out of Level 3 (4), (5) (705) (24) (443) (7) (147) (91)
Balance, December 31, 2020 24,101 117 5,289 - 150 701
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) (34) - 46 - 27 101
Total realized/unrealized gains (losses) included in AOCI (1,334) (2) (26) - - -
Purchases (3) 4,988 1 1,824 - 12 42
Sales (3) (1,543) (8) (1,326) - (35) (18)
Issuances (3) - - - - - -
Settlements (3) - - - - - -
Transfers into Level 3 (4) 179 12 358 - - 86
Transfers out of Level 3 (4) (922) (29) (294) - (3) (11)
Balance, December 31, 2021 $ 25,435 $ 91 $ 5,871 $ - $ 151 $ 901
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2019 (6) $ (50) $ - $ 44 $ - $ 39 $ 48
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2020 (6) $ (48) $ (1) $ 54 $ - $ 2 $ 69
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2021 (6) $ (5) $ - $ 42 $ - $ 13 $ 101
Changes in unrealized gains (losses) included in AOCI for the instruments still held at
December 31, 2020 (6) $ 1,754 $ (1) $ 47 $ - $ - $ -
Changes in unrealized gains (losses) included in AOCI for the instruments still held at
December 31, 2021 (6) $ (1,293) $ (2) $ (24) $ - $ - $ -
Gains (Losses) Data for the year ended December 31, 2019:
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) $ (49) $ - $ 46 $ - $ 47 $ 48
Total realized/unrealized gains (losses) included in AOCI $ 893 $ (2) $ 42 $ - $ - $ -
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Short-term
Investments Residential Mortgage
Loans - FVO Other
Investments Net
Derivatives (8) Net Embedded
Derivatives (9) Separate
Accounts (10)
(In millions)
Balance, January 1, 2020 $ 32 $ 188 $ 455 $ (146) $ (742) $ 980
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) (7) 9 19 279 (110) (5)
Total realized/unrealized gains (losses) included in AOCI 4 - - 761 (34) -
Purchases (3) 38 - 99 4 - 270
Sales (3) (17) (13) - - - (159)
Issuances (3) - - - (2) - (4)
Settlements (3) - (19) - (296) (255) 1
Transfers into Level 3 (4) 9 - - - - 1
Transfers out of Level 3 (4), (5) (16) - - (6) - (5)
Balance, December 31, 2020 43 165 573 594 (1,141) 1,079
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) 1 (5) 94 (460) 747 29
Total realized/unrealized gains (losses) included in AOCI (3) - - (334) 27 -
Purchases (3) 2 - 348 30 - 1,056
Sales (3) (37) (11) (92) - - (44)
Issuances (3) - - - (13) - (2)
Settlements (3) - (22) - 32 (244) 6
Transfers into Level 3 (4) - - - 1 - 10
Transfers out of Level 3 (4) (3) - (25) (2) - (3)
Balance, December 31, 2021 $ 3 $ 127 $ 898 $ (152) $ (611) $ 2,131
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2019 (6) $ - $ (14) $ - $ (129) $ 264 $ -
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2020 (6) $ (7) $ 3 $ 24 $ 67 $ (124) $ -
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at
December 31, 2021 (6) $ - $ (10) $ 89 $ (361) $ 746 $ -
Changes in unrealized gains (losses) included in AOCI for the instruments still held at
December 31, 2020 (6) $ 4 $ - $ - $ 579 $ (33) $ -
Changes in unrealized gains (losses) included in AOCI for the instruments still held at
December 31, 2021 (6) $ - $ - $ - $ (128) $ 27 $ -
Gains (Losses) Data for the year ended December 31, 2019:
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) $ - $ 7 $ - $ (108) $ 274 $ 7
Total realized/unrealized gains (losses) included in AOCI $ (1) $ - $ - $ 157 $ (2) $ -
__________________
(1)Amortization of premium/accretion of discount is included within net investment income. Impairments and changes in ACL charged to net income (loss) on certain securities are included in net investment gains (losses), while changes in estimated fair value of Unit-linked and FVO Securities and residential mortgage loans - FVO are included in net investment income. Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(2)Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
(3)Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.
(4)Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(5)Transfers out of Level 3 for the year ended December 31, 2020 included $137 million of corporate securities and $29 million of Structured Products reclassified to assets held-for-sale. See Note 3 for information on the Company’s business dispositions.
(6)Changes in unrealized gains (losses) included in net income (loss) and included in AOCI relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(7)Comprised of U.S. and foreign corporate securities.
(8)Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
(9)Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
(10)Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net income (loss). Separate account assets and liabilities are presented net for the purposes of the rollforward.
Fair Value Option
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The following table presents information for residential mortgage loans which are accounted for under the FVO and were initially measured at fair value.
December 31,
2021 2020
(In millions)
Unpaid principal balance $ 130 $ 172
Difference between estimated fair value and unpaid principal balance (3) (7)
Carrying value at estimated fair value $ 127 $ 165
Loans in nonaccrual status $ 32 $ 45
Loans more than 90 days past due $ 14 $ 27
Loans in nonaccrual status or more than 90 days past due, or both - difference between aggregate estimated fair value and unpaid principal balance
$ (7) $ (13)
Nonrecurring Fair Value Measurements
The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods and still held at the reporting dates (for example, when there is evidence of impairment), using significant unobservable inputs (Level 3).
At December 31, For the Years Ended December 31,
2021 2020 2021 2020 2019
Carrying Value After Measurement Gains (Losses)
(In millions)
Mortgage loans, net (1) $ 328 $ 408 $ (116) $ (127) $ (2)
Other assets (2)
$ 82 $ - $ (74) $ - $ (43)
__________________
(1)Estimated fair values for impaired mortgage loans are based on estimated fair value of the underlying collateral.
(2)The Company recognized impairments related to the abandonment of certain leased office space and the related leasehold improvements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are not included in the three-level hierarchy table disclosed in the “- Recurring Fair Value Measurements” section. The Company believes that due to the short-term nature of these excluded assets, which are primarily classified in Level 2, the estimated fair value approximates carrying value. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
December 31, 2021 (1)
Fair Value Hierarchy
Carrying
Value Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Mortgage loans (2) $ 79,226 $ - $ - $ 82,788 $ 82,788
Policy loans
$ 9,111 $ - $ - $ 10,751 $ 10,751
Other invested assets
$ 1,025 $ - $ 769 $ 256 $ 1,025
Premiums, reinsurance and other receivables
$ 2,262 $ - $ 492 $ 1,962 $ 2,454
Other assets
$ 290 $ - $ 101 $ 190 $ 291
Liabilities
Policyholder account balances
$ 123,865 $ - $ - $ 127,728 $ 127,728
Long-term debt
$ 13,852 $ - $ 16,621 $ - $ 16,621
Collateral financing arrangement
$ 766 $ - $ - $ 630 $ 630
Junior subordinated debt securities
$ 3,156 $ - $ 4,447 $ - $ 4,447
Other liabilities
$ 2,143 $ - $ 514 $ 2,321 $ 2,835
Separate account liabilities
$ 95,619 $ - $ 95,619 $ - $ 95,619
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
10. Fair Value (continued)
December 31, 2020 (1)
Fair Value Hierarchy
Carrying
Value Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Mortgage loans (2)
$ 83,754 $ - $ - $ 88,675 $ 88,675
Policy loans $ 9,493 $ - $ - $ 11,598 $ 11,598
Other invested assets $ 1,188 $ - $ 814 $ 374 $ 1,188
Premiums, reinsurance and other receivables $ 2,729 $ - $ 908 $ 2,070 $ 2,978
Other assets $ 300 $ - $ 111 $ 190 $ 301
Liabilities
Policyholder account balances $ 126,458 $ - $ - $ 134,569 $ 134,569
Long-term debt $ 14,492 $ - $ 18,332 $ - $ 18,332
Collateral financing arrangement $ 845 $ - $ - $ 710 $ 710
Junior subordinated debt securities $ 3,153 $ - $ 4,604 $ - $ 4,604
Other liabilities $ 2,113 $ - $ 527 $ 2,606 $ 3,133
Separate account liabilities $ 115,682 $ - $ 115,682 $ - $ 115,682
_________________
(1)Excludes amounts reclassified to assets held-for-sale or liabilities held-for-sale. See Note 3 for information on the Company’s business dispositions.
(2)Includes mortgage loans measured at estimated fair value on a nonrecurring basis and excludes mortgage loans measured at estimated fair value on a recurring basis.
11. Leases
The Company, as lessee, has entered into various lease and sublease agreements primarily for office space. The Company has operating leases with remaining lease terms of less than one year to 13 years. The remaining lease terms for the subleases are less than one year to 9 years.
ROU Assets and Lease Liabilities
ROU assets and lease liabilities for operating leases were:
December 31, 2021 December 31, 2020
(In millions)
ROU assets $ 1,110 $ 1,314
Lease liabilities $ 1,295 $ 1,470
Lease Costs
The components of operating lease costs were as follows:
For the Years Ended December 31,
2021 2020 2019
(In millions)
Operating lease cost $ 271 $ 286 $ 282
Variable lease cost $ 32 $ 39 $ 49
Sublease income $ (99) $ (99) $ (89)
Net lease cost $ 204 $ 226 $ 242
The Company recognized lease ROU asset impairment charges of $29 million, $0, and $19 million for the years ended December 31, 2021, 2020 and 2019, respectively. See Note 17 for further information on the 2019 impairment charges recorded as part of restructuring charges.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
11. Leases (continued)
Other Information
Supplemental other information related to operating leases was as follows:
December 31, 2021 December 31, 2020
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liability - operating cash flows $ 273 $ 289
ROU assets obtained in exchange for new lease liabilities $ 63 $ 70
Weighted-average remaining lease term 7 years 8 years
Weighted-average discount rate 3.4 % 3.4 %
Maturities of Lease Liabilities
Maturities of operating lease liabilities were as follows:
December 31, 2021
(In millions)
2022 $ 250
2023 231
2024 209
2025 195
2026 179
Thereafter
Total undiscounted cash flows
1,443
Less: interest 148
Present value of lease liability
$ 1,295
See Notes 8 and 13 for information about the Company’s investments in leased real estate, leveraged and direct financing leases, and financing lease obligations.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
12. Goodwill
Information regarding goodwill by segment, as well as Corporate & Other, was as follows:
U.S. Asia (1) Latin
America EMEA MetLife
Holdings Corporate
& Other Total
(In millions)
Balance at January 1, 2019
Goodwill
$ 1,451 $ 4,690 $ 1,172 $ 1,119 $ 1,567 $ 103 $ 10,102
Accumulated impairment - - - - (680) - (680)
Total goodwill, net
1,451 4,690 1,172 1,119 887 103 9,422
Acquisitions 15 4 - - - - 19
Disposition (2) - (71) - - - - (71)
Effect of foreign currency translation and other
- 13 (73) (2) - - (62)
Balance at December 31, 2019
Goodwill
1,466 4,636 1,099 1,117 1,567 103 9,988
Accumulated impairment
- - - - (680) - (680)
Total goodwill, net
1,466 4,636 1,099 1,117 887 103 9,308
Acquisitions (3) 932 - - - - - 932
Effect of foreign currency translation and other - 127 44 29 - - 200
Reclassified to assets held-for-sale (4) (328) - - - - - (328)
Balance at December 31, 2020
Goodwill
2,070 4,763 1,143 1,146 1,567 103 10,792
Accumulated impairment
- - - - (680) - (680)
Total goodwill, net
2,070 4,763 1,143 1,146 887 103 10,112
Effect of foreign currency translation and other
- (211) (166) (200) - - (577)
Balance at December 31, 2021
Goodwill
2,070 4,552 977 946 1,567 103 10,215
Accumulated impairment
- - - - (680) - (680)
Total goodwill, net
$ 2,070 $ 4,552 $ 977 $ 946 $ 887 $ 103 $ 9,535
__________________
(1)Includes goodwill of $4.4 billion, $4.6 billion and $4.5 billion from the Company’s Japan operations at December 31, 2021, 2020 and 2019, respectively.
(2)In connection with the disposition of MetLife Hong Kong, goodwill was reduced by $71 million for the year ended December 31, 2019. See Note 3.
(3)Primarily related to the acquisition of Versant Health. See Note 3.
(4)See Note 3 for information on the disposition of MetLife P&C.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
13. Long-term and Short-term Debt
Long-term and short-term debt outstanding, excluding debt relating to consolidated securitization entities, was as follows:
December 31,
Interest Rates (1) 2021 2020
Range Weighted
Average
Maturity Face
Value Unamortized
Discount and Issuance Costs Carrying
Value Face
Value Unamortized
Discount and Issuance Costs Carrying
Value
(In millions)
Senior notes
0.50 % - 6.50% 4.44% 2023 - 2046 $ 12,891 $ (77) $ 12,814 $ 13,548 $ (85) $ 13,463
Surplus notes
7.63 % - 7.88% 7.79% 2024 - 2025 507 (2) 505 507 (3) 504
Other notes
0.08 % - 3.75% 2.48% 2022 - 2058 536 (3) 533 527 (2) 525
Financing lease obligations 81 - 81 106 - 106
Total long-term debt
14,015 (82) 13,933 14,688 (90) 14,598
Total short-term debt
341 - 341 393 - 393
Total
$ 14,356 $ (82) $ 14,274 $ 15,081 $ (90) $ 14,991
__________________
(1)Range of interest rates and weighted average interest rates are for the year ended December 31, 2021.
The aggregate maturities of long-term debt at December 31, 2021 for the next five years and thereafter are $109 million in 2022, $1.0 billion in 2023, $1.8 billion in 2024, $1.2 billion in 2025, $566 million in 2026 and $9.2 billion thereafter.
Financing lease obligations are collateralized and rank highest in priority, followed by unsecured senior notes and other notes, followed by subordinated debt which consists of junior subordinated debt securities (see Note 15). Payments of interest and principal on the Company’s surplus notes, which are subordinate to all other obligations of the operating company issuing the notes and are senior to obligations of MetLife, Inc., may be made only with the prior approval of the insurance department of the state of domicile of the notes issuer. The Company’s collateral financing arrangement (see Note 14) is supported by surplus notes of a subsidiary and, accordingly, has priority consistent with surplus notes.
Certain of the Company’s debt instruments and committed facilities, as well as its $3.0 billion unsecured revolving credit facility (the “Credit Facility”), contain various administrative, reporting, legal and financial covenants. The Company believes it was in compliance with all applicable financial covenants at December 31, 2021.
Senior Notes
In July 2021, MetLife, Inc. redeemed for cash and canceled $500 million aggregate principal amount of its outstanding 3.048% senior notes due December 2022. The Company recorded a premium of $17 million paid in excess of the debt principal and accrued and unpaid interest to other expenses for the year ended December 31, 2021.
In March 2020, MetLife, Inc. issued $1.0 billion of senior notes due March 2030 which bear interest at a fixed rate of 4.550%, the interest on which is payable semi-annually. In connection with the issuance, MetLife, Inc. incurred $6 million of related costs which will be amortized over the term of the senior notes.
In June 2019, MetLife, Inc. redeemed for cash and canceled its £400 million ($509 million at repayment) aggregate principal amount 5.250% senior notes due June 2020 and the remaining $368 million aggregate principal amount of its 4.750% senior notes due February 2021. The Company recorded a premium of $40 million paid in excess of the debt principal and accrued and unpaid interest to other expenses for the year ended December 31, 2019.
In May 2019, MetLife, Inc. issued the following fixed rate senior notes (“Senior Notes”), interest on which is payable semi-annually beginning in November 2019:
•¥25.2 billion ($230 million at issuance) due May 2026 which bear interest annually at 0.495%;
•¥64.9 billion ($591 million at issuance) due May 2029 which bear interest annually at 0.769%;
•¥10.7 billion ($98 million at issuance) due May 2031 which bear interest annually at 0.898%;
•¥26.5 billion ($241 million at issuance) due May 2034 which bear interest annually at 1.189%; and
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
13. Long-term and Short-term Debt (continued)
•¥24.4 billion ($222 million at issuance) due May 2039 which bear interest annually at 1.385%.
In connection with the issuances, MetLife, Inc. incurred $9 million of related costs which are amortized over the applicable term of each series of the Senior Notes. MetLife, Inc. may redeem each series of the Senior Notes at its option, in whole, but not in part, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if certain events occur affecting the U.S. tax treatment of the Senior Notes
Other Notes
At December 31, 2021, MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of MLIC, was party to a credit agreement providing for $350 million of term loans and $75 million of a revolving loan (the “Credit Agreement”), which matures in September 2026. In March 2020, MPEH borrowed $75 million on a revolving loan under the Credit Agreement and repaid this loan in July 2020. Simultaneously, in July 2020, MPEH borrowed $50 million on the term loan under the Credit Agreement. MPEH has pledged invested assets to secure the loans; however, these loans are non-recourse to MLIC and MetLife, Inc.
Short-term Debt
Short-term debt with maturities of one year or less was as follows:
December 31,
2021 2020
(Dollars in millions)
Commercial paper
$ 100 $ 100
Short-term borrowings (1) 241 293
Total short-term debt $ 341 $ 393
Average daily balance
$ 300 $ 326
Average days outstanding
155 days 69 days
__________________
(1)Includes $241 million and $293 million at December 31, 2021 and 2020, respectively, of short-term debt related to repurchase agreements, secured by assets of subsidiaries.
For the years ended December 31, 2021, 2020 and 2019, the weighted average interest rate on short-term debt was 1.41%, 2.01% and 2.88%, respectively.
Interest Expense
Interest expense included in other expenses was $647 million, $632 million and $656 million for the years ended December 31, 2021, 2020 and 2019, respectively. Such amounts do not include interest expense on long-term debt related to the collateral financing arrangement or junior subordinated debt securities. See Notes 14 and 15.
Credit and Committed Facilities
At December 31, 2021, the Company maintained the Credit Facility, as well as certain committed facilities aggregating $3.2 billion (the “Committed Facilities”). When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
13. Long-term and Short-term Debt (continued)
Credit Facility
The Company’s Credit Facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the issuance of letters of credit. Total fees associated with the Credit Facility were $10 million, $14 million and $12 million for the years ended December 31, 2021, 2020 and 2019, respectively, and were included in other expenses. Information on the Credit Facility at December 31, 2021 was as follows:
Borrower(s) Expiration Maximum
Capacity Letters of
Credit
Issued Drawdowns Unused
Commitments
(In millions)
MetLife, Inc. and MetLife Funding, Inc. February 2026 (1) $ 3,000 $ 459 $ - $ 2,541
__________________
(1)In February 2021, the Credit Facility was amended and restated to, among other things, extend the maturity date. The Company incurred costs of $6 million related to the Credit Facility, which were capitalized and included in other assets. These costs are being amortized over the remaining term of the Credit Facility. All borrowings under the amended and restated Credit Facility must be repaid by February 26, 2026, except that letters of credit outstanding upon termination may remain outstanding until February 26, 2027.
Committed Facilities
Letters of credit issued under the Committed Facilities are used for collateral for certain of the Company’s affiliated reinsurance liabilities. Total fees associated with the Committed Facilities, included in other expenses, were $12 million for each of the years ended December 31, 2021, 2020 and 2019. Information on the Committed Facilities at December 31, 2021 was as follows:
Account Party/Borrower(s) Expiration Maximum
Capacity
Letters of
Credit
Issued Drawdowns Unused
Commitments
(In millions)
MetLife Reinsurance Company of Vermont and MetLife, Inc. November 2026 (1), (2) $ 350 $ 350 $ - $ -
MetLife Reinsurance Company of Vermont and MetLife, Inc. December 2037 (1), (3) 2,896 2,492 - 404
Total
$ 3,246 $ 2,842 $ - $ 404
__________________
(1)MetLife, Inc. is a guarantor under the applicable facility.
(2)The issuance of additional letters of credit is at the discretion of the counterparty.
(3)Capacity at December 31, 2021 of $2.8 billion increases periodically to a maximum of $2.9 billion in 2024, decreases periodically commencing in 2025 to $2.0 billion in 2037, and decreases to $0 at expiration in December 2037. Unused commitment of $404 million is based on maximum capacity. At December 31, 2021, Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”), a former subsidiary of MetLife, Inc., is a beneficiary of $2.5 billion of letters of credit issued under this facility and, in consideration, Brighthouse reimburses MetLife, Inc. for a portion of the letter of credit fees.
In addition to the Committed Facilities, see also “- Other Notes” for information about the Credit Agreement.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
14. Collateral Financing Arrangement
Information related to the collateral financing arrangement associated with the closed block (see Note 7) was as follows at:
December 31,
2021 2020
(In millions)
Surplus notes outstanding (1)
$ 766 $ 845
Receivable from unaffiliated financial institution (1)
$ 100 $ 110
Pledged collateral (2)
$ 38 $ 41
Assets held in trust (2)
$ 1,388 $ 1,408
__________________
(1)Carrying value.
(2)Estimated fair value.
Interest expense on the collateral financing arrangement was $11 million, $20 million and $38 million for the years ended December 31, 2021, 2020 and 2019, respectively, which is included in other expenses.
In December 2007, MLIC reinsured a portion of its closed block liabilities to MetLife Reinsurance Company of Charleston (“MRC”), a wholly-owned subsidiary of MetLife, Inc. In connection with this transaction, MRC issued, to investors placed by an unaffiliated financial institution, $2.5 billion in aggregate principal amount of 35-year surplus notes to provide statutory reserve support for the assumed closed block liabilities. Interest on the surplus notes accrues at an annual rate of three-month LIBOR plus 0.55%, payable quarterly. The ability of MRC to make interest and principal payments on the surplus notes is contingent upon South Carolina regulatory approval.
Simultaneously with the issuance of the surplus notes, MetLife, Inc. entered into an agreement with the unaffiliated financial institution, under which MetLife, Inc. is entitled to the interest paid by MRC on the surplus notes of three-month LIBOR plus 0.55% in exchange for the payment of three-month LIBOR plus 1.12%, payable quarterly on such amount as adjusted, as described below. MetLife, Inc. may also be required to pledge collateral or make payments to the unaffiliated financial institution related to any decline in the estimated fair value of the surplus notes. Any such payments are accounted for as a receivable and included in other assets on the Company’s consolidated balance sheets and do not reduce the principal amount outstanding of the surplus notes. Such payments, however, reduce the amount of interest payments due from MetLife, Inc. under the agreement. Any payment received from the unaffiliated financial institution reduces the receivable by an amount equal to such payment and also increases the amount of interest payments due from MetLife, Inc. under the agreement. In addition, the unaffiliated financial institution may be required to pledge collateral to MetLife, Inc. related to any increase in the estimated fair value of the surplus notes.
For the years ended December 31, 2021, 2020 and 2019, following regulatory approval, MRC repurchased $79 million, $148 million and $67 million, respectively, in aggregate principal amount of the surplus notes. Payments made by the Company in 2021, 2020 and 2019 associated with the repurchases were exclusive of accrued interest on the surplus notes. In connection with the repurchases for the years ended December 31, 2021, 2020 and 2019, the Company received payments in the aggregate amount of $10 million, $20 million and $9 million, respectively, from the unaffiliated financial institution, which reduced the amount receivable from the unaffiliated financial institution by the same amounts. No other payments related to an increase or decrease in the estimated fair value of the surplus notes were made by MetLife, Inc. or received from the unaffiliated financial institution for the years ended December 31, 2021, 2020 or 2019.
A majority of the proceeds from the offering of the surplus notes was placed in a trust, which is consolidated by the Company, to support MRC’s statutory obligations associated with the assumed closed block liabilities. For the years ended December 31, 2021 and 2019, MRC transferred $78 million and $2 million, respectively, to the trust out of its general account. For the year ended December 31, 2020, MRC transferred $78 million out of the trust to its general account. The assets are principally invested in fixed maturity securities AFS and are presented as such within the Company’s consolidated balance sheets, with the related income included within net investment income on the Company’s consolidated statements of operations.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
15. Junior Subordinated Debt Securities
Outstanding Junior Subordinated Debt Securities
Outstanding junior subordinated debt securities and exchangeable surplus trust securities which are exchangeable for junior subordinated debt securities prior to redemption or repayment, were as follows:
December 31,
2021 2020
Issuer Issue
Date Interest
Rate (1) Scheduled
Redemption
Date Interest Rate
Subsequent to
Scheduled
Redemption
Date (2) Final
Maturity Face
Value Unamortized
Discount
and Issuance Costs Carrying
Value Face
Value Unamortized
Discount
and Issuance Costs Carrying
Value
(In millions)
MetLife, Inc. December 2006 6.400% December 2036 LIBOR + 2.205% December 2066 $ 1,250 $ (16) $ 1,234 $ 1,250 $ (17) $ 1,233
MetLife Capital Trust IV (3) December 2007 7.875% December 2037 LIBOR + 3.960% December 2067 700 (13) 687 700 (14) 686
MetLife, Inc. April 2008 9.250% April 2038 LIBOR + 5.540% April 2068 750 (9) 741 750 (10) 740
MetLife, Inc. July 2009 10.750% August 2039 LIBOR + 7.548% August 2069 500 (6) 494 500 (6) 494
Total $ 3,200 $ (44) $ 3,156 $ 3,200 $ (47) $ 3,153
_________________
(1)Prior to the scheduled redemption date, interest is payable semiannually in arrears.
(2)In the event the securities are not redeemed on or before the scheduled redemption date, interest will accrue after such date at an annual rate of three-month LIBOR plus the indicated margin, payable quarterly in arrears. On March 5, 2021, the Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, announced that it will cease the publication of three-month U.S. Dollar LIBOR at the end of June 2023. Existing contract fallback provisions, and whether, how, and when the Company develops and adopts alternative reference rates, will influence the effect of any changes to or discontinuation of LIBOR on the Company.
(3)MetLife Capital Trust IV is a VIE which is consolidated on the financial statements of the Company. The securities issued by this entity are exchangeable surplus trust securities, which are exchangeable for a like amount of MetLife, Inc.’s junior subordinated debt securities on the scheduled redemption date, mandatorily under certain circumstances, and at any time upon MetLife, Inc. exercising its option to redeem the securities.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
15. Junior Subordinated Debt Securities (continued)
In connection with each of the securities described above, MetLife, Inc. may redeem or may cause the redemption of the securities (i) in whole or in part, at any time on or after the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption or, if greater, a make-whole price. MetLife, Inc. also has the right to, and in certain circumstances the requirement to, defer interest payments on the securities for a period up to 10 years. Interest compounds during such periods of deferral. If interest is deferred for more than five consecutive years, MetLife, Inc. is required to use proceeds from the sale of its common stock or warrants on common stock to satisfy this interest payment obligation. In connection with each of the securities described above, MetLife, Inc. entered into a separate replacement capital covenant (“RCC”). As part of each RCC, MetLife, Inc. agreed that it will not repay, redeem, or purchase the securities on or before a date 10 years prior to the final maturity date of each issuance, unless, subject to certain limitations, it has received cash proceeds during a specified period from the sale of specified replacement securities. Each RCC will terminate upon the occurrence of certain events, including an acceleration of the applicable securities due to the occurrence of an event of default. The RCCs are not intended for the benefit of holders of the securities and may not be enforced by them. Rather, each RCC is for the benefit of the holders of a designated series of MetLife, Inc.’s other indebtedness (the “Covered Debt”). Initially, the Covered Debt for each of the securities described above was MetLife, Inc.’s 5.700% senior notes due 2035 (the “5.700% Senior Notes”). As a result of the issuance of MetLife, Inc.’s 10.750% Fixed-to-Floating Rate Junior Subordinated Debentures due 2069 (the “10.750% JSDs”), the 10.750% JSDs became the Covered Debt with respect to, and in accordance with, the terms of the RCC relating to MetLife, Inc.’s 6.40% Fixed-to-Floating Rate Junior Subordinated Debentures due 2066. The 5.700% Senior Notes continue to be the Covered Debt with respect to, and in accordance with, the terms of the RCCs relating to each of MetLife Capital Trust IV’s 7.875% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, MetLife, Inc.’s 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures and the 10.750% JSDs. MetLife, Inc. also entered into a replacement capital obligation which will commence during the six-month period prior to the scheduled redemption date of each of the securities described above and under which MetLife, Inc. must use reasonable commercial efforts to raise replacement capital to permit repayment of the securities through the issuance of certain qualifying capital securities.
Interest expense on outstanding junior subordinated debt securities was $261 million for each of the years ended December 31, 2021, 2020 and 2019, which is included in other expenses.
16. Equity
Preferred Stock
Preferred stock authorized, issued and outstanding was as follows:
December 31, 2021 December 31, 2020
Series Shares
Authorized Shares Issued and
Outstanding Shares
Authorized Shares Issued and
Outstanding
Series A preferred stock
27,600,000 24,000,000 27,600,000 24,000,000
Series C preferred stock (1) - - 1,500,000 500,000
Series D preferred stock
500,000 500,000 500,000 500,000
Series E preferred stock
32,200 32,200 32,200 32,200
Series F preferred stock 40,000 40,000 40,000 40,000
Series G preferred stock 1,000,000 1,000,000 1,000,000 1,000,000
Series A Junior Participating Preferred Stock
10,000,000 - 10,000,000 -
Not designated
160,827,800 - 159,327,800 -
Total
200,000,000 25,572,200 200,000,000 26,072,200
__________________
(1)As discussed below, on June 15, 2021, MetLife, Inc. redeemed and canceled the outstanding 500,000 shares of MetLife, Inc.’s 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the “Series C preferred stock”).
In May 2021, MetLife, Inc. delivered a notice of redemption to the holders of the Series C preferred stock pursuant to which it would redeem the remaining 500,000 shares of Series C preferred stock at a redemption price of $1,000 per share. In connection with the redemption, MetLife, Inc. recognized a preferred stock redemption premium of $6 million (calculated as
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
the difference between the carrying value of the Series C preferred stock and the total amount paid by MetLife, Inc. to the holders of the Series C preferred stock in connection with the redemption), which was recorded as a reduction of retained earnings at June 30, 2021. All outstanding shares of Series C preferred stock were redeemed on the dividend payment date of June 15, 2021 for an aggregate redemption price of $500 million in cash.
In June 2021, MetLife, Inc. filed a Certificate of Elimination (the “Certificate of Elimination”) of Series C preferred stock with the Secretary of State of the State of Delaware to eliminate all references to the Series C preferred stock in MetLife, Inc.’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), including the related Certificate of Designations. As a result of the filing of the Certificate of Elimination, MetLife, Inc.’s Certificate of Incorporation was amended to eliminate all references therein to the Series C preferred stock, and the shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $0.01 per share, of MetLife, Inc., without designation as to series. The Certificate of Elimination does not affect the total number of authorized shares of capital stock of MetLife, Inc. or the total number of authorized shares of preferred stock.
In September 2020, MetLife, Inc. delivered a notice of partial redemption to the holders of the Series C preferred stock pursuant to which it would redeem 1,000,000 of its 1,500,000 shares of Series C preferred stock at a redemption price of $1,000 per share, plus an amount equal to accrued but unpaid dividends on the Series C preferred stock to, but excluding, October 10, 2020, the redemption date. In connection with the redemption, MetLife, Inc. recognized a preferred stock redemption premium of $14 million (calculated as the difference between the carrying value of the Series C preferred stock and the total amount paid by MetLife, Inc. to the holders of the Series C preferred stock in connection with the redemption). In October 2020, MetLife, Inc. redeemed and canceled 1,000,000 shares of Series C preferred stock for an aggregate redemption price of $1.0 billion in cash.
In September 2020, MetLife, Inc. issued 1,000,000 shares of 3.85% Fixed Rate Reset Non-Cumulative Preferred Stock, Series G (the “Series G preferred stock”) with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate net proceeds of $989 million. In connection with the offering of the Series G preferred stock, MetLife, Inc. incurred approximately $11 million of issuance costs which have been recorded as a reduction of additional paid-in capital.
In January 2020, MetLife, Inc. issued 40,000 shares of 4.75% Non-Cumulative Preferred Stock, Series F (the “Series F preferred stock”) with a $0.01 par value per share and a liquidation preference of $25,000 per share, for aggregate net proceeds of $972 million. MetLife, Inc. deposited the Series F preferred stock under a deposit agreement with a depositary, which issued interests in fractional shares of the Series F preferred stock in the form of depositary shares (“Series F Depositary Shares”) evidenced by depositary receipts; each Series F Depositary Share representing 1/1,000th interest in a share of the Series F preferred stock. In connection with the offering of the Series F Depositary Shares, MetLife, Inc. incurred approximately $28 million of issuance costs which have been recorded as a reduction of additional paid-in capital.
The outstanding preferred stock ranks senior to MetLife, Inc.’s common stock with respect to the payment of dividends and distributions upon liquidation, dissolution or winding-up. Holders of the outstanding preferred stock are entitled to receive dividend payments only when, as and if declared by MetLife, Inc.’s Board of Directors or a duly authorized committee thereof. Dividends on the preferred stock are not cumulative or mandatory. Accordingly, if dividends are not declared on the preferred stock of the applicable series for any dividend period, then any accrued dividends for that dividend period will cease to accrue and be payable. If a dividend is not declared before the dividend payment date for any such dividend period, MetLife, Inc. will have no obligation to pay dividends accrued for such dividend period whether or not dividends are declared for any future period. No dividends may be paid or declared on MetLife, Inc.’s common stock (or any other securities ranking junior to the preferred stock) and MetLife, Inc. may not purchase, redeem, or otherwise acquire its common stock (or other such junior stock) unless the full dividends for the latest completed dividend period on all outstanding shares of preferred stock, and any parity stock, have been declared and paid or provided for.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
The table below presents the dividend rates of MetLife, Inc.’s preferred stock outstanding at December 31, 2021:
Series Per Annum Dividend Rate
A Three-month LIBOR + 1.00%, with floor of 4.00%, payable quarterly in March, June, September and December
D 5.875% from issuance date to, but excluding, March 15, 2028, payable semiannually in March and September; three-month LIBOR + 2.959% payable quarterly in March, June, September and December, thereafter
E 5.625% from issuance date, payable quarterly in March, June, September and December
F 4.750% from issuance date, payable quarterly in March, June, September and December, commencing in June 2020
G 3.850% from issuance date, but excluding, September 15, 2025, payable semiannually in March and September commencing in March 2021; five year treasury rate, reset every five years, + 3.576% payable semiannually in March and September, thereafter
In the table above, dividends on each series of preferred stock are payable in arrears for the periods specified, if declared.
MetLife, Inc. is prohibited from declaring dividends on the Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”) if it fails to meet specified capital adequacy, net income and stockholders’ equity levels. See “- Dividend Restrictions - MetLife, Inc.”
Holders of the preferred stock do not have voting rights except in certain circumstances, including where the dividends have not been paid for a specified number of dividend payment periods whether or not those periods are consecutive. Under such circumstances, the holders of the preferred stock have certain voting rights with respect to members of the Board of Directors of MetLife, Inc.
The preferred stock is not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions.
The Series A preferred stock is redeemable at MetLife, Inc.’s option in whole or in part, at a redemption price of $25 per share of Series A preferred stock, plus declared and unpaid dividends.
MetLife, Inc. may, at its option, redeem the 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (the “Series D preferred stock”), (i) in whole but not in part at any time prior to March 15, 2028, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $1,020 per share of Series D preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date; (ii) in whole but not in part, at any time prior to March 15, 2028, within 90 days after the occurrence of a “regulatory capital event;” and (iii) in whole or in part, at any time or from time to time, on or after March 15, 2028, in the case of (ii) or (iii), at a redemption price equal to $1,000 per share of Series D preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date.
MetLife, Inc. may, at its option, redeem the 5.625% Non-Cumulative Preferred Stock, Series E (the “Series E preferred stock”), (i) in whole but not in part at any time prior to June 15, 2023, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $25,500 per share of Series E preferred stock (equivalent to $25.50 per depositary share, each Series E depositary share representing a 1/1,000th interest in a share of the Series E preferred stock (“Series E Depositary Share”)), plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date; (ii) in whole but not in part, at any time prior to June 15, 2023, within 90 days after the occurrence of a “regulatory capital event;” and (iii) in whole or in part, at any time or from time to time, on or after June 15, 2023, in the case of (ii) or (iii), at a redemption price equal to $25,000 per share of Series E preferred stock (equivalent to $25 per Series E Depositary Share), plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date.
MetLife, Inc. may, at its option, redeem the Series F preferred stock, (i) in whole but not in part at any time prior to March 15, 2025, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $25,500 per share of Series F preferred stock (equivalent to $25.50 per Series F Depositary Share), plus an amount equal to any accrued and unpaid dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, the redemption date, (ii) in whole but not in part, at any time prior to March 15, 2025, within 90 days after the occurrence of a “regulatory capital event;” and (iii) in whole or in part, at any time or from time to time, on or after March 15, 2025, in the case of (ii) or (iii), at a redemption price equal to $25,000 per share of Series F preferred stock
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
(equivalent to $25 per Series F Depositary Share), plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date.
MetLife, Inc. may, at its option, redeem the Series G preferred stock, (a) in whole but not in part, at any time, within 90 days after the conclusion of any review or appeal process instituted by the Company following the occurrence of a “rating agency event” or, in the absence of any such review or appeal process, from such “rating agency event,” at a redemption price equal to $1,020 per share of Series G preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date and (b)(i) in whole but not in part, at any time, within 90 days after the occurrence of a “regulatory capital event,” or (ii) in whole or in part, on any dividend payment date, on or after September 15, 2025, in each case, at a redemption price equal to $1,000 per share of Series G preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, such redemption date.
A “rating agency event” means that any nationally recognized statistical rating organization that then publishes a rating for MetLife, Inc. amends, clarifies or changes the criteria used to assign equity credit to securities like the Series D preferred stock, Series E preferred stock, Series F preferred stock or Series G preferred stock, which results in the lowering of the equity credit assigned to the security, or shortens the length of time that the security is assigned a particular level of equity credit. A “regulatory capital event” could occur as a result of a change or proposed change in laws, rules, regulations or regulatory standards, including capital adequacy rules (or the interpretation or application thereof) of the United States or any political subdivision thereof, including any capital regulator, including but not limited to the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Insurance Office, the National Association of Insurance Commissioners (“NAIC”) or any state insurance regulator as may then have group-wide oversight of MetLife, Inc.’s regulatory capital, from those laws, rules, regulations or regulatory standards (or the interpretation or application thereof) in effect as of March 22, 2018, in the case of the Series D preferred stock, June 4, 2018, in the case of the Series E preferred stock, January 15, 2020, in the case of the Series F preferred stock, or September 10, 2020, in the case of the Series G preferred stock, that would create a more than insubstantial risk, as determined by MetLife, Inc., that the security would not be treated as “Tier 1 capital” or as capital with attributes similar to those of Tier 1 capital, except that a “regulatory capital event” will not include a change or proposed change (or the interpretation or application thereof) that would result in the adoption of any criteria substantially the same as the criteria in the capital adequacy rules of the Federal Reserve Board applicable to bank holding companies as of March 22, 2018, in the case of the Series D preferred stock, June 4, 2018, in the case of the Series E preferred stock, January 15, 2020, in the case of the Series F preferred stock, or September 10, 2020, in the case of the Series G preferred stock.
The per share and aggregate dividends declared for MetLife, Inc.’s preferred stock were as follows for the years ended December 31, 2021, 2020 and 2019:
For the Years Ended December 31,
2021 2020 2019
Series Per Share Aggregate Per Share Aggregate Per Share Aggregate
(In millions, except per share data)
A $ 1.015 $ 24 $ 1.015 $ 24 $ 1.017 $ 24
C (1) $ 19.085 10 $ 45.860 59 $ 52.500 79
D $ 58.750 29 $ 58.750 30 $ 58.750 30
E $ 1,406.252 45 $ 1,406.252 45 $ 1,406.252 45
F $ 1,187.500 48 $ 1,088.542 44 $ - -
G $ 39.035 39 $ - - $ - -
Total $ 195 $ 202 $ 178
__________________
(1)Dividends were paid through the dividend payment date of June 15, 2021, when all outstanding shares of Series C preferred stock were redeemed and eliminated.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Common Stock
Issuances
For the years ended December 31, 2021, 2020 and 2019, MetLife, Inc. issued 4,926,185 shares, 3,933,989 shares and 5,856,057 shares of its common stock for $195 million, $153 million and $199 million, respectively, in connection with stock option exercises and other stock-based awards. There were no shares of common stock issued from treasury stock for each of the years ended December 31, 2021, 2020 and 2019.
Repurchase Authorizations
MetLife, Inc. announced that its Board of Directors authorized common stock repurchases as follows:
Authorization Remaining at
Announcement Date Authorization Amount December 31, 2021
(In millions)
August 4, 2021 $ 3,000 $ 1,506
December 11, 2020 $ 3,000 $ -
July 31, 2019 $ 2,000 $ -
Under these authorizations, MetLife, Inc. may purchase its common stock from the MetLife Policyholder Trust, in the open market (including pursuant to the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”)), and in privately negotiated transactions. Common stock repurchases are subject to the discretion of MetLife, Inc.’s Board of Directors and will depend upon the Company’s capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, and other legal and accounting factors.
For the years ended December 31, 2021, 2020 and 2019, MetLife, Inc. repurchased 72,296,518 shares, 26,361,487 shares and 49,131,501 shares under these repurchase authorizations for $4.3 billion, $1.2 billion, and $2.3 billion, respectively. At December 31, 2021, $25 million of the aforementioned 2021 share repurchases was included in other liabilities. At December 31, 2021, MetLife, Inc. had $1.5 billion remaining under its August 2021 common stock repurchase authorization.
Dividends
The funding of the cash dividends and operating expenses of MetLife, Inc. is primarily provided by cash dividends from MetLife, Inc.’s insurance subsidiaries. The statutory capital and surplus, or net assets, of MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions except to the extent that dividends are allowed to be paid in a given year without prior regulatory approval. Dividends exceeding these limitations can generally be made subject to regulatory approval. The nature and amount of these dividend restrictions, as well as the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries, are disclosed in “- Statutory Equity and Income” and “- Dividend Restrictions - Insurance Operations.” MetLife, Inc.’s principal non-U.S. insurance operations are branches or subsidiaries of American Life Insurance Company (“American Life”), a U.S. insurance subsidiary of the Company. In addition, the payment of dividends by MetLife, Inc. to its shareholders is also subject to restrictions. See “- Dividend Restrictions - MetLife, Inc.”
Stock-Based Compensation Plans
Plans for Employees and Agents
Under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”), MetLife, Inc. may grant awards to employees and agents in the form of Stock Options, Stock Appreciation Rights, Performance Shares or Performance Share Units, Restricted Stock or Restricted Stock Units, Cash-Based Awards and Stock-Based Awards (each, as applicable, as defined in the 2015 Stock Plan with reference to shares of MetLife, Inc. common stock (“Shares”)). Awards under the 2015 Stock Plan and its predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan”), were outstanding at December 31, 2021. MetLife, Inc. granted all awards to employees and agents in 2021 under the 2015 Stock Plan.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
The aggregate number of Shares authorized for issuance under the 2015 Stock Plan at December 31, 2021 was 32,565,228.
MetLife recognizes compensation expense related to each award under the 2005 Stock Plan or 2015 Stock Plan in one of two ways:
•For cash-settled awards and the Performance Shares it granted in 2017 and 2018, MetLife remeasures the compensation expense quarterly.
•For other awards, MetLife recognizes an expense based on the number of awards it expects to vest, which represents the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant. Unless MetLife observes a material deviation from the assumed forfeiture rate during the term in which the awards are expensed, MetLife recognizes any adjustment necessary to reflect differences in actual experience in the period the award becomes payable or exercisable.
Compensation expense related to awards under the 2005 Stock Plan principally relates to the issuance of Stock Options. Under the 2015 Stock Plan, compensation expense principally relates to Stock Options, Unit Options, Performance Shares, Performance Units, Restricted Stock Units and Restricted Units. MetLife, Inc. granted the majority of each year’s awards under the 2005 Stock Plan and 2015 Stock Plan in the first quarter of the year.
Awards that have become payable in Shares but the issuance of which has been deferred (“Deferred Shares”), payable to employees or agents related to awards under all plans equaled 702,332 Shares at December 31, 2021.
MetLife granted cash-settled awards based in whole or in part on the price of Shares or changes in the price of Shares (“Phantom Stock-Based Awards”) under the MetLife, Inc. International Unit Option Incentive Plan, the MetLife International Performance Unit Incentive Plan, and the MetLife International Restricted Unit Incentive Plan prior to 2015, and under the 2015 Stock Plan in 2015 and later.
Plans for Non-Management Directors
Under the MetLife, Inc. 2015 Non-Management Director Stock Compensation Plan (the “2015 Director Stock Plan”), MetLife, Inc. may grant non-management Directors of MetLife, Inc. awards in the form of nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock or Restricted Stock Units, or Stock-Based Awards (each, as applicable, as defined in the 2015 Director Stock Plan with reference to Shares).
The only awards MetLife, Inc. granted under the 2015 Director Stock Plan and its predecessor plan, the MetLife, Inc. 2005 Non-Management Director Stock Compensation Plan (the “2005 Director Stock Plan”), through December 31, 2021 were Stock-Based Awards that vested immediately. As a result, no awards under the 2005 Director Stock Plan or 2015 Director Stock Plan remained outstanding at December 31, 2021.
The aggregate number of Shares authorized for issuance under the 2015 Director Stock Plan at December 31, 2021 was 1,507,886.
MetLife recognizes compensation expense related to awards under the 2015 Director Stock Plan based on the number of Shares awarded.
Deferred Shares payable to Directors related to awards under the 2005 Director Stock Plan, 2015 Director Stock Plan, or earlier applicable plans equaled 312,131 Shares at December 31, 2021.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Compensation Expense Related to Stock-Based Compensation
The components of compensation expense related to stock-based compensation includes compensation expense related to Phantom Stock-Based Awards and excludes the insignificant compensation expense related to the 2015 Director Stock Plan. Those components were:
Years Ended December 31,
2021 2020 2019
(In millions)
Stock Options and Unit Options
$ 9 $ 6 $ 7
Performance Shares and Performance Units (1)
98 63 89
Restricted Stock Units and Restricted Units
66 58 54
Total compensation expense
$ 173 $ 127 $ 150
Income tax benefit
$ 36 $ 27 $ 32
__________________
(1)The Company may further adjust the number of Performance Shares and Performance Units it expects to vest, and the related compensation expense, if management changes its estimate of the most likely final performance factor.
The following table presents the total unrecognized compensation expense related to stock-based compensation and the expected weighted average period over which these expenses will be recognized at:
December 31, 2021
Expense Weighted Average
Period
(In millions) (Years)
Stock Options
$ 3 1.83
Performance Shares
$ 28 1.70
Restricted Stock Units
$ 36 1.73
Equity Awards
Stock Options
Stock Options are the contingent right of award holders to purchase Shares at a stated price for a limited time. All Stock Options have an exercise price equal to the closing price of a Share reported on the New York Stock Exchange (“NYSE”) on the date of grant and have a maximum term of 10 years. The majority of Stock Options MetLife, Inc. has granted have become or will become exercisable at a rate of one-third of each award on each of the first three anniversaries of the grant date. Other Stock Options have become or will become exercisable on the third anniversary of the grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Stock Option Activity
A summary of the activity related to Stock Options was as follows:
Shares
Under
Option Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term Aggregate
Intrinsic
Value (1)
(Years) (In millions)
Outstanding at January 1, 2021 7,042,441 $ 40.25 3.95 $ 47
Granted
477,416 $ 57.43
Exercised
(3,150,217) $ 37.69
Expired (2)
(75,804) $ 40.63
Forfeited (3)
(25,745) $ 46.28
Outstanding at December 31, 2021 4,268,091 $ 44.02 5.03 $ 79
Vested and expected to vest at December 31, 2021 4,256,858 $ 43.99 5.02 $ 79
Exercisable at December 31, 2021 3,293,523 $ 41.72 4.03 $ 68
__________________
(1)The intrinsic value of each Stock Option is the closing price on a particular date less the exercise price of the Stock Option, so long as the difference is greater than zero. The aggregate intrinsic value of all outstanding Stock Options is computed using the closing Share price on December 31, 2021 of $62.49 and December 31, 2020 of $46.95, as applicable.
(2)Expired options were exercisable, but unexercised, as of their expiration date.
(3)Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards.
MetLife estimates the fair value of Stock Options on the date of grant using a binomial lattice model. The significant assumptions the Company uses in its binomial lattice model include: expected volatility of the price of Shares; risk-free rate of return; dividend yield on Shares; exercise multiple; and the post-vesting termination rate.
MetLife bases expected volatility on an analysis of historical prices of Shares and call options on Shares traded on the open market. The Company uses a weighted-average of the implied volatility for publicly-traded call options with the longest remaining maturity nearest to the money as of each valuation date and the historical volatility, calculated using monthly closing prices of Shares. The Company chose a monthly measurement interval for historical volatility as this interval reflects the Company’s view that employee option exercise decisions are based on longer-term trends in the price of the underlying Shares rather than on daily price movements.
The Company’s binomial lattice model incorporates different risk-free rates based on the imputed forward rates for U.S. Treasury Strips for each year over the contractual term of the option. The table below presents the full range of rates that were used for options granted during the respective periods.
The Company determines dividend yield based on historical dividend distributions compared to the price of the underlying Shares as of the valuation date and held constant over the life of the Stock Option.
The Company’s binomial lattice model incorporates the term of the Stock Options, expected exercise behavior and a post-vesting termination rate, or the rate at which vested options are exercised or expire prematurely due to termination of employment. From these factors, the model derives an expected life of the Stock Option. The model’s exercise behavior is a multiple that reflects the ratio of stock price at the time of exercise over the exercise price of the Stock Option at the time the model expects holders to exercise. The model derives the exercise multiple from actual exercise activity. The model determines the post-vesting termination rate from actual exercise experience and expiration activity under the Incentive Plans.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
The following table presents the weighted average assumptions, with the exception of risk-free rate (which is expressed as a range), that the model uses to determine the fair value of unexercised Stock Options:
Years Ended December 31,
2021 2020 2019
Dividend yield
3.20% 3.70% 3.76%
Risk-free rate of return
0.08% - 2.48%
1.30% - 1.57%
2.52% - 3.32%
Expected volatility
29.72% 25.55% 30.27%
Exercise multiple
1.44 1.44 1.43
Post-vesting termination rate
3.58% 3.79% 3.86%
Contractual term (years)
10 10 10
Expected life (years)
7 7 6
Weighted average exercise price of stock options granted
$57.43 $47.58 $44.65
Weighted average fair value of stock options granted
$12.76 $9.02 $10.36
The following table presents a summary of Stock Option exercise activity:
Years Ended December 31,
2021 2020 2019
(In millions)
Total intrinsic value of stock options exercised
$ 60 $ 29 $ 60
Cash received from exercise of stock options
$ 119 $ 89 $ 125
Income tax benefit realized from stock options exercised
$ 13 $ 6 $ 13
Performance Shares
Performance Shares are units that, if they vest, are multiplied by a performance factor to produce a number of final Shares payable. MetLife accounts for Performance Shares as equity awards. MetLife, Inc. does not credit Performance Shares with dividend-equivalents for dividends paid on Shares. Performance Share awards normally vest in their entirety at the end of the three-year performance period. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
For awards granted for the 2018 - 2020 and earlier performance periods, the vested Performance Shares will be multiplied by a performance factor of 0% to 175% that the MetLife, Inc. Compensation Committee will determine in its discretion (subject to MetLife, Inc. meeting threshold performance goals related to its adjusted income or total shareholder return). In doing so, the Compensation Committee may consider MetLife, Inc.’s total shareholder return relative to the performance of its competitors and adjusted return on MetLife, Inc.’s common stockholders’ equity relative to its financial plan. MetLife estimates the fair value of Performance Shares each quarter until they become payable. For awards granted for the 2019 - 2021 and later performance periods in progress through December 31, 2021, the vested Performance Shares will be multiplied by a performance factor of 0% to 175% that the MetLife, Inc. Compensation Committee will determine by (a) the Company’s annual adjusted return on equity performance over the three-year period compared to the Company’s three-year business plan goal; (b) the Company’s total shareholder return over the same three-year period compared to a peer group of companies; and (c) a cap of 100% if the Company’s total shareholder return for the three-year period is zero or less. The Compensation Committee will exclude the impact of a “Significant Event” from the Company’s adjusted return on equity or the business plan goal, to the extent the Committee determines in its informed judgment that the event changed the adjusted return on equity performance factor component. “Significant Events” include accounting changes, business combinations, restructuring, nonrecurring tax events, common share issuance or repurchases, catastrophes, litigation and regulatory settlements, asbestos and environmental events, certain specified classes of non-coupon investments, and other significant nonrecurring, infrequent, or unusual items.
The performance factor for the 2018 - 2020 performance period was 110.8%.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Restricted Stock Units
Restricted Stock Units are units that, if they vest, are payable in an equal number of Shares. MetLife accounts for Restricted Stock Units as equity awards. MetLife, Inc. does not credit Restricted Stock Units with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Restricted Stock Units is based upon the closing price of Shares on the date of grant, reduced by the present value of estimated dividends to be paid on that stock.
The majority of Restricted Stock Units normally vest in thirds on or shortly after the first three anniversaries of their grant date. Other Restricted Stock Units normally vest in their entirety on the third or later anniversary of their grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
Performance Share and Restricted Stock Unit Activity
The following table presents a summary of Performance Share and Restricted Stock Unit activity:
Performance Shares Restricted Stock Units
Shares Weighted
Average
Fair Value (1) Units Weighted
Average
Fair Value (1)
Outstanding at January 1, 2021 4,101,854 $ 40.61 2,788,150 $ 40.51
Granted 1,175,558 $ 51.37 1,159,193 $ 51.37
Forfeited (2) (162,746) $ 43.05 (179,288) $ 44.38
Payable (3) (1,266,651) $ 40.83 (1,317,009) $ 40.45
Outstanding at December 31, 2021 3,848,015 $ 43.74 2,451,046 $ 45.39
Vested and expected to vest at December 31, 2021 3,793,017 $ 43.65 2,409,077 $ 45.36
__________________
(1)Values for awards outstanding at January 1, 2021, represent weighted average number of awards multiplied by their fair value per Share at December 31, 2020. Otherwise, all values represent weighted average of number of awards multiplied by the fair value per Share at December 31, 2021. Fair value of Performance Shares and Restricted Stock Units on December 31, 2021 was equal to Grant Date fair value.
(2)Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards.
(3)Includes both Shares paid and Deferred Shares for later payment.
Performance Share amounts above represent aggregate awards at target, and do not reflect potential increases or decreases that may result from the performance factor. At December 31, 2021, the performance period for the 2019 - 2021 Performance Share grants was completed, but the performance factor had not yet been determined. Included in the immediately preceding table are 1,485,512 outstanding Performance Shares to which the 2019 - 2021 performance factor will be applied.
Liability Awards (Phantom Stock-Based Awards)
Certain MetLife subsidiaries have a liability for Phantom Stock-Based Awards in the form of Unit Options, Performance Units, and/or Restricted Units. These Share-based cash settled awards are recorded as liabilities until MetLife makes payment. The fair value of unsettled or unvested liability awards is re-measured at the end of each reporting period based on the change in fair value of one Share. The liability and corresponding expense are adjusted accordingly until the award is settled.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Unit Options
Unit Options are the contingent right of award holders to receive a cash payment equal to the closing price of a Share on the exercise date, less the closing price on the grant date, if the difference is greater than zero, for a limited time. All Unit Options have an exercise price equal to the closing price of a Share reported on the NYSE on the date of grant and have a maximum term of 10 years. The majority of Unit Options have become or will become eligible for exercise at a rate of one-third of each award on each of the first three anniversaries of the grant date. Other Unit Options have become or will become eligible for exercise on the third anniversary of the grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
Performance Units
Performance Units are units that, if they vest, are multiplied by a performance factor to produce a number of final Performance Units which are payable in cash equal to the closing price of a Share on a date following the last day of the three-year performance period. Performance Units are accounted for as liability awards. MetLife, Inc. does not credit them with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Performance Units is based upon the closing price of a Share on the date of grant, reduced by the present value of estimated dividends to be paid on that stock during the performance period. MetLife determines each performance period’s performance factor in the same way it does for the same performance period’s Performance Shares.
See “- Equity Awards - Performance Shares” for a discussion of the Performance Shares vesting period and performance factor calculation, which are also used for Performance Units.
Restricted Units
Restricted Units are units that, if they vest, are payable in cash equal to the closing price of a Share on the last day of the restriction period. The majority of Restricted Units normally vest in thirds on or shortly after the first three anniversaries of their grant date. Other Restricted Units normally vest in their entirety on the third or later anniversary of their grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances. Restricted Units are accounted for as liability awards. MetLife, Inc. does not credit Restricted Units with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Restricted Units is based upon the closing price of a Share on the date of grant, reduced by the present value of estimated dividends to be paid on that stock during the performance period.
Liability Award Activity
The following table presents a summary of Liability Awards activity:
Unit
Options Performance
Units
Restricted
Units
Outstanding at January 1, 2021 378,434 515,235 605,447
Granted
- 141,110 261,257
Exercised
(224,681) - -
Expired (1)
(28,767) - -
Forfeited (2)
- (37,145) (60,473)
Paid
- (170,214) (291,675)
Outstanding at December 31, 2021 124,986 448,986 514,556
Vested and expected to vest at December 31, 2021 124,668 436,452 501,530
__________________
(1)Expired options were exercisable, but unexercised, as of their expiration date.
(2)Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Performance Units amounts above represent aggregate awards at target, and do not reflect potential increases or decreases that may result from the performance factor. At December 31, 2021, the performance period for the 2019 - 2021 Performance Unit grants was completed, but the performance factor had not yet been determined. Included in the immediately preceding table are 156,090 outstanding Performance Units to which the 2019 - 2021 performance factor will be applied.
Statutory Equity and Income
The states of domicile of MetLife, Inc.’s U.S. insurance subsidiaries each impose risk-based capital (“RBC”) requirements that were developed by the NAIC. American Life does not write business in Delaware or any other U.S. state and, as such, is exempt from RBC requirements by Delaware law. Regulatory compliance is determined by a ratio of a company’s total adjusted capital, calculated in the manner prescribed by the NAIC (“TAC”), to its authorized control level RBC, calculated in the manner prescribed by the NAIC (“ACL RBC”), based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC (“Company Action Level RBC”). While not required by or filed with insurance regulators, the Company also calculates an internally defined combined RBC ratio (“Statement-Based Combined RBC Ratio”), which is determined by dividing the sum of TAC for MetLife, Inc.’s principal U.S. insurance subsidiaries, excluding American Life, by the sum of Company Action Level RBC for such subsidiaries. The Company’s Statement-Based Combined RBC Ratio was in excess of 360% and in excess of 350% at December 31, 2021 and 2020, respectively. In addition, all non-exempted U.S. insurance subsidiaries individually exceeded Company Action Level RBC for all periods presented.
MetLife, Inc.’s foreign insurance operations are regulated by applicable authorities of the jurisdictions in which each entity operates and are subject to minimum capital and solvency requirements in those jurisdictions before corrective action commences. At December 31, 2021 and 2020, the adjusted capital of American Life’s insurance subsidiary in Japan, the Company’s largest foreign insurance operation, was in excess of four times the 200% solvency margin ratio that would require corrective action. Excluding Japan, the aggregate required capital and surplus of the Company’s other foreign insurance operations was $4.3 billion and the aggregate actual regulatory capital and surplus of such operations was $10.6 billion as of the date of the most recent required capital adequacy calculation for each jurisdiction. The Company’s foreign insurance operations exceeded the minimum capital and solvency requirements as of the date of the most recent fiscal year-end capital adequacy calculation for each jurisdiction.
MetLife, Inc.’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile or applicable foreign jurisdiction. The NAIC has adopted the Codification of Statutory Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the effect of Statutory Codification on the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries.
Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis.
In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not give recognition to purchase accounting adjustments. MetLife, Inc.’s U.S. insurance subsidiaries have no material state prescribed accounting practices, except as described below.
New York has adopted certain prescribed accounting practices, primarily consisting of the continuous Commissioners’ Annuity Reserve Valuation Method, which impacts deferred annuities, and the New York Special Considerations Letter, which mandates certain assumptions in asset adequacy testing. The collective impact of these prescribed accounting practices decreased the statutory capital and surplus of MLIC by $1.2 billion and $1.6 billion at December 31, 2021 and 2020, respectively, compared to what capital and surplus would have been had it been measured under NAIC guidance.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
American Life calculates its policyholder reserves on insurance written in each foreign jurisdiction in accordance with the reserve standards required by such jurisdiction. Additionally, American Life’s insurance subsidiaries are valued based on each respective subsidiary’s underlying local statutory equity, adjusted in a manner consistent with the reporting prescribed for its branch operations. The prescribed practice exempts American Life from calculating and disclosing the impact to its statutory capital and surplus.
The tables below present amounts from MetLife, Inc.’s U.S. insurance subsidiaries, which are derived from the statutory-basis financial statements as filed with the insurance regulators.
Statutory net income (loss) was as follows:
Years Ended December 31,
Company State of Domicile 2021 2020 2019
(In millions)
Metropolitan Life Insurance Company
New York $ 3,513 $ 3,392 $ 3,859
American Life Insurance Company
Delaware $ 48 $ 980 $ 1,386
Metropolitan Property and Casualty Insurance Company (1) Rhode Island N/A $ 336 $ 245
Metropolitan Tower Life Insurance Company
Nebraska $ 185 $ (237) $ (13)
Other
Various $ 76 $ 84 $ 12
__________________
(1)See Note 3 for information on the Company’s business dispositions.
Statutory capital and surplus was as follows at:
December 31,
Company 2021 2020
(In millions)
Metropolitan Life Insurance Company
$ 11,804 $ 11,312
American Life Insurance Company
$ 5,584 $ 4,419
Metropolitan Property and Casualty Insurance Company (1) N/A $ 2,249
Metropolitan Tower Life Insurance Company
$ 1,638 $ 1,387
Other
$ 193 $ 186
__________________
(1)See Note 3 for information on the Company’s business dispositions.
The Company’s U.S. captive life reinsurance subsidiaries, which reinsure risks including the closed block, level premium term life and ULSG assumed from other MetLife subsidiaries, have no state prescribed accounting practices, except for MetLife Reinsurance Company of Vermont (“MRV”).
MRV, with the explicit permission of the Commissioner of Insurance of the State of Vermont, has included, as admitted assets, the value of letters of credit serving as collateral for reinsurance credit taken by various affiliated cedants, in connection with reinsurance agreements entered into between MRV and the various affiliated cedants, which resulted in higher statutory capital and surplus of $2.0 billion at both December 31, 2021 and 2020. MRV’s RBC would have triggered a regulatory event without the use of the state prescribed practice.
The combined statutory net income (loss) of MetLife, Inc.’s U.S. captive life reinsurance subsidiaries was $41 million, ($7) million and ($27) million for the years ended December 2021, 2020 and 2019, respectively, and the combined statutory capital and surplus, including the aforementioned prescribed practice, was $693 million and $691 million at December 31, 2021 and 2020, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Dividend Restrictions
Insurance Operations
The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory approval and the actual dividends paid:
2022 2021 2020
Company Permitted Without
Approval (1) Paid (2) Paid (2)
(In millions)
Metropolitan Life Insurance Company $ 3,539 $ 3,393 $ 2,832
American Life Insurance Company $ 554 $ 1,135 $ 1,200 (3)
Metropolitan Property and Casualty Insurance Company N/A $ 35 (4) $ 250
Metropolitan Tower Life Insurance Company $ 163 $ - $ -
__________________
(1)Reflects dividend amounts that may be paid by the end of 2022 without prior regulatory approval.
(2)Reflects all amounts paid, including those where regulatory approval was obtained as required.
(3)Includes a $341 million non-cash dividend.
(4)Consists of the stock of a subsidiary paid to MetLife, Inc. See Note 3 for information on the Company’s business dispositions.
Under the New York State Insurance Law, MLIC is permitted, without prior insurance regulatory clearance, to pay stockholder dividends to MetLife, Inc. in any calendar year based on either of two standards. Under one standard, MLIC is permitted, without prior insurance regulatory clearance, to pay dividends out of earned surplus (defined as positive unassigned funds (surplus), excluding 85% of the change in net unrealized capital gains or losses (less capital gains tax), for the immediately preceding calendar year), in an amount up to the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not to exceed 30% of surplus to policyholders as of the end of the immediately preceding calendar year. In addition, under this standard, MLIC may not, without prior insurance regulatory clearance, pay any dividends in any calendar year immediately following a calendar year for which its net gain from operations, excluding realized capital gains, was negative. Under the second standard, if dividends are paid out of other than earned surplus, MLIC may, without prior insurance regulatory clearance, pay an amount up to the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). In addition, MLIC will be permitted to pay a dividend to MetLife, Inc. in excess of the amounts allowed under both standards only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Financial Services (the “Superintendent”) and the Superintendent either approves the distribution of the dividend or does not disapprove the dividend within 30 days of its filing. Under the New York State Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholder.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
Under the Delaware Insurance Code, American Life is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the amount of the dividend, when aggregated with all other dividends in the preceding 12 months, does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions of American Life’s own securities. American Life will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Delaware Commissioner of Insurance (the “Delaware Commissioner”) and the Delaware Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Delaware Insurance Code, the Delaware Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
Under the Nebraska Insurance Code, Metropolitan Tower Life Insurance Company (“MTL”) is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the amount of the dividend, when aggregated with all other dividends in the preceding 12 months, does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions of MTL’s own securities. MTL will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Director of the Nebraska Department of Insurance (the “Nebraska Director”) and the Nebraska Director either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)” excluding unrealized capital gains) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Nebraska Insurance Code, the Nebraska Director has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
MetLife, Inc.
The declaration and payment of dividends are subject to the discretion of MetLife, Inc.’s Board of Directors and will depend on its financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board of Directors. In addition, the payment of dividends on MetLife, Inc.’s common stock, and MetLife, Inc.’s ability to repurchase its common stock, may be subject to restrictions described below arising under the terms of MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures in situations where MetLife, Inc. may be experiencing financial stress, as described below. For purposes of this discussion, “junior subordinated debentures” are deemed to include MetLife, Inc.’s Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, as discussed in Note 15.
“Dividend Stopper” Provisions in the Preferred Stock and Junior Subordinated Debentures
If MetLife, Inc. has not paid the full dividends on its preferred stock for the latest completed dividend period, MetLife, Inc. may not repurchase or pay dividends on its common stock during a dividend period under so-called “dividend stopper” provisions. Further, MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures contain provisions that would suspend the payment of preferred stock dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain RBC ratio, net income and stockholders’ equity tests at specified times, except to the extent of the net proceeds from the issuance of certain securities during specified periods. If Series A preferred stock dividends or interest on junior subordinated debentures are not paid, certain provisions in those instruments (including under “dividend stopper” provisions) may restrict MetLife, Inc. from repurchasing its common or preferred stock or paying dividends on its common or preferred stock and interest on its junior subordinated debentures.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions are met, defer payment of interest without giving rise to an event of default for periods of up to 10 years. In that case, after five years MetLife, Inc. would be obligated to use commercially reasonable efforts to sell equity securities to raise proceeds to pay the interest. MetLife, Inc. would not be subject to limitations on the number of deferral periods that MetLife, Inc. could begin, so long as all accrued and unpaid interest is paid with respect to prior deferral periods. If MetLife, Inc. were to defer payments of interest, the “dividend stopper” provisions in the junior subordinated debentures would thus prevent MetLife, Inc. from repurchasing or paying dividends on its common stock or other capital stock (including the preferred stock) during the period of deferral, subject to exceptions.
MetLife, Inc. is a party to certain RCCs which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of junior subordinated debentures by requiring MetLife, Inc., with some limitations, to receive cash proceeds during a specified period from the sale of specified replacement securities prior to any repayment, redemption or purchase. See Note 15 for a description of such covenants.
Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to MetLife, Inc. was as follows:
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1) Unrealized Gains
(Losses) on
Derivatives Foreign
Currency
Translation
Adjustments Defined
Benefit
Plans
Adjustment Total
(In millions)
Balance at December 31, 2018 $ 7,042 $ 1,613 $ (4,905) $ (2,028) $ 1,722
OCI before reclassifications
14,850 328 (43) (88) 15,047
Deferred income tax benefit (expense)
(3,408) 34 21 14 (3,339)
AOCI before reclassifications, net of income tax
18,484 1,975 (4,927) (2,102) 13,430
Amounts reclassified from AOCI
(265) (268) - 118 (415)
Deferred income tax benefit (expense)
61 (27) - (18) 16
Amounts reclassified from AOCI, net of income tax
(204) (295) - 100 (399)
Cumulative effects of changes in accounting principles 4 22 - - 26
Deferred income tax benefit (expense), cumulative effects of changes in accounting principles (1) (4) - - (5)
Cumulative effects of changes in accounting principles, net of income tax
3 18 - - 21
Balance at December 31, 2019 18,283 1,698 (4,927) (2,002) 13,052
OCI before reclassifications
5,775 730 1,002 95 7,602
Deferred income tax benefit (expense)
(1,349) (257) (36) (22) (1,664)
AOCI before reclassifications, net of income tax
22,709 2,171 (3,961) (1,929) 18,990
Amounts reclassified from AOCI
(357) (1,016) - 86 (1,287)
Deferred income tax benefit (expense)
83 358 - (20) 421
Amounts reclassified from AOCI, net of income tax
(274) (658) - 66 (866)
Sale of subsidiaries, net of income tax (2) (218) - 166 - (52)
Balance at December 31, 2020 22,217 1,513 (3,795) (1,863) 18,072
OCI before reclassifications
(7,829) (113) (1,567) 237 (9,272)
Deferred income tax benefit (expense)
1,918 18 (53) (46) 1,837
AOCI before reclassifications, net of income tax
16,306 1,418 (5,415) (1,672) 10,637
Amounts reclassified from AOCI
(125) 250 - 91 216
Deferred income tax benefit (expense)
29 (39) - (17) (27)
Amounts reclassified from AOCI, net of income tax
(96) 211 - 74 189
Sale of subsidiaries, net of income tax (2) (168) - 261 - 93
Balance at December 31, 2021 $ 16,042 $ 1,629 $ (5,154) $ (1,598) $ 10,919
__________________
(1)See Note 8 for information on offsets to investments related to policyholder liabilities, DAC, VOBA and DSI.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
16. Equity (continued)
(2)See Note 3 for information on the Company’s business dispositions.
Information regarding amounts reclassified out of each component of AOCI was as follows:
Years Ended December 31,
2021 2020 2019
AOCI Components Amounts Reclassified from AOCI Consolidated Statements of
Operations Locations
(In millions)
Net unrealized investment gains (losses):
Net unrealized investment gains (losses)
$ 72 $ 362 $ 270 Net investment gains (losses)
Net unrealized investment gains (losses)
(16) (24) (30) Net investment income
Net unrealized investment gains (losses)
69 19 25 Net derivative gains (losses)
Net unrealized investment gains (losses), before income tax
125 357 265
Income tax (expense) benefit
(29) (83) (61)
Net unrealized investment gains (losses), net of income tax
96 274 204
Unrealized gains (losses) on derivatives - cash flow hedges:
Interest rate derivatives
56 36 23 Net investment income
Interest rate derivatives
84 121 4 Net investment gains (losses)
Interest rate derivatives
3 2 2 Other expenses
Foreign currency exchange rate derivatives
8 4 (4) Net investment income
Foreign currency exchange rate derivatives
(403) 851 240 Net investment gains (losses)
Foreign currency exchange rate derivatives
2 2 2 Other expenses
Credit derivatives
- - 1 Net investment income
Gains (losses) on cash flow hedges, before income tax
(250) 1,016 268
Income tax (expense) benefit
39 (358) 27
Gains (losses) on cash flow hedges, net of income tax
(211) 658 295
Defined benefit plans adjustment: (1)
Amortization of net actuarial gains (losses)
(120) (105) (145)
Amortization of prior service (costs) credit
29 19 27
Amortization of defined benefit plan items, before income tax
(91) (86) (118)
Income tax (expense) benefit
17 20 18
Amortization of defined benefit plan items, net of income tax
(74) (66) (100)
Total reclassifications, net of income tax
$ (189) $ 866 $ 399
__________________
(1)These AOCI components are included in the computation of net periodic benefit costs. See Note 18.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
17. Other Revenues and Other Expenses
Other Revenues
Information on other revenues, which primarily includes fees related to service contracts from customers, was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Vision fee for service arrangements (1) $ 546 $ - $ -
Prepaid legal plans 432 395 347
Fee-based investment management 363 318 286
Recordkeeping and administrative services (2) 213 196 206
Administrative services-only contracts 231 218 210
Other revenue from service contracts from customers 289 227 240
Total revenues from service contracts from customers
2,074 1,354 1,289
Other 545 495 553
Total other revenues
$ 2,619 $ 1,849 $ 1,842
__________________
(1)For information regarding the Company’s acquisition of Versant Health, see Note 3.
(2)Related to products and businesses no longer actively marketed by the Company.
Receivables related to revenues from service contracts from customers were $235 million and $132 million as of December 31, 2021 and 2020, respectively.
Other Expenses
Information on other expenses was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Employee related costs (1)
$ 3,515 $ 3,514 $ 3,665
Third party staffing costs
1,423 1,335 1,755
General and administrative expenses
686 761 901
Pension, postretirement and postemployment benefit costs
147 165 233
Premium taxes, other taxes, and licenses & fees
629 764 674
Commissions and other variable expenses
5,463 5,596 6,001
Capitalization of DAC
(2,718) (3,013) (3,358)
Amortization of DAC and VOBA
2,555 3,160 2,896
Amortization of negative VOBA
(34) (45) (33)
Interest expense on debt
920 913 955
Total other expenses
$ 12,586 $ 13,150 $ 13,689
__________________
(1)Includes ($144) million, ($147) million and ($219) million for the years ended December 31, 2021, 2020 and 2019, respectively, for the net change in cash surrender value of investments in certain life insurance policies, net of premiums paid.
Capitalization of DAC and Amortization of DAC and VOBA
See Note 5 for additional information on DAC and VOBA including impacts of capitalization and amortization. See also Note 7 for a description of the DAC amortization impact associated with the closed block.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
17. Other Revenues and Other Expenses (continued)
Expenses related to Debt
See Notes 13, 14, and 15 for attribution of interest expense by debt issuance and other expenses related to debt transactions.
Restructuring Charges
In December 2019, the Company incurred the remaining restructuring charges related to its unit cost improvement program. During this program period, restructuring charges were included in other expenses and reported in Corporate & Other. Such restructuring charges were as follows:
Years Ended December 31,
2021 2020 2019
Severance
(In millions)
Balance at January 1,
$ 6 $ 57 $ 23
Restructuring charges - - 108
Cash payments (1) (51) (74)
Balance at December 31,
$ 5 $ 6 $ 57
Total severance charges incurred since inception of initiative
$ 244 $ 244 $ 244
In addition to the above severance charges, the Company recognized lease and asset impairment charges of $0, $0 and $43 million for the years ended December 31, 2021, 2020 and 2019, respectively.
18. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor a U.S. qualified and various U.S. and non-U.S. nonqualified defined benefit pension plans covering employees who meet specified eligibility requirements. U.S. pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits that are primarily based upon years of credited service and final average earnings. The cash balance formula utilizes hypothetical or notional accounts which credit participants with benefits equal to a percentage of eligible pay, as well as interest credits, determined annually based upon the annual rate of interest on 30-year U.S. Treasury securities, for each account balance. In September 2018, the U.S. qualified and nonqualified defined benefit pension plans were amended, effective January 1, 2023, to provide benefits accruals for all active participants under the cash balance formula and to cease future accruals under the traditional formula. The U.S. nonqualified pension plans provide supplemental benefits in excess of limits applicable to a qualified plan. The non-U.S. pension plans generally provide benefits based upon either years of credited service and earnings preceding retirement or points earned on job grades and other factors in years of service.
These subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for U.S. and non-U.S. retired employees. U.S. employees of these subsidiaries who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service criteria while working for one of the subsidiaries may become eligible for these other postretirement benefits, at various levels, in accordance with the applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total costs of postretirement medical benefits. U.S. employees hired after 2003 are not eligible for any employer subsidy for postretirement medical benefits. In September 2018, the U.S. postretirement medical and life insurance benefit plans were amended, effective January 1, 2023, to discontinue the accrual of the employer subsidy credits for eligible employees.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
The benefit obligations, funded status and net periodic benefit costs related to these pension and other postretirement benefits were comprised of the following:
December 31, 2021 December 31, 2020
Pension Benefits Other Postretirement
Benefits Pension Benefits Other Postretirement
Benefits
U.S.
Plans Non-
U.S.
Plans Total U.S.
Plans Non-
U.S.
Plans Total U.S.
Plans Non-
U.S.
Plans Total U.S.
Plans Non-
U.S.
Plans Total
(In millions)
Benefit obligations
$ 11,086 $ 1,096 $ 12,182 $ 1,099 $ 39 $ 1,138 $ 11,700 $ 1,173 $ 12,873 $ 1,208 $ 44 $ 1,252
Estimated fair value of plan assets
10,392 579 10,971 1,417 26 1,443 10,692 564 11,256 1,465 27 1,492
Over (under) funded status
$ (694) $ (517) $ (1,211) $ 318 $ (13) $ 305 $ (1,008) $ (609) $ (1,617) $ 257 $ (17) $ 240
Net periodic benefit costs
$ 97 $ 97 $ 194 $ (55) $ 2 $ (53) $ 143 $ 103 $ 246 $ (94) $ 2 $ (92)
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
Obligations and Funded Status
December 31,
2021 2020
Pension
Benefits (1) Other
Postretirement
Benefits Pension
Benefits (1) Other
Postretirement
Benefits
(In millions)
Change in benefit obligations:
Benefit obligations at January 1,
$ 12,873 $ 1,252 $ 11,950 $ 1,289
Service costs
215 4 226 5
Interest costs
342 37 363 42
Plan participants’ contributions
- 32 - 32
Plan amendments
1 - - -
Net actuarial (gains) losses (2)
(363) (96) 928 (15)
Acquisition, divestitures, settlements and curtailments
(111) 8 (55) -
Benefits paid
(665) (99) (589) (101)
Effect of foreign currency translation
(110) - 50 -
Benefit obligations at December 31,
12,182 1,138 12,873 1,252
Change in plan assets:
Estimated fair value of plan assets at January 1,
11,256 1,492 10,230 1,468
Actual return on plan assets
310 14 1,491 89
Acquisition, divestitures and settlements
(35) (1) (55) -
Plan participants’ contributions
- 32 - 32
Employer contributions
163 5 155 4
Benefits paid
(665) (99) (589) (101)
Effect of foreign currency translation
(58) - 24 -
Estimated fair value of plan assets at December 31,
10,971 1,443 11,256 1,492
Over (under) funded status at December 31,
$ (1,211) $ 305 $ (1,617) $ 240
Amounts recognized on the consolidated balance sheets:
Other assets
$ 640 $ 788 $ 390 $ 756
Other liabilities
(1,851) (483) (2,007) (516)
Net amount recognized
$ (1,211) $ 305 $ (1,617) $ 240
AOCI:
Net actuarial (gains) losses
$ 2,416 $ (332) $ 2,780 $ (327)
Prior service costs (credit)
(55) - (86) 1
AOCI, before income tax
$ 2,361 $ (332) $ 2,694 $ (326)
Accumulated benefit obligation
$ 11,934 N/A $ 12,510 N/A
__________________
(1)Includes nonqualified unfunded plans, for which the aggregate PBO was $1.3 billion and $1.4 billion at December 31, 2021 and 2020, respectively.
(2)For the year ended December 31, 2021, significant sources of actuarial (gains) losses for pension and other postretirement benefits include the impact of changes to the financial assumptions of ($389) million and ($34) million, respectively, demographic assumptions of $0 and ($4) million, respectively, and plan experience of $26 million and ($58) million, respectively. For the year ended December 31, 2020, significant sources of actuarial (gains) losses for pension and other postretirement benefits include the impact of changes to the financial assumptions of $851 million and $103 million, respectively, demographic assumptions of $31 million and $4 million, respectively, and plan experience of $46 million and ($122) million, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
Information for pension plans and other postretirement benefit plans with PBOs and/or accumulated benefit obligations (“ABO”) or APBO in excess of plan assets was as follows at:
December 31,
2021 2020 2021 2020 2021 2020
PBO Exceeds Estimated Fair Value
of Plan Assets ABO Exceeds Estimated Fair Value
of Plan Assets APBO Exceeds Estimated Fair Value
of Plan Assets
(In millions)
Projected benefit obligations
$ 1,840 $ 2,469 $ 1,831 $ 2,441 N/A N/A
Accumulated benefit obligations
$ 1,740 $ 2,332 $ 1,740 $ 2,312 N/A N/A
Accumulated postretirement benefit obligations
N/A N/A N/A N/A $ 813 $ 868
Estimated fair value of plan assets
$ 9 $ 564 $ - $ 539 $ 331 $ 355
Net Periodic Benefit Costs
The components of net periodic benefit costs and other changes in plan assets and benefit obligations recognized in OCI were as follows:
Years Ended December 31,
2021 2020 2019
Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
(In millions)
Net periodic benefit costs:
Service costs $ 215 $ 4 $ 226 $ 5 $ 214 $ 5
Interest costs 342 37 363 42 425 53
Settlement and curtailment (gains) losses
(7) 1 10 - - 2
Expected return on plan assets (506) (56) (528) (62) (489) (67)
Amortization of net actuarial (gains) losses 162 (39) 189 (74) 201 (48)
Amortization of prior service costs (credit) (12) - (14) (3) (15) (12)
Total net periodic benefit costs (credit)
194 (53) 246 (92) 336 (67)
Other changes in plan assets and benefit obligations recognized in OCI:
Net actuarial (gains) losses (166) (54) (35) (42) 231 (138)
Prior service costs (credit) 1 (1) - - 3 -
Amortization of net actuarial (gains) losses
(162) 39 (189) 74 (201) 48
Amortization of prior service (costs) credit
12 - 14 3 15 12
Settlement and curtailment (gains) losses
(10) 10 (10) - - -
Exchange rate changes
(8) - 5 - - -
Total recognized in OCI (333) (6) (215) 35 48 (78)
Total recognized in net periodic benefit costs and OCI
$ (139) $ (59) $ 31 $ (57) $ 384 $ (145)
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
Assumptions
Assumptions used in determining benefit obligations for the U.S. plans were as follows:
Pension Benefits Other Postretirement Benefits
December 31, 2021
Weighted average discount rate 2.95% 3.05%
Weighted average interest crediting rate 3.18% N/A
Rate of compensation increase 2.50% - 8.00% N/A
December 31, 2020
Weighted average discount rate 2.65% 2.85%
Weighted average interest crediting rate 3.46% N/A
Rate of compensation increase 2.50% - 8.00% N/A
Assumptions used in determining net periodic benefit costs for the U.S. plans were as follows:
Pension Benefits Other Postretirement Benefits
Year Ended December 31, 2021
Weighted average discount rate 3.01% 3.14%
Weighted average interest crediting rate 3.24% N/A
Weighted average expected rate of return on plan assets 5.00% 3.87%
Rate of compensation increase 2.5% - 8.00% N/A
Year Ended December 31, 2020
Weighted average discount rate 3.30% 3.45%
Weighted average interest crediting rate 3.38% N/A
Weighted average expected rate of return on plan assets 5.50% 4.31%
Rate of compensation increase 2.25% - 8.50% N/A
Year Ended December 31, 2019
Weighted average discount rate 4.35% 4.35%
Weighted average interest crediting rate 4.01% N/A
Weighted average expected rate of return on plan assets 5.75% 5.04%
Rate of compensation increase 2.25% - 8.50% N/A
The weighted average discount rate for the U.S. plans is determined annually based on the yield, measured on a yield to worst basis, of a hypothetical portfolio constructed of high quality debt instruments available on the measurement date, which would provide the necessary future cash flows to pay the aggregate PBO when due.
The weighted average expected rate of return on plan assets for the U.S. plans is based on anticipated performance of the various asset sectors in which the plans invest, weighted by target allocation percentages. Anticipated future performance is based on long-term historical returns of the plan assets by sector, adjusted for the long-term expectations on the performance of the markets. While the precise expected rate of return derived using this approach will fluctuate from year to year, the policy is to hold this long-term assumption constant as long as it remains within reasonable tolerance from the derived rate.
The weighted average expected rate of return on plan assets for use in that plan’s valuation in 2022 is currently anticipated to be 5.00% for U.S. pension benefits and 3.86% for U.S. other postretirement benefits.
The weighted average interest crediting rate is determined annually based on the plan selected rate, long-term financial forecasts of that rate and the demographics of the plan participants.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
The assumed healthcare costs trend rates used in measuring the APBO and net periodic benefit costs were as follows:
December 31,
2021 2020
Before
Age 65 Age 65 and
older Before
Age 65 Age 65 and
older
Following year
5.1 % 3.3 % 5.8 % 5.6 %
Ultimate rate to which cost increase is assumed to decline
3.7 % 3.8 % 3.8 % 3.8 %
Year in which the ultimate trend rate is reached
2074 2074 2074 2074
Plan Assets
Certain U.S. subsidiaries provide employees with benefits under various Employee Retirement Income Security Act of 1974 (“ERISA”) benefit plans. These include qualified pension plans, postretirement medical plans and certain retiree life insurance coverage. The assets of these U.S. subsidiaries’ qualified pension plans are held in an insurance group annuity contract, and the vast majority of the assets of the postretirement medical plan are held in a trust which largely utilizes insurance contracts to hold the assets. All of these contracts are issued by the Company’s insurance affiliates, and the assets under the contracts are held in insurance separate accounts that have been established by the Company. The underlying assets of the separate accounts are principally comprised of cash and cash equivalents, short-term investments, fixed maturity securities AFS, equity securities, derivatives, real estate and private equity investments. The assets backing the retiree life coverage also utilize insurance contracts issued by the Company’s insurance affiliate and are held in a general account Life Insurance Funding Agreement.
The insurance contract provider engages investment management firms (“Managers”) to serve as sub-advisors for the separate accounts based on the specific investment needs and requests identified by the plan fiduciary. These Managers have portfolio management discretion over the purchasing and selling of securities and other investment assets pursuant to the respective investment management agreements and guidelines established for each insurance separate account. The assets of the qualified pension plans and postretirement medical plans (the “Invested Plans”) are well diversified across multiple asset categories and across a number of different Managers, with the intent of minimizing risk concentrations within any given asset category or with any of the given Managers.
The Invested Plans, other than those held in participant directed investment accounts, are managed in accordance with investment policies consistent with the longer-term nature of related benefit obligations and within prudent risk parameters. Specifically, investment policies are oriented toward (i) maximizing the Invested Plan’s funded status; (ii) minimizing the volatility of the Invested Plan’s funded status; (iii) generating asset returns that exceed liability increases; and (iv) targeting rates of return in excess of a custom benchmark and industry standards over appropriate reference time periods. These goals are expected to be met through identifying appropriate and diversified asset classes and allocations, ensuring adequate liquidity to pay benefits and expenses when due and controlling the costs of administering and managing the Invested Plan’s investments. Independent investment consultants are periodically used to evaluate the investment risk of the Invested Plan’s assets relative to liabilities, analyze the economic and portfolio impact of various asset allocations and management strategies and recommend asset allocations.
Derivative contracts may be used to reduce investment risk, to manage duration and to replicate the risk/return profile of an asset or asset class. Derivatives may not be used to leverage a portfolio in any manner, such as to magnify exposure to an asset, asset class, interest rates or any other financial variable. Derivatives are also prohibited for use in creating exposures to securities, currencies, indices or any other financial variable that is otherwise restricted.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
The table below summarizes the actual weighted average allocation of the estimated fair value of total plan assets by asset class at December 31 for the years indicated and the approved target allocation by major asset class at December 31, 2021 for the Invested Plans:
December 31,
2021 2020
U.S. Pension
Benefits
U.S. Other
Postretirement
Benefits (1)
U.S. Pension
Benefits U.S. Other
Postretirement
Benefits (1)
Target Actual
Allocation Target Actual
Allocation Actual
Allocation Actual
Allocation
Asset Class
Fixed maturity securities AFS
85 % 84 % 95 % 95 % 85 % 95 %
Equity securities (2)
7 % 7 % 5 % 5 % 8 % 5 %
Alternative securities (3)
8 % 9 % - % - % 7 % - %
Total assets
100 % 100 % 100 % 100 %
__________________
(1)U.S. other postretirement benefits do not reflect postretirement life’s plan assets invested in fixed maturity securities AFS.
(2)Equity securities percentage includes derivative assets.
(3)Alternative securities primarily include private equity and real estate funds.
Estimated Fair Value
The pension and other postretirement benefit plan assets are categorized into a three-level fair value hierarchy, as described in Note 10, based upon the significant input with the lowest level in its valuation. The Level 2 asset category includes certain separate accounts that are primarily invested in liquid and readily marketable securities. The estimated fair value of such separate accounts is based upon reported NAV provided by fund managers and this value represents the amount at which transfers into and out of the respective separate account are effected. These separate accounts provide reasonable levels of price transparency and can be corroborated through observable market data. Directly held investments are primarily invested in U.S. and foreign government and corporate securities. The Level 3 asset category includes separate accounts that are invested in assets that provide little or no price transparency due to the infrequency with which the underlying assets trade and generally require additional time to liquidate in an orderly manner. Accordingly, the values for separate accounts invested in these alternative asset classes are based on inputs that cannot be readily derived from or corroborated by observable market data.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
The pension and other postretirement plan assets measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy are summarized as follows:
December 31, 2021
Pension Benefits Other Postretirement Benefits
Fair Value Hierarchy Fair Value Hierarchy
Level 1 Level 2 Level 3 Total
Estimated
Fair Value Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities AFS:
Corporate
$ - $ 4,305 $ - $ 4,305 $ - $ 222 $ - $ 222
U.S. government bonds
1,824 80 - 1,904 69 - - 69
Foreign bonds
- 1,115 1 1,116 - 51 - 51
Federal agencies
- 83 - 83 - 10 - 10
Municipals
- 248 - 248 - 8 - 8
Short-term investments
142 484 - 626 486 482 - 968
Other (1)
155 627 1 783 14 45 - 59
Total fixed maturity securities AFS
2,121 6,942 2 9,065 569 818 - 1,387
Equity securities
601 283 11 895 55 - - 55
Other investments
42 1 954 997 1 - - 1
Derivative assets
14 - - 14 - - - -
Total assets
$ 2,778 $ 7,226 $ 967 $ 10,971 $ 625 $ 818 $ - $ 1,443
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
December 31, 2020
Pension Benefits Other Postretirement Benefits
Fair Value Hierarchy Fair Value Hierarchy
Level 1 Level 2 Level 3 Total
Estimated
Fair Value Level 1 Level 2 Level 3 Total
Estimated
Fair Value
(In millions)
Assets
Fixed maturity securities AFS:
Corporate
$ - $ 4,704 $ - $ 4,704 $ - $ 244 $ - $ 244
U.S. government bonds
1,820 48 - 1,868 51 - - 51
Foreign bonds
- 990 - 990 - 69 - 69
Federal agencies
- 114 - 114 - 2 - 2
Municipals
- 310 - 310 - 8 - 8
Short-term investments
- 265 - 265 471 503 - 974
Other (1)
399 757 - 1,156 44 44 - 88
Total fixed maturity securities AFS
2,219 7,188 - 9,407 566 870 - 1,436
Equity securities
826 275 - 1,101 56 - - 56
Other investments
26 - 708 734 - - - -
Derivative assets
14 - - 14 - - - -
Total assets
$ 3,085 $ 7,463 $ 708 $ 11,256 $ 622 $ 870 $ - $ 1,492
__________________
(1)Other primarily includes money market securities, mortgage-backed securities, collateralized mortgage obligations and ABS.
A rollforward of all pension and other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs was as follows:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fixed Maturity Securities AFS:
Foreign Bonds Other (1) Equity Securities Other
Investments
(In millions)
Balance, January 1, 2020 $ - $ 3 $ - $ 686
Realized gains (losses) - - - -
Unrealized gains (losses) - - - (55)
Purchases, sales, issuances and settlements, net
- (3) - 77
Transfers into and/or out of Level 3 - - - -
Balance, December 31, 2020 $ - $ - $ - $ 708
Realized gains (losses) - - - -
Unrealized gains (losses) - - - 63
Purchases, sales, issuances and settlements, net
1 1 11 183
Transfers into and/or out of Level 3 - - - -
Balance, December 31, 2021 $ 1 $ 1 $ 11 $ 954
__________________
(1)Other includes ABS and collateralized mortgage obligations.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
18. Employee Benefit Plans (continued)
Expected Future Contributions and Benefit Payments
It is the subsidiaries’ practice to make contributions to the U.S. qualified pension plan to comply with minimum funding requirements of ERISA. In accordance with such practice, no contributions are expected to be required for 2022. The subsidiaries do not expect to make any discretionary contributions to the qualified pension plan in 2022. For information on employer contributions, see “- Obligations and Funded Status.”
Benefit payments due under the U.S. nonqualified pension plans are primarily funded from the subsidiaries’ general assets as they become due under the provisions of the plans, and therefore benefit payments equal employer contributions. The U.S. subsidiaries expect to make contributions of $85 million to fund the benefit payments in 2022.
Postretirement benefits are either: (i) not vested under law; (ii) a non-funded obligation of the subsidiaries; or (iii) both. Current regulations do not require funding for these benefits. The subsidiaries use their general assets, net of participant’s contributions, to pay postretirement medical claims as they come due. As permitted under the terms of the governing trust document, the subsidiaries may be reimbursed from plan assets for postretirement medical claims paid from their general assets. The U.S. subsidiaries expect to make contributions of $30 million towards benefit obligations in 2022 to pay postretirement medical claims.
Gross benefit payments for the next 10 years, which reflect expected future service where appropriate, are expected to be as follows:
Pension Benefits Other Postretirement Benefits
(In millions)
2022 $ 704 $ 72
2023 $ 712 $ 71
2024 $ 728 $ 69
2025 $ 733 $ 67
2026 $ 751 $ 65
2027-2031 $ 3,779 $ 304
Defined Contribution Plans
Certain subsidiaries sponsor defined contribution plans under which a portion of employee contributions are matched. These subsidiaries contributed $88 million, $95 million and $96 million for the years ended December 31, 2021, 2020 and 2019, respectively.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
19. Income Tax
The provision for income tax was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Current:
U.S. federal
$ 62 $ 271 $ (189)
U.S. state and local
38 27 4
Non-U.S.
795 882 850
Subtotal
895 1,180 665
Deferred:
U.S. federal
837 (115) (235)
U.S. state and local
(2) 1 -
Non-U.S.
(179) 443 456
Subtotal
656 329 221
Provision for income tax expense (benefit)
$ 1,551 $ 1,509 $ 886
The Company’s income (loss) before income tax expense (benefit) was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Income (loss):
U.S.
$ 4,841 $ 2,970 $ 2,094
Non-U.S.
3,285 3,957 4,701
Total
$ 8,126 $ 6,927 $ 6,795
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Tax provision at U.S. statutory rate $ 1,706 $ 1,455 $ 1,427
Tax effect of:
Dividend received deduction (40) (34) (37)
Tax-exempt income (36) (45) (64)
Prior year tax (1), (2) (127) (27) (179)
Low income housing tax credits (178) (202) (254)
Other tax credits (46) (45) (52)
Foreign tax rate differential (3), (4), (5) 267 414 395
Change in valuation allowance 1 (5) (22)
U.S. Tax Reform impact (6) - - (326)
Other, net (7) 4 (2) (2)
Provision for income tax expense (benefit) $ 1,551 $ 1,509 $ 886
__________________
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
19. Income Tax (continued)
(1)As discussed further below, prior year tax primarily includes a non-cash benefit related to uncertain tax positions of $117 million and $158 million for the years ended December 31, 2021 and 2019, respectively.
(2)For the year ended December 31, 2020, prior year tax primarily includes a $40 million tax benefit related to an Internal Revenue Service (“IRS”) audit matter.
(3)For the year ended December 31, 2021, foreign tax rate differential includes tax charges of $50 million related to the pending disposition of MetLife Poland and disposition of MetLife Greece, $41 million related to the sale of MetLife Seguros and $30 million related to the U.S. tax on Global Intangible Low-Taxed Income (“GILTI”) of which $42 million is a current year charge offset by a $12 million tax benefit revising the 2020 estimate. See Note 3 for information on the Company’s business dispositions.
(4)For the year ended December 31, 2020, foreign tax rate differential includes tax charges of $60 million and $24 million related to the sales of MetLife Seguros de Retiro and MetLife Russia, respectively, and $43 million related to the U.S. tax on GILTI. See Note 3 for information on the Company’s business dispositions.
(5)For the year ended December 31, 2019, foreign tax rate differential includes tax charges of $61 million from the definitive agreement to sell MetLife Hong Kong and $12 million related to GILTI, of which $35 million is a current year charge offset by a $23 million tax benefit revising the 2018 estimate. See Note 3 for information on the disposition of MetLife Hong Kong.
(6)For the year ended December 31, 2019, U.S. Tax Reform impact includes a $317 million tax benefit related to the deemed repatriation transition tax and $9 million related to the effect of sequestration on the alternative minimum tax credit.
(7)For the year ended December 31, 2021, other primarily includes tax charges of $54 million related to the sale of MetLife P&C offset by a tax benefit of $53 million related to a non-cash transfer of assets from a wholly-owned U.K. subsidiary to its U.S. parent.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
19. Income Tax (continued)
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:
December 31,
2021 2020
(In millions)
Deferred income tax assets:
Policyholder liabilities and receivables
$ 3,787 $ 3,890
Net operating loss carryforwards (1)
235 301
Employee benefits
583 673
Capital loss carryforwards
9 9
Tax credit carryforwards (2)
825 922
Litigation-related and government mandated
95 126
Total gross deferred income tax assets
5,534 5,921
Less: Valuation allowance (1)
299 309
Total net deferred income tax assets
5,235 5,612
Deferred income tax liabilities:
Investments, including derivatives
4,167 4,421
Intangibles
1,188 1,387
Net unrealized investment gains
5,551 7,422
DAC
3,471 3,162
Other 362 134
Total deferred income tax liabilities
14,739 16,526
Net deferred income tax asset (liability) (3)
$ (9,504) $ (10,914)
__________________
(1)The Company has recorded a deferred tax asset of $235 million related to U.S. state and non-U.S. net operating loss carryforwards and an offsetting valuation allowance for the year ended December 31, 2021. Certain net operating loss carryforwards will expire between 2022 and 2041, whereas others have an unlimited carryforward period.
(2)Tax credit carryforwards for the year ended December 31, 2021 primarily reflect general business credits expiring between 2038 and 2041 and are reduced by $44 million related to unrecognized tax benefits.
(3)On the consolidated balance sheet for the years ended December 31, 2021 and 2020, $9,693 million and $11,008 million, respectively, is reported in Deferred income tax liability for jurisdictions in a net deferred income tax liability position and $189 million and $94 million, respectively, of a deferred income tax asset is reported in Other assets for jurisdictions in a net deferred income tax asset position.
The Company has not provided for U.S. deferred taxes on the remaining excess of book bases over tax bases of certain investments in non-U.S. subsidiaries that are essentially permanent in duration. The amount of deferred tax liability related to the Company’s remaining basis difference in these non-U.S. subsidiaries was $260 million at December 31, 2021.
The Company files income tax returns with the U.S. federal government and various U.S. state and local jurisdictions, as well as non-U.S. jurisdictions. The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2014. In material non-U.S. jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2015.
In 2021, the Company filed amended Federal income tax returns with the IRS for MetLife, Inc. and subsidiaries for tax years 2010 through 2013. In 2021, the IRS reviewed and acknowledged acceptance of the 2010 through 2013 amended
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
19. Income Tax (continued)
Federal income tax returns and closed the years to further audit. Accordingly, in 2021, the Company recorded a non-cash benefit to net income of $53 million in provision for income tax expense (benefit). In addition, in 2021, the IRS concluded its Federal income tax audit of American Life for tax years 2010 through 2013. Accordingly, in 2021, the Company recorded a non-cash benefit to net income of $42 million, net of tax, comprised of a $34 million tax benefit recorded in provision for income tax expense (benefit) and a $10 million interest benefit ($8 million, net of tax) included in other expenses.
The Company filed refund claims in 2017 with the IRS for 2000 through 2002 to recover tax and interest predominantly related to the disallowance of certain foreign tax credits for which the Company received a statutory notice of deficiency in 2015 and paid the tax thereon. The disallowed foreign tax credits relate to certain non-U.S. investments held by MLIC in support of its life insurance business through a U.K. investment subsidiary that was structured as a joint venture until early 2009. In 2020, the Company received refunds from these claims filed in 2017, and as a result, the Company recorded a $28 million interest benefit ($22 million, net of tax) included in other expenses. For tax years 2000 through 2002 and tax years 2007 through 2009, the Company entered into binding agreements with the IRS in 2019 under which all remaining issues regarding the foreign tax credit matter noted above were resolved. Accordingly, in 2019, the Company recorded a non-cash benefit to net income of $226 million, net of tax, comprised of a $158 million tax benefit recorded in provision for income tax expense (benefit) and a $86 million interest benefit ($68 million, net of tax) included in other expenses.
The Company’s overall liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, U.S. federal tax legislation and regulation could impact unrecognized tax benefits. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Balance at January 1, $ 272 $ 256 $ 1,111
Additions for tax positions of prior years 19 16 6
Reductions for tax positions of prior years (1) (112) (1) (493)
Additions for tax positions of current year 5 12 13
Reductions for tax positions of current year (18) - -
Settlements with tax authorities (2) (3) (1) (381)
Lapses of statute of limitations - (10) -
Balance at December 31, $ 163 $ 272 $ 256
Unrecognized tax benefits that, if recognized, would impact the effective rate
$ 103 $ 203 $ 194
__________________
(1) The decreases in 2021 and 2019 are primarily related to non-cash benefits from tax audit settlements.
(2) The decrease in 2019 is primarily related to tax audit settlements, of which $377 million was reclassified to the current income tax payable account.
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
19. Income Tax (continued)
Interest was as follows:
Years Ended December 31,
2021 2020 2019
(In millions)
Interest expense (benefit) recognized on the consolidated statements of operations (1)
$ (36) $ 12 $ (179)
December 31,
2021 2020
(In millions)
Interest included in other liabilities on the consolidated balance sheets $ 15 $ 51
__________________
(1) The decreases in 2021 and 2019 are primarily related to the tax audit settlements, of which $10 million and $60 million, respectively, were recorded in other expenses, and $26 million and $119 million, respectively, were reclassified to the current income tax payable account.
20. Earnings Per Common Share
The following table presents the weighted average shares, basic earnings per common share and diluted earnings per common share:
Years Ended December 31,
2021 2020 2019
(In millions, except per share data)
Weighted Average Shares:
Weighted average common stock outstanding - basic 862.7 907.8 937.6
Incremental common shares from assumed exercise or issuance of stock-based awards 6.7 5.4 6.8
Weighted average common stock outstanding - diluted 869.4 913.2 944.4
Net Income (Loss):
Net income (loss) $ 6,575 $ 5,418 $ 5,909
Less: Net income (loss) attributable to noncontrolling interests 21 11 10
Less: Preferred stock dividends 195 202 178
Preferred stock redemption premium 6 14 -
Net income (loss) available to MetLife, Inc.’s common shareholders $ 6,353 $ 5,191 $ 5,721
Basic $ 7.36 $ 5.72 $ 6.10
Diluted $ 7.31 $ 5.68 $ 6.06
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
21. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed below and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor, broker-dealer, and taxpayer.
The Company also receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities and Exchange Commission; federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority, as well as from local and national regulators and government authorities in jurisdictions outside the United States where the Company conducts business. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been established for a number of the matters noted below. In certain circumstances where liabilities have been established there may be coverage under one or more corporate insurance policies, pursuant to which there may be an insurance recovery. Insurance recoveries are recognized as gains when any contingencies relating to the insurance claim have been resolved, which is the earlier of when the gains are realized or realizable. It is possible that some of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated at December 31, 2021. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to estimate a reasonably possible range of loss. For matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of December 31, 2021, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $125 million.
Matters as to Which an Estimate Cannot Be Made
For other matters disclosed below, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
21. Contingencies, Commitments and Guarantees (continued)
Asbestos-Related Claims
MLIC is and has been a defendant in a large number of asbestos-related suits filed primarily in state courts. These suits principally allege that the plaintiff or plaintiffs suffered personal injury resulting from exposure to asbestos and seek both actual and punitive damages. MLIC has never engaged in the business of manufacturing or selling asbestos-containing products, nor has MLIC issued liability or workers’ compensation insurance to companies in the business of manufacturing or selling asbestos-containing products. The lawsuits principally have focused on allegations with respect to certain research, publication and other activities of one or more of MLIC’s employees during the period from the 1920s through approximately the 1950s and allege that MLIC learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. MLIC believes that it should not have legal liability in these cases. The outcome of most asbestos litigation matters, however, is uncertain and can be impacted by numerous variables, including differences in legal rulings in various jurisdictions, the nature of the alleged injury and factors unrelated to the ultimate legal merit of the claims asserted against MLIC.
MLIC’s defenses include that: (i) MLIC owed no duty to the plaintiffs; (ii) plaintiffs did not rely on any actions of MLIC; (iii) MLIC’s conduct was not the cause of the plaintiffs’ injuries; and (iv) plaintiffs’ exposure occurred after the dangers of asbestos were known. During the course of the litigation, certain trial courts have granted motions dismissing claims against MLIC, while other trial courts have denied MLIC’s motions. There can be no assurance that MLIC will receive favorable decisions on motions in the future. While most cases brought to date have settled, MLIC intends to continue to defend aggressively against claims based on asbestos exposure, including defending claims at trials.
The approximate total number of asbestos personal injury claims pending against MLIC as of the dates indicated, the approximate number of new claims during the years ended on those dates and the approximate total settlement payments made to resolve asbestos personal injury claims at or during those years are set forth in the following table:
December 31,
2021 2020 2019
(In millions, except number of claims)
Asbestos personal injury claims at year end 58,785 60,618 61,134
Number of new claims during the year 2,824 2,496 3,187
Settlement payments during the year (1) $ 53.0 $ 52.9 $ 49.4
__________________
(1)Settlement payments represent payments made by MLIC during the year in connection with settlements made in that year and in prior years. Amounts do not include MLIC’s attorneys’ fees and expenses.
The number of asbestos cases that may be brought, the aggregate amount of any liability that MLIC may incur, and the total amount paid in settlements in any given year are uncertain and may vary significantly from year to year.
The ability of MLIC to estimate its ultimate asbestos exposure is subject to considerable uncertainty, and the conditions impacting its liability can be dynamic and subject to change. The availability of reliable data is limited and it is difficult to predict the numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future claims, the willingness of courts to allow plaintiffs to pursue claims against MLIC when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts.
The ability to make estimates regarding ultimate asbestos exposure declines significantly as the estimates relate to years further in the future. In the Company’s judgment, there is a future point after which losses cease to be probable and reasonably estimable. It is reasonably possible that the Company’s total exposure to asbestos claims may be materially greater than the asbestos liability currently accrued and that future charges to income may be necessary, but management does not believe any such charges are likely to have a material effect on the Company’s financial position.
The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. MLIC’s recorded asbestos liability covers pending claims, claims not yet asserted, and legal defense costs and is based on estimates and includes significant assumptions underlying its analysis.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
21. Contingencies, Commitments and Guarantees (continued)
MLIC reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing external literature regarding asbestos claims experience in the United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. Based upon its regular reevaluation of its exposure from asbestos litigation, MLIC has updated its recorded liability for asbestos-related claims to $372 million at December 31, 2021. The recorded liability was $425 million at December 31, 2020.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under the Fair Labor Standards Act (“FLSA”), the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that MLIC improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for overtime pay even though they allege they continued to work more than 40 hours per week. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. The court denied the plaintiffs’ motion to certify the class and the United States Circuit Court for the Second Circuit denied plaintiffs leave to appeal this ruling. The court granted MLIC’s motion for summary judgment as to the lead plaintiff’s FLSA claims and MLIC’s motion to de-certify the class as a collective action. Plaintiffs’ motion for interlocutory review of the de-certification ruling is still pending. MLIC intends to defend this action vigorously.
Total Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New York, filed December 27, 2017)
Total Asset Recovery Services (the “Relator”) brought an action under the qui tam provision of the New York False Claims Act (the “Act”) on behalf of itself and the State of New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator alleges that MetLife, Inc., MLIC, and several other insurance companies violated the Act by filing false unclaimed property reports with the State of New York from 1986 to 2017, to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part of their demutualizations in the late 1990s. The Relator seeks treble damages and other relief. The Appellate Division of the New York State Supreme Court, First Department, reversed the court’s order granting MetLife, Inc. and MLIC’s motion to dismiss and remanded the case to the trial court where the Relator has filed an amended complaint. The Company intends to defend the action vigorously.
Matters Related to Group Annuity Benefits and Assumed Variable Annuity Guarantee Reserves
In 2018, the Company announced that it identified two material weaknesses in its internal control over financial reporting related to the practices and procedures for estimating reserves for certain group annuity benefits and the calculation of reserves associated with certain variable annuity guarantees assumed from the former operating joint venture in Japan. Several regulators have made inquiries into these issues and it is possible that other jurisdictions may pursue similar investigations or inquiries. The Company is exposed to lawsuits, and could be exposed to additional legal actions relating to these issues. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, ERISA, or other laws or regulations. The Company could incur significant costs in connection with these actions.
Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018)
Plaintiff filed this putative class action seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through January 29, 2018. Plaintiff alleges that MetLife, Inc., its former Chief Executive Officer and Chairman of the Board, and its former Chief Financial Officer violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by issuing materially false and/or misleading financial statements. Plaintiff alleges that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiff seeks unspecified compensatory damages and other relief. On January 11, 2021, the court granted MetLife’s motion to dismiss and dismissed the complaint in its entirety. The United States Court of Appeals for the Second Circuit affirmed the dismissal.
MetLife, Inc.
Notes to the Consolidated Financial Statements - (continued)
21. Contingencies, Commitments and Guarantees (continued)
Derivative Demands
The MetLife, Inc. Board of Directors received six letters, dated March 28, 2018, May 11, 2018, July 16, 2018, December 20, 2018, February 5, 2019, and April 7, 2020, written on behalf of individual stockholders, demanding that MetLife, Inc. take action against current and former directors and officers for alleged breaches of fiduciary duty and/or investigate, remediate, and recover damages allegedly suffered by the Company as a result of (i) the Company’s allegedly inadequate practices and procedures for estimating reserves for certain group annuity benefits, (ii) the Company’s allegedly inadequate internal controls over financial reporting and corporate governance practices and procedures, and (iii) the alleged dissemination of false or misleading information related to these issues. The MetLife, Inc. Board of Directors appointed a special committee to investigate the allegations set forth in these six letters.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $4.6 billion and $3.3 billion at December 31, 2021 and 2020, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $9.1 billion and $8.5 billion at December 31, 2021 and 2020, respectively.
Guarantees
In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $329 million, with a cumulative maximum of $640 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.
The Company also has minimum fund yield requirements on certain pension funds. Since these guarantees are not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future.
The Company’s recorded liabilities were $20 million at both December 31, 2021 and 2020 for indemnities, guarantees and commitments.
22. Subsequent Events
Disposition of MetLife Greece
See Note 3 for information on the disposition of MetLife, Inc.’s wholly-owned subsidiaries in Greece.
MetLife, Inc.
Schedule I
Consolidated Summary of Investments -
Other Than Investments in Related Parties
December 31, 2021
(In millions)
Types of Investments
Cost or
Amortized Cost (1) Estimated Fair
Value Amount at
Which Shown on
Balance Sheet
Fixed maturity securities AFS:
Bonds:
Foreign government
$ 56,848 $ 61,609 $ 61,609
U.S. government and agency
41,068 46,599 46,599
Public utilities
11,735 13,481 13,481
Municipals
11,761 14,212 14,212
All other corporate bonds
129,145 142,133 142,133
Total bonds
250,557 278,034 278,034
Mortgage-backed and asset-backed securities
59,389 61,180 61,180
Redeemable preferred stock
938 1,060 1,060
Total fixed maturity securities AFS
310,884 340,274 340,274
Unit-linked and FVO Securities
9,886 12,142 12,142
Equity securities:
Common stock:
Industrial, miscellaneous and all other
335 545 545
Banks, trust and insurance companies
446 530 530
Public utilities
3 4 4
Non-redeemable preferred stock
189 190 190
Total equity securities
973 1,269 1,269
Mortgage loans
79,987 79,353
Policy loans
9,111 9,111
Real estate and real estate joint ventures
12,035 12,035
Real estate acquired in satisfaction of debt
181 181
Other limited partnership interests
14,625 14,625
Short-term investments
7,216 7,176
Other invested assets
18,655 18,655
Total investments
$ 463,553 $ 494,821
__________________
(1)Unit-linked and FVO Securities are primarily equity securities (including mutual funds) and fixed maturity securities. Amortized cost for fixed maturity securities AFS, Unit-linked and FVO Securities, mortgage loans, policy loans and short-term investments represents original cost reduced by repayments and adjusted for amortization of premium or accretion of discount; for equity securities, cost represents original cost; for real estate, cost represents original cost reduced by impairments and depreciation; for real estate joint ventures and other limited partnership interests, cost represents original cost reduced for impairments or original cost adjusted for equity in earnings and distributions.
MetLife, Inc.
Schedule II
Condensed Financial Information
(Parent Company Only)
December 31, 2021 and 2020
(In millions, except share and per share data)
2021 2020
Condensed Balance Sheets
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $2,742 and $3,400, respectively)
$ 2,745 $ 3,443
Short-term investments, principally at estimated fair value
- 156
Other invested assets, at estimated fair value
314 187
Total investments
3,059 3,786
Cash and cash equivalents
1,961 441
Accrued investment income
4 11
Investment in subsidiaries
80,165 88,684
Loans to subsidiaries
35 -
Other assets
798 966
Total assets
$ 86,022 $ 93,888
Liabilities and Stockholders’ Equity
Liabilities
Payables for collateral under derivatives transactions
$ 153 $ 65
Long-term debt - unaffiliated
12,814 13,463
Long-term debt - affiliated
1,884 2,073
Junior subordinated debt securities
2,463 2,461
Other liabilities
1,226 1,268
Total liabilities
18,540 19,330
Stockholders’ Equity
Preferred stock, par value $0.01 per share; $3,905 and $4,405, respectively, aggregate liquidation preference
- -
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,186,540,473 and 1,181,614,288 shares issued, respectively; 825,540,267 and 892,910,600 shares outstanding, respectively
12 12
Additional paid-in capital
33,511 33,812
Retained earnings
41,197 36,491
Treasury stock, at cost; 361,000,206 and 288,703,688 shares, respectively
(18,157) (13,829)
Accumulated other comprehensive income (loss)
10,919 18,072
Total stockholders’ equity
67,482 74,558
Total liabilities and stockholders’ equity
$ 86,022 $ 93,888
See accompanying notes to the condensed financial information.
MetLife, Inc.
Schedule II
Condensed Financial Information - (continued)
(Parent Company Only)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Condensed Statements of Operations
Revenues
Net investment income
$ 25 $ 50 $ 77
Other revenues
19 29 27
Net investment gains (losses)
1,655 (154) (40)
Net derivative gains (losses)
116 (61) (45)
Total revenues
1,815 (136) 19
Expenses
Interest expense
847 833 850
Other expenses
207 154 153
Total expenses
1,054 987 1,003
Income (loss) before provision for income tax and equity in earnings of subsidiaries 761 (1,123) (984)
Provision for income tax (expense) benefit (202) 267 582
Equity in earnings of subsidiaries 5,995 6,263 6,301
Net income (loss)
6,554 5,407 5,899
Less: Preferred stock dividends
195 202 178
Preferred stock redemption premium $ 6 $ 14 $ -
Net income (loss) available to common shareholders
$ 6,353 $ 5,191 $ 5,721
Comprehensive income (loss)
$ (599) $ 10,427 $ 17,208
See accompanying notes to the condensed financial information.
MetLife, Inc.
Schedule II
Condensed Financial Information - (continued)
(Parent Company Only)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income (loss)
$ 6,554 $ 5,407 $ 5,899
Earnings of subsidiaries
(5,995) (6,263) (6,301)
Dividends from subsidiaries
4,830 3,970 4,790
(Gains) losses on investments and from sales of businesses, net
(1,655) 154 40
Other, net
23 211 (251)
Net cash provided by (used in) operating activities
3,757 3,479 4,177
Cash flows from investing activities
Sales and maturities of fixed maturity securities available-for-sale 5,078 3,693 3,153
Purchases of fixed maturity securities available-for-sale
(4,371) (3,858) (3,380)
Cash received in connection with freestanding derivatives
111 71 101
Cash paid in connection with freestanding derivatives
(27) (100) (392)
Sales of businesses
3,902 - -
Purchases of businesses - (1,875) -
Expense paid on behalf of subsidiaries
(15) (15) (13)
Receipts on loans to subsidiaries
195 100 -
Issuances of loans to subsidiaries
(230) - -
Returns of capital from subsidiaries
13 16 10
Capital contributions to subsidiaries
(88) (422) (75)
Net change in short-term investments
156 4 14
Other, net
9 (2) 28
Net cash provided by (used in) investing activities
4,733 (2,388) (554)
Cash flows from financing activities
Net change in payables for collateral under derivative transactions
88 49 7
Long-term debt issued
496 1,246 1,382
Long-term debt repaid
(996) (251) (877)
Treasury stock acquired in connection with share repurchases
(4,303) (1,151) (2,285)
Preferred stock issued, net of issuance costs
- 1,961 -
Redemption of preferred stock (494) (989) -
Preferred stock redemption premium (6) (14) -
Dividends on preferred stock
(195) (202) (178)
Dividends on common stock
(1,647) (1,657) (1,643)
Other, net
87 (19) (28)
Net cash provided by (used in) financing activities
(6,970) (1,027) (3,622)
Change in cash and cash equivalents
1,520 64 1
Cash and cash equivalents, beginning of year
441 377 376
Cash and cash equivalents, end of year
$ 1,961 $ 441 $ 377
MetLife, Inc.
Schedule II
Condensed Financial Information - (continued)
(Parent Company Only)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
2021 2020 2019
Supplemental disclosures of cash flow information
Net cash paid (received) for:
Interest
$ 853 $ 815 $ 864
Income tax:
Amounts paid to (received from) subsidiaries, net
$ (110) $ (392) $ (152)
Income tax paid (received) by MetLife, Inc., net
128 96 (3)
Total income tax, net
$ 18 $ (296) $ (155)
Non-cash transactions:
Dividends from subsidiary
$ 14 $ 341 $ -
Returns of capital from subsidiaries
$ 7 $ 13 $ 29
Capital contributions to subsidiaries
$ 15 $ 1 $ 30
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information
(Parent Company Only)
1. Basis of Presentation
The condensed financial information of MetLife, Inc. (parent company only) should be read in conjunction with the consolidated financial statements of MetLife, Inc. and its subsidiaries and the notes thereto (the “Consolidated Financial Statements”). These condensed unconsolidated financial statements reflect the results of operations, financial position and cash flows for MetLife, Inc. Investments in subsidiaries are accounted for using the equity method of accounting.
The preparation of these condensed unconsolidated financial statements in conformity with GAAP requires management to adopt accounting policies and make certain estimates and assumptions. The most important of these estimates and assumptions relate to the fair value measurements, the accounting for goodwill and identifiable intangible assets and the provision for potential losses that may arise from litigation and regulatory proceedings and tax audits, which may affect the amounts reported in the condensed unconsolidated financial statements and accompanying notes. Actual results could differ from these estimates.
2. Investment in Subsidiaries
In April 2021, MetLife, Inc. received $3.9 billion in cash in connection with the disposition of MetLife P&C.
In December 2020, MetLife, Inc. paid $1.8 billion in cash in connection with the acquisition of Versant Health.
See Note 3 of the Notes to the Consolidated Financial Statements for additional information.
3. Loans to Subsidiaries
MetLife, Inc. lends funds as necessary, through credit agreements or otherwise to its subsidiaries, some of which are regulated, to meet their capital requirements or to provide liquidity. Payments of interest and principal on surplus notes of regulated subsidiaries, which are subordinate to all other obligations of the issuing company, may be made only with the prior approval of the insurance department of the state of domicile.
In December 2021, Missouri Reinsurance, Inc. (“MoRe”), issued a $35 million promissory note to MetLife, Inc. The promissory note bears interest at a fixed rate of 2.12%, payable semi-annually, and matures in December 2024.
During 2021, under an existing credit facility, MetLife Services and Solutions, LLC issued $195 million in short-term notes to MetLife, Inc. which were repaid by August 2021. The short-term notes bore interest at six-month LIBOR plus 1.00%.
Interest income earned on loans to subsidiaries of $1 million, $2 million and $3 million for the years ended December 31, 2021, 2020 and 2019, respectively, is included in net investment income.
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information - (continued)
(Parent Company Only)
4. Long-term Debt
Long-term debt outstanding was as follows:
Interest Rates (1)
December 31,
Range
Weighted
Average
Maturity
2021 2020
(Dollars in millions)
Senior notes - unaffiliated (2) 0.50% - 6.50% 4.44% 2023 - 2046 $ 12,814 $ 13,463
Senior notes - affiliated 1.59% - 2.02% 2.25% 2023 - 2031 1,884 2,073
Total
$ 14,698 $ 15,536
__________________
(1)Range of interest rates and weighted average interest rates are for the year ended December 31, 2021.
(2)Net of $77 million and $85 million of unamortized issuance costs and net premiums and discounts at December 31, 2021 and 2020, respectively.
See Note 13 of the Notes to the Consolidated Financial Statements.
The aggregate maturities of long-term debt at December 31, 2021 for the next five years and thereafter are $0 in 2022, $1.3 billion in 2023, $1.5 billion in 2024, $1.2 billion in 2025, $582 million in 2026 and $10.1 billion thereafter.
Senior Notes - Affiliated
In December 2021, ¥54.6 billion 3.1350% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥12.2 billion 1.588% due December 2026, (ii) ¥19.1 billion 1.7185% due December 2028 and (iii) ¥23.3 billion 1.850% due December 2031.
In July 2021, ¥53.7 billion 2.9725% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥13.7 billion 1.610% due July 2026, (ii) ¥14.3 billion 1.755% due July 2028 and (iii) ¥25.7 billion 1.852% due July 2031.
In June 2020, MetLife, Inc. issued a new $250 million senior unsecured floating rate note to MetLife Insurance K.K. The senior unsecured floating rate note matures in June 2025 and bears interest at a variable rate of three-month LIBOR plus 1.82%, payable quarterly.
In July 2019, MetLife, Inc, issued a ¥37.3 billion 1.602% senior note due July 2023 and a ¥16.0 billion 1.637% senior note due July 2026. Both notes were issued to MLIC to refinance previously issued notes and are payable semi-annually.
In October 2019, MetLife Inc. issued a ¥26.5 billion 1.81% senior note due October 2029. The note was issued to MLIC to refinance previously issued notes, and is payable semi-annually.
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information - (continued)
(Parent Company Only)
4. Long-term Debt (continued)
Interest Expense
Interest expense was comprised of the following:
Years Ended December 31,
2021 2020 2019
(In millions)
Long-term debt - unaffiliated
$ 590 $ 570 $ 591
Long-term debt - affiliated
47 52 48
Collateral financing arrangements
5 6 6
Junior subordinated debt securities
205 205 205
Total
$ 847 $ 833 $ 850
See Notes 14 and 15 of the Notes to the Consolidated Financial Statements for information about the collateral financing arrangement and junior subordinated debt securities.
5. Support Agreements
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. Under these arrangements, MetLife, Inc. has agreed to cause each such entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations.
MetLife, Inc. guarantees the obligations of MoRe, under a retrocession agreement with RGA Reinsurance (Barbados) Inc., pursuant to which MoRe retrocedes a portion of the closed block liabilities associated with industrial life and ordinary life insurance policies that it assumed from MLIC.
MetLife, Inc. guarantees the obligations of MetLife Reinsurance Company of Bermuda, Ltd. (“MrB”), a Bermuda insurance affiliate and an indirect, wholly-owned subsidiary of MetLife, Inc. under a reinsurance agreement with Mitsui Sumitomo Primary Life Insurance Co., Ltd. (“Mitsui”), a former affiliate that is now an unaffiliated third party, under which MrB reinsures certain variable annuity business written by Mitsui.
MetLife, Inc. guarantees the obligations of MrB in an aggregate amount up to $1.0 billion, under a reinsurance agreement with MetLife Europe d.a.c., in respect of MrB’s reinsurance of the guaranteed living benefits and guaranteed death benefits associated with certain unit-linked variable annuity type liability contracts issued by MetLife Europe d.a.c.
MetLife, Inc., in connection with MRV’s reinsurance of certain universal life and term life insurance risks, committed to the Vermont Department of Banking, Insurance, Securities and Health Care Administration to take necessary action to cause the two protected cells of MRV to maintain total adjusted capital in an amount that is equal to or greater than 200% of each such protected cell’s authorized control level RBC, as defined in Vermont state insurance statutes.
MetLife, Inc., in connection with the collateral financing arrangement associated with MRC’s reinsurance of a portion of the liabilities associated with the closed block, committed to the South Carolina Department of Insurance to make capital contributions, if necessary, to MRC so that MRC may at all times maintain its total adjusted capital in an amount that is equal to or greater than 200% of the Company Action Level RBC, as defined in South Carolina state insurance statutes as in effect on the date of determination or December 31, 2007, whichever calculation produces the greater capital requirement, or as otherwise required by the South Carolina Department of Insurance. See Note 14 of the Notes to the Consolidated Financial Statements.
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information - (continued)
(Parent Company Only)
5. Support Agreements (continued)
MetLife, Inc. guarantees obligations arising from OTC-bilateral derivatives of MrB. MrB is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. MrB uses a variety of strategies to manage these risks, including the use of derivatives. Further, MrB’s derivatives are subject to industry standard netting agreements and collateral agreements that limit the unsecured portion of any open derivative position. On a net counterparty basis at December 31, 2021 and 2020, derivative transactions with positive mark-to-market values (in-the-money) were $255 million and $366 million, respectively, and derivative transactions with negative mark-to-market values (out-of-the-money) were $116 million and $158 million, respectively. To secure the obligations represented by the out-of-the-money transactions, MrB had provided collateral to its counterparties with an estimated fair value of $114 million and $158 million at December 31, 2021 and 2020, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were $2 million and $0 at December 31, 2021 and 2020, respectively.
MetLife, Inc. also guarantees the obligations of certain of its subsidiaries under committed facilities with third-party banks. See Note 13 of the Notes to the Consolidated Financial Statements.
MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information
December 31, 2021 and 2020
(In millions)
Segment DAC
and
VOBA Future Policy Benefits,
Other Policy-Related
Balances and
Policyholder Dividend
Obligation
Policyholder
Account
Balances Policyholder
Dividends
Payable Unearned
Premiums (1), (2) Unearned
Revenue (1)
U.S.
$ 440 $ 85,108 $ 77,891 $ - $ 325 $ 38
Asia
9,339 42,103 83,736 85 2,386 790
Latin America
2,021 10,541 5,023 - 1 797
EMEA
1,623 3,639 9,392 - 21 553
MetLife Holdings
2,607 76,523 27,450 393 159 190
Corporate & Other
31 1,240 (19) - - -
Total
$ 16,061 $ 219,154 $ 203,473 $ 478 $ 2,892 $ 2,368
U.S.
$ 434 $ 85,037 $ 77,487 $ - $ 175 $ 42
Asia
9,333 45,202 81,710 87 2,493 587
Latin America
2,092 11,749 5,100 - 1 740
EMEA
1,787 5,215 12,037 6 23 555
MetLife Holdings
2,712 78,048 28,858 494 154 188
Corporate & Other
31 1,475 (16) - - -
Total
$ 16,389 $ 226,726 $ 205,176 $ 587 $ 2,846 $ 2,112
__________________
(1)Amounts are included within the future policy benefits, other policy-related balances and policyholder dividend obligation column.
(2)Includes premiums received in advance.
MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information - (continued)
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
Segment Premiums and
Universal Life
and Investment-Type
Product Policy Fees Net
Investment
Income Policyholder
Benefits and
Claims and
Interest Credited
to Policyholder
Account Balances Amortization of
DAC and
VOBA
Charged to
Other
Expenses Other
Expenses (1)
U.S.
$ 28,363 $ 7,738 $ 29,987 $ 158 $ 3,707
Asia
8,308 5,110 7,295 1,404 1,751
Latin America
3,718 1,207 3,442 285 989
EMEA
2,825 932 2,162 382 900
MetLife Holdings
4,514 6,157 6,571 317 1,839
Corporate & Other
37 251 35 9 1,721
Total
$ 47,765 $ 21,395 $ 49,492 $ 2,555 $ 10,907
U.S.
$ 28,335 $ 6,563 $ 27,966 $ 471 $ 3,716
Asia
8,554 3,931 7,249 1,468 1,825
Latin America
3,257 991 2,857 276 971
EMEA
2,709 697 1,623 452 860
MetLife Holdings
4,757 4,900 6,983 485 1,976
Corporate & Other
25 35 (3) 8 1,732
Total
$ 47,637 $ 17,117 $ 46,675 $ 3,160 $ 11,080
U.S.
$ 27,879 $ 6,821 $ 28,165 $ 475 $ 3,603
Asia
8,482 3,920 7,278 1,380 1,907
Latin America
3,817 1,262 3,210 291 1,039
EMEA
2,615 1,442 2,361 420 921
MetLife Holdings
4,960 5,140 6,842 324 2,246
Corporate & Other
85 283 69 6 2,288
Total
$ 47,838 $ 18,868 $ 47,925 $ 2,896 $ 12,004
______________
(1)Includes other expenses and policyholder dividends, excluding amortization of DAC and VOBA charged to other expenses.
MetLife, Inc.
Schedule IV
Consolidated Reinsurance
December 31, 2021, 2020 and 2019
(Dollars in millions)
Gross Amount
Ceded
Assumed
Net Amount
% Amount Assumed to Net
Life insurance in-force
$ 5,273,869 $ 394,023 $ 662,901 $ 5,542,747 12.0 %
Insurance premium
Life insurance (1)
$ 23,597 $ 1,490 $ 2,346 $ 24,453 9.6 %
Accident & health insurance
16,752 639 553 16,666 3.3 %
Property and casualty insurance
910 28 8 890 0.9 %
Total insurance premium
$ 41,259 $ 2,157 $ 2,907 $ 42,009 6.9 %
Life insurance in-force
$ 5,222,988 $ 442,381 $ 597,903 $ 5,378,510 11.1 %
Insurance premium
Life insurance (1)
$ 23,629 $ 1,620 $ 1,809 $ 23,818 7.6 %
Accident & health insurance
14,958 516 208 14,650 1.4 %
Property and casualty insurance
3,614 63 15 3,566 0.4 %
Total insurance premium
$ 42,201 $ 2,199 $ 2,032 $ 42,034 4.8 %
Life insurance in-force
$ 5,100,675 $ 488,958 $ 623,662 $ 5,235,379 11.9 %
Insurance premium
Life insurance (1)
$ 23,938 $ 1,704 $ 1,794 $ 24,028 7.5 %
Accident & health insurance
14,835 523 207 14,519 1.4 %
Property and casualty insurance
3,740 71 19 3,688 0.5 %
Total insurance premium
$ 42,513 $ 2,298 $ 2,020 $ 42,235 4.8 %
__________________
(1)Includes annuities with life contingencies.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. The Company has designed these controls and procedures to ensure that information the Company is required to disclose in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to Company management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.
Management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2021.
There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. In fulfilling this responsibility, management’s estimates and judgments must assess the expected benefits and related costs of control procedures. The Company’s internal control objectives include providing management with reasonable, but not absolute, assurance that the Company has safeguarded assets against loss from unauthorized use or disposition, and that the Company has executed transactions in accordance with management’s authorization and recorded them properly to permit the preparation of consolidated financial statements in conformity with GAAP.
Management evaluated the design and operating effectiveness of the Company’s internal control over financial reporting based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In the opinion of management, MetLife, Inc. maintained effective internal control over financial reporting as of December 31, 2021.
Deloitte has issued its report on its audit of the effectiveness of internal control over financial reporting, which is set forth below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MetLife, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MetLife, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 17, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 17, 2022

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item pertaining to Directors is incorporated herein by reference to MetLife, Inc.’s definitive proxy statement for the Annual Meeting of Shareholders to be held on June 21, 2022, to be filed by MetLife, Inc. with the SEC pursuant to Regulation 14A within 120 days after the year ended December 31, 2021 (the “2022 Proxy Statement”).
The information called for by this Item pertaining to Executive Officers appears in “Business - Information About Our Executive Officers” in this Annual Report on Form 10-K.
The Company has adopted the MetLife Financial Management Code of Business Ethics (the “Financial Management Code”), a “code of ethics” as defined under the rules of the SEC, that applies to MetLife, Inc.’s CEO, CFO, Chief Accounting Officer and all professionals in finance and finance-related departments. In addition, the Company has adopted the Directors’ Code of Business Ethics (the “Directors’ Code”) which applies to all members of MetLife, Inc.’s Board of Directors, including the CEO, and the Company’s Code of Business Ethics, which applies to all employees of the Company, including MetLife, Inc.’s CEO, CFO and Chief Accounting Officer. These codes are available on the Company’s website at www.metlife.com/about-us/corporate-governance/corporate-conduct/. The Company intends to satisfy any disclosure obligations under Item 5.05 of Form 8-K by posting information on the Company’s website at the address given above.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to the 2022 Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this Item pertaining to ownership of shares of MetLife, Inc.’s common stock (“Shares”) is incorporated herein by reference to the 2022 Proxy Statement.
The following table provides information at December 31, 2021, regarding MetLife, Inc.’s equity compensation plans:
Equity Compensation Plan Information at December 31, 2021
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (2) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (3)
Plan Category (a) (b) (c)
Equity compensation plans approved by security holders 14,467,626 $ 44.02 34,073,114
Equity compensation plans not approved by security holders None - None
Total 14,467,626 $ 44.02 34,073,114
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(1) Column (a) reflects the following items outstanding as of December 31, 2021:
Stock Options 4,268,091
Restricted Stock Units 2,451,046
Performance Shares (assuming future payout at maximum performance factor) 6,734,026
Deferred Shares 1,014,463
Shares that will or may be issued 14,467,626
As of December 31, 2021:
•Stock Options under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”) and its predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan”) were outstanding;
•Restricted Stock Units and Performance Shares under the 2015 Stock Plan were outstanding; and
•Deferred Shares related to awards under the 2015 Stock Plan, MetLife, Inc. 2015 Non-Management Directors Stock Compensation Plan (the “2015 Director Stock Plan”), 2005 Stock Plan, MetLife, Inc. 2005 Non-Management Directors Stock Compensation Plan (the “2005 Director Stock Plan”), and earlier plans, were outstanding. Deferred Shares are related to awards that have become payable in Shares under any plan, the issuance of which has been deferred.
The maximum performance factor for Performance Shares granted in 2015 through 2021 was 175%. The number of Performance Shares outstanding as of December 31, 2021 at target (100%) performance factor was 3,848,015.
MetLife, Inc. may issue Shares pursuant to awards (including Stock Option exercises, if any) under any plan using Shares held in treasury by MetLife, Inc. or by issuing new Shares.
For a general description of how the number of Shares paid out on account of Performance Shares and Restricted Stock Units is determined, and the vesting periods applicable to Performance Shares and Restricted Stock Units, see Note 16 of the Notes to the Consolidated Financial Statements.
(2) Column (b) reflects the weighted average exercise price of all Stock Options under any plan that, as of December 31, 2021, had been granted but not forfeited, expired, or exercised. Performance Shares, Restricted Stock Units, and Deferred Shares are not included in determining the weighted average in column (b) because they have no exercise price.
(3) Column (c) reflects the following items outstanding as of December 31, 2021:
Number of Shares
At January 15, 2015, the effective date of the 2015 Stock Plan and 2015 Director Stock Plan:
Shares newly authorized for issuance under the 2015 Stock Plan 11,750,000
Shares remaining authorized for issuance under the 2005 Stock Plan or other plans that were not covered by awards (i) 18,023,959
Shares authorized for issuance under the 2015 Director Stock Plan (ii) 1,642,208
Net shares added to the 2015 Stock Plan and 2015 Director Stock Plan authorizations in light of the Separation (iii) 3,979,727
Total Shares authorized for issuance at January 1, 2015 and net shares added in light of the Separation 35,395,894
Additional Shares recovered for issuance (iv) in:
2015 - 2020 28,964,432
2021 2,580,639
Total Shares recovered for issuance since January 1, 2015 31,545,071
Less: Shares covered by new awards and new imputed reinvested dividends on Deferred Shares (v) in:
2015 - 2020 29,111,048
2021 3,756,803
Total Shares covered by new awards and new imputed reinvested dividends on Deferred Shares since January 1, 2015 32,867,851
Shares remaining available for future issuance under the 2015 Stock Plan and 2015 Director Stock Plan 34,073,114
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(i) Consists of Shares that were not covered by awards, including Shares previously covered by awards but recovered due to forfeiture of awards or other reasons and once again available for issuance.
(ii) Consists of Shares remaining authorized for issuance under the predecessor plan, the 2005 Director Stock Plan, that were not covered by awards, including Shares previously covered by awards but recovered due to forfeiture of awards or other reasons and once again available.
(iii) In 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of shares of Brighthouse Financial, Inc. common stock to the MetLife, Inc. common shareholders (the “Separation”). In light of the Separation, and in order to maintain the Share authorizations under each plan at the levels that shareholders had approved, MetLife, Inc. increased the number of Shares authorized for issuance under the 2015 Stock Plan and 2015 Director Stock Plan as of August 4, 2017, excluding those Shares from the authorizations that had already been issued, by the Adjustment Ratio. MetLife, Inc. also increased the number of Shares covered by outstanding Stock Options, Performance Shares, Restricted Stock Units, and Deferred Shares on that date by the Adjustment Ratio, in order to maintain the intrinsic value of those awards and Deferred Shares, which decreased the number of Shares available for issuance under both plans. The amount in this row is the net increase in the Share authorization under both the 2015 Stock Plan and 2015 Director Stock Plan as a result of these adjustments. For a description of the adjustment to Stock Options, Performance Shares, Restricted Stock Units, and Deferred Shares, see Note 16 of the Notes to the Consolidated Financial Statements.
(iv) Consists of Shares utilized under the 2005 Stock Plan or 2015 Stock Plan that were recovered during each of the indicated calendar years, and therefore once again available for issuance, due to: (i) termination of the award by expiration, forfeiture, cancellation, lapse, or otherwise without issuing Shares; (ii) settlement of the award in cash either in lieu of Shares or otherwise; (iii) exchange of the award for awards not involving Shares; (iv) payment of the exercise price of a Stock Option, or the tax withholding requirements with respect to an award, satisfied by tendering Shares to MetLife, Inc. (by either actual delivery or by attestation); (v) satisfaction of tax withholding requirements with respect to an award satisfied by MetLife, Inc. withholding Shares otherwise issuable; and (vi) the payout of Performance Shares at any performance factor less than the maximum performance factor.
(v) Consists of Shares covered by awards granted under the 2015 Stock Plan (including Performance Shares assuming future payout at maximum performance factor). Shares covered by awards granted under the 2015 Directors Stock Plan and Shares covered by imputed reinvested dividends credited on Deferred Shares owed to directors, employees or agents, in each case during each of the indicated calendar years.
Each Share MetLife, Inc. issues in connection with awards granted under the MetLife, Inc. 2005 Stock Plan other than Stock Options or Stock Appreciation Rights (such as Shares payable on account of Performance Shares or Restricted Stock Units under that plan, including any Deferred Shares resulting from such awards) reduces the number of Shares remaining for issuance by 1.179 (“2005 Stock Plan Share Award Ratio”). Each Share MetLife, Inc. issues in connection with a Stock Option or Stock Appreciation Right granted under the 2005 Stock Plan, or in connection with any award under any other plan for employees and agents (including any Deferred Shares resulting from such awards), reduces the number of Shares remaining for issuance by 1.0. (“Standard Award Ratio”). Shares related to awards that are recovered, and therefore authorized for issuance under the 2015 Stock Plan, are recovered with consideration of the 2005 Stock Plan Share Award Ratio and Standard Award Ratio, as applicable. Each Share MetLife, Inc. issues under the 2005 Director Stock Plan or 2015 Director Stock Plan (including any Deferred Shares resulting from such awards) reduces the number of Shares remaining for issuance under that plan by one. Shares related to awards that are recovered, and therefore authorized for issuance under the 2015 Director Stock Plan are recovered with consideration of this ratio. If MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Stock Plan and the award holder exercised it, only the number of Shares MetLife, Inc. issued, net of the Shares tendered, if any, would be deemed delivered for purposes of determining the maximum number of Shares MetLife, Inc. may issue under the 2015 Stock Plan.
Any Shares covered by awards under the 2015 Director Stock Plan that were to be recovered due to (i) termination of the award by expiration, forfeiture, cancellation, lapse, or otherwise without issuing Shares; (ii) settlement of the award in cash either in lieu of Shares or otherwise; (iii) exchange of the award for awards not involving Shares; and (iv) payment of the exercise price of a Stock Option, or the tax withholding requirements with respect to an award, satisfied by tendering Shares to MetLife, Inc. (by either actual delivery or by attestation) would be available to be issued under the 2015 Director Stock Plan. In addition, if MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Director Stock Plan, only the number of Shares issued, net of the Shares tendered, if any, would be deemed delivered for purposes of determining the maximum number of Shares available for issuance under the 2015 Director Stock Plan.
Under both the 2015 Stock Plan and the 2015 Director Stock Plan, in the event of a corporate event or transaction (including, but not limited to, a change in the Shares or the capitalization of MetLife) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of MetLife, combination of securities, exchange of securities, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of MetLife, or any similar corporate event or transaction, the appropriate committee of the Board of Directors of MetLife, in order to prevent dilution or enlargement of participants’ rights under the applicable plan, shall substitute or adjust, as applicable, the number and kind of Shares that may be issued under that plan and shall adjust the number and kind of Shares subject to outstanding awards. Any Shares related to awards under either plan which: (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of Shares; (ii) are settled in cash either in lieu of Shares or otherwise; or (iii) are exchanged with the appropriate committee’s permission for awards not involving Shares, are available again for grant under the applicable plan. If the option price of any Stock Option granted under either plan or the tax withholding requirements with respect to any award granted under either plan is satisfied by tendering Shares to MetLife (by either actual delivery or by attestation), or if a Stock Appreciation Right is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for issuance under that plan. The maximum number of Shares available for issuance under either plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock or Restricted Stock Units.
For a description of the kinds of awards that have been or may be made under the 2015 Stock Plan and 2015 Director Stock Plan and awards that remained outstanding under the 2005 Stock Plan, see Note 16 of the Notes to the Consolidated Financial Statements.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this Item is incorporated herein by reference to the 2022 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information called for by this item is incorporated herein by reference to the 2022 Proxy Statement.
Part IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 149.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 149.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins on page 331.