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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-15787
METLIFE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4075851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MADISON AVENUE
NEW YORK, NEW YORK 10010-3690
(212) 578-2211
(Address and telephone number of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 New York Stock Exchange
8.00% Equity Security Units New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of March 8, 2002 was approximately $23
billion. As of March 8, 2002, 708,598,152 shares of the registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION REQUIRED TO BE FURNISHED PURSUANT TO PART OF ITEM 10 AND
ITEMS 11, 12 AND 13 OF PART III OF THIS FORM 10-K IS SET FORTH IN, AND IS HEREBY
INCORPORATED BY REFERENCE HEREIN FROM, THE REGISTRANT'S DEFINITIVE PROXY
STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 23, 2002,
TO BE FILED BY THE REGISTRANT WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO REGULATION 14A NOT LATER THAN 120 DAYS AFTER THE YEAR ENDED DECEMBER
31, 2001.
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TABLE OF CONTENTS
PAGE
NUMBER
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 28
Item 3. Legal Proceedings........................................... 28
Item 4. Submission of Matters to a Vote of Security Holders......... 34
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 35
Item 6. Selected Financial Data..................................... 36
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 42
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 90
Item 8. Financial Statements and Supplementary Data................. 94
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 95
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 95
Item 11. Executive Compensation...................................... 95
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 95
Item 13. Certain Relationships and Related Transactions.............. 95
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 95
SIGNATURES............................................................ 103
EXHIBIT INDEX......................................................... E-1
This Annual Report on Form 10-K, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains statements
which constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements relating to
trends in the operations and financial results and the business and the products
of the Registrant and its subsidiaries, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend"
and other similar expressions. "MetLife" or the "Company" refers to MetLife,
Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries,
including Metropolitan Life Insurance Company ("Metropolitan Life").
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects on the
Company. Such forward-looking statements are not guarantees of future
performance.
Actual results may differ materially from those included in the
forward-looking statements as a result of risks and uncertainties including, but
not limited to, the following: (i) changes in general economic conditions,
including the performance of financial markets and interest rates; (ii)
heightened competition, including with respect to pricing, entry of new
competitors and the development of new products by new and existing competitors;
(iii) unanticipated changes in industry trends; (iv) MetLife, Inc.'s primary
reliance, as a holding company, on dividends from its subsidiaries to meet debt
payment obligations and the applicable regulatory restrictions on the ability of
the subsidiaries to pay such dividends; (v) deterioration in the experience of
the "closed block" established in connection with the reorganization of
Metropolitan Life; (vi) catastrophe losses; (vii) adverse litigation or
arbitration results; (viii) regulatory, accounting or tax changes that may
affect the cost of, or demand for, the Company's products or services; (ix)
downgrades in the Company's and its affiliates' claims paying ability or
financial strength ratings; (x) changes in rating agency policies or practices;
(xi) discrepancies between actual claims experience and assumptions used in
setting prices for the Company's products and establishing the liabilities for
the Company's obligations for future policy benefits and claims; (xii) the
effects of business disruption or economic contraction due to terrorism or other
hostilities; and (xiii) other risks and uncertainties described from time to
time in MetLife, Inc.'s filings with the Securities and Exchange Commission,
including its S-1 and S-3 registration statements. The Company specifically
disclaims any obligation to update or revise any forward-looking statement,
whether as a result of new information, future developments or otherwise.
2
As used in this Form 10-K, "MetLife" or the "Company" refers to MetLife,
Inc., a Delaware corporation formed in 1999 (the "Holding Company"), and its
subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan
Life").
PART I
ITEM 1. BUSINESS
MetLife, Inc., through its affiliates and subsidiaries, is a leading
provider of insurance and other financial services to a broad spectrum of
individual and institutional customers. The MetLife companies serve
approximately ten million individual households in the U.S. and companies and
institutions with approximately 33 million employees and members, including 88
of the FORTUNE 100 largest companies.
MetLife is one of the largest insurance and financial services companies in
the U.S. The Company's unparalleled franchises and brand names uniquely position
it to be the preeminent provider of protection and savings and investment
products in the U.S. In addition, MetLife's international operations are focused
on emerging markets where the demand for insurance and savings and investment
products is expected to grow rapidly in the future.
MetLife's well-recognized brand names, leading market positions,
competitive and innovative product offerings and financial strength and
expertise should help drive future growth and enhance shareholder value,
building on a long history of tradition and integrity.
Over the course of the next several years, MetLife will pursue the
following specific strategies to achieve its goals:
- Build on widely recognized brand names
- Capitalize on large customer base
- Expand multiple distribution channels
- Continue to introduce innovative and competitive products
- Focus international operations on emerging markets
- Maintain balanced focus on asset accumulation and protection products
- Reduce operating expenses
- Strengthen performance-oriented culture
- Further its commitment to a diverse workplace
- Optimize operating returns from the Company's investment portfolio
- Enhance capital efficiency
MetLife is organized into six major business segments: Individual,
Institutional, Reinsurance, Auto & Home, Asset Management and International.
Revenues for each segment are provided in Note 21 of Notes to Consolidated
Financial Statements.
INDIVIDUAL
MetLife's Individual segment offers a wide variety of protection and asset
accumulation products aimed at serving the financial needs of its customers
throughout their entire life cycle. Products offered by Individual include
insurance products, such as traditional, universal and variable life insurance,
individual disability insurance and long-term care insurance, and annuities and
investment products, such as variable and fixed annuities and mutual funds.
Individual's principal distribution franchises are MetLife Financial Services,
New England Financial, GenAmerica Financial and MetLife Investors Group.
Individual also distributes its products
3
through several additional distribution channels, including Nathan & Lewis,
MetLife Resources and Texas Life. In total, Individual had approximately 12,300
active sales representatives at the end of 2001.
MetLife's broadly recognized brand names and strong distribution channels
have allowed it to become the third largest provider of individual life
insurance and annuities in the U.S., with $11.5 billion of total statutory
individual life and annuity premiums and deposits in 2000, the latest year for
which the OneSource survey is available. According to a study done by
Tillinghast Towers Perrin, through December 31, 2001, MetLife was also the
largest issuer of individual variable life insurance in the U.S. based on
first-year premiums and deposits. In addition, according to a survey done by the
Variable Annuity Resource Data Service, as of December 31, 2001, MetLife was the
eighth largest variable annuity writer as measured by variable annuity assets
managed.
Reflecting overall trends in the insurance industry, sales of MetLife's
traditional life insurance products have declined in recent years, while
first-year premiums and deposits from variable and universal life insurance
products have grown at a compound annual rate of 27.1% from 1997 to 2001,
excluding the effect of acquiring GenAmerica Financial in 2000. This increase
includes the results of a customer retention exchange program. Excluding the
exchange program, the compound annual growth rate is 16.5%. Variable and
universal sales represented 73.1% of total life insurance sales for Individual
in 2001. Individual had $13.7 billion of revenues, or 42.8% of MetLife's total
revenues in 2001.
MARKETING AND DISTRIBUTION
The Company targets the large middle-income market, as well as affluent
individuals, owners of small businesses and executives of small- to medium-sized
companies. The Company has also been successful in selling its products in
various multicultural markets. Individual products are distributed nationwide
through multiple channels, with the primary distribution systems being the
MetLife Financial Services career agency system, the New England Financial
general agency system, the GenAmerica Financial independent general agency
system and MetLife Investors Group's distribution through financial
intermediaries. While continuing to invest in its traditional distribution
channels, the Company also expanded into additional channels in order to
supplement its growth or penetrate specific target markets.
MetLife Financial Services career agency system. MetLife Financial
Services career agency system had 6,142 agents in 192 agencies at December 31,
2001 of which 6,037 were agents under contract and 105 were agents in training.
The career agency sales force focuses on the large middle-income market,
including multicultural markets. The Company supports its efforts in
multicultural markets through targeted advertising, specially trained agents and
sales literature written in non-English languages. Multicultural markets
represented approximately 27% of MetLife Financial Services' individual life
sales in 2001. The average face amount of a life insurance policy sold through
the career agency system in 2001 was approximately $190,000, including term
insurance.
Agents in the career agency system are full-time MetLife employees who are
compensated primarily with commissions based on sales. As MetLife employees,
they also receive certain benefits. Agents in the career agency system may not
offer products of other insurers without MetLife's approval. At December 31,
2001, approximately 97% of the agents in the MetLife career agency system were
licensed to sell one or more of the following products: variable life insurance,
variable annuities and mutual funds.
From 1997 through 2001, the number of agents in the MetLife Financial
Services career agency system declined from 7,113 to 6,142. This decline was
primarily the result of MetLife Financial Services' more stringent standards for
recruiting and retaining agents, the consolidation of sales offices and
modifications in compensation practices for its sales force. During the same
period, the career agency system increased productivity, with net sales credits
per agent, an industry measure for agent productivity, growing at a compound
annual rate of 7.3%.
New England Financial general agency system. New England Financial's
general agency system targets affluent individuals, owners of small businesses
and executives of small- to medium-sized companies. The average face amount of a
life insurance policy sold through the New England Financial general agency
system in 2001 was approximately $330,000, including term insurance.
4
At December 31, 2001, New England Financial's sales force included 81
general agencies providing support to over 3,200 agents and a network of
independent brokers throughout the U.S. The compensation of agents who are
independent contractors and general agents who have exclusive contracts with New
England Financial, is based on sales, although general agents are also provided
with an allowance for benefits and other expenses. At December 31, 2001,
approximately 97% of New England Financial's agents were licensed to sell
variable products and mutual funds.
The number of agents in New England Financial's general agency sales force
increased by 184 agents in 2001. New England Financial has increased its sales
force at a compound annual growth rate of 7.4% over the past five years.
Productivity of the New England Financial general agency force increased at a
compound annual rate of 1.5% for the five years ended 2001.
GenAmerica Financial independent general agency system. GenAmerica
Financial markets a portfolio of individual life insurance, annuity contracts,
securities, and related financial services to high net-worth individuals and
small- to medium-sized businesses through multiple distribution channels. These
distribution systems include independent general agents, financial advisors,
consultants, brokerage general agencies and other independent marketing
organizations. The average face amount of a life insurance policy sold through
the GenAmerica Financial independent general agency system in 2001 was
approximately $500,000, including term insurance.
The GenAmerica Financial distribution system sells universal life, variable
universal life, and traditional life insurance products through approximately
845 independent general agencies with which it has contractual arrangements.
This reflects an 88% increase in independent general agencies from 2000 to 2001.
The independent general agents that market GenAmerica Financial products are
independent contractors and are generally responsible for the expenses of
operating their agencies, including office and overhead expenses and the
recruiting, selection, contracting, training, and development of agents and
brokers in their agencies. Recruiting and wholesaling efforts are directed from
a nationwide network of regional offices.
GenAmerica Financial is actively developing and implementing programs
designed to increase the scale and productivity of its distribution systems,
including significantly expanding its advisory, brokerage and producer group
sales channels, marketing, support, training, and other resources provided to
affiliated producers and aggressively recruiting larger distribution
organizations.
MetLife Investors Group. MetLife Investors Group is the wholesale
distribution channel for Individual. MetLife Investors Group is dedicated to the
distribution of variable annuities and fixed annuities through financial
intermediaries, including regional broker/dealers, financial planners and banks.
For the year ended December 31, 2001, MetLife Investors Group had 157 selling
agreements, 134 for regional broker/dealers and financial planners and 23 for
banks. Two major regional broker/dealer firms accounted for 27% and 23%,
respectively, of MetLife Investors Group's 2001 premiums. As of December 31,
2001, MetLife Investors Group's sales force consisted of 39 regional vice
presidents, or wholesalers.
In 2002, MetLife Investors Group plans to expand its distribution to the
New York Stock Exchange wirehouse firms. In addition, MetLife Investors Group
will launch the sale of flexible premium life insurance products.
MetLife Investors Group plans to grow existing distribution relationships
and acquire new relationships by capitalizing on an experienced management team,
leveraging the MetLife brand and resources, and developing high service,
low-cost operations.
Additional distribution channels. The Company distributes its individual
insurance and investment products through several additional distribution
channels, including Nathan & Lewis, MetLife Resources and Texas Life.
Nathan & Lewis. This channel operates through Nathan & Lewis
Securities, Inc., a Metropolitan Life subsidiary acquired in 1998, is a
broker/dealer that markets mutual funds and other securities, as well as
variable life insurance and variable annuity products, through
approximately 800 independent registered representatives. With this
acquisition, the Company obtained the use of Nathan & Lewis' client
management account information systems.
5
MetLife Resources. MetLife Resources, a division of MetLife, markets
retirement, annuity and other financial products on a national basis
through over 440 agents and independent brokers. MetLife Resources targets
the nonprofit, educational and health care markets.
Texas Life. Texas Life, a MetLife subsidiary, markets whole life and
universal life insurance products under the Texas Life name through
approximately 1,384 active independent insurance brokers. These brokers are
independent contractors who sell insurance for Texas Life on a nonexclusive
basis. Recently, a number of MetLife career agents have also begun to
market Texas Life products. Texas Life sells permanent life insurance
policies with low cash values that are marketed through the use of
brochures, as well as payroll deduction life insurance products.
PRODUCTS
The Company offers a wide variety of individual insurance, annuities, and
investment products aimed at serving its customers' financial needs throughout
their entire life cycle.
INSURANCE PRODUCTS
The Company's individual insurance products include variable life products,
universal life products, traditional life products, including whole life and
term insurance, and other insurance products, including individual disability
and long-term care insurance.
The Company continually reviews and updates its products. It has introduced
new products and features designed to increase the competitiveness of its
portfolio and the flexibility of its products to meet the broad range of asset
accumulation, life-cycle protection and distribution needs of its customers.
Some of these updates have included the introduction of variable annuities with
various share classes with associated liquidity provisions and optional
features, such as enhanced dollar cost averaging, bonuses, guaranteed death
benefits and income benefits, universal life and universal survivorship life
with secondary guarantees, term, improvements to variable universal life and
survivorship products, and innovative long-term care guaranteed purchase option
riders. In addition, ten to 20 fund options have been added to most variable
products, including those from State Street Research, American Funds(SM), Lord
Abbett & Company, Harris Associates L.P., MFS Investment Management,
MetLife(TM), PIMCO, Putnam Investments, Franklin Templeton(TM) Investments,
Janus, Neuberger and Berman, Salomon Brothers Asset Management, and Wellington
Management.
Variable life. Variable life products provide 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. Most importantly, with variable life products, premiums and account
balances can be directed by the policyholder into a variety of separate
investment accounts or directed to the Company's general account. In the
separate investment accounts, the policyholder bears the entire risk of the
investment results. MetLife collects specified fees for the management of these
various investment accounts and any net return is credited directly to the
policyholder's account. In some instances, third-party money management firms
manage investment accounts that support variable insurance products. 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.
Universal life. Universal life products provide insurance coverage on the
same basis as variable life, except that premiums, and the resulting accumulated
balances, are allocated only to the MetLife general account. Universal life
products may allow the insured to increase or decrease the amount of death
benefit coverage over the term of the contract and may allow the owner to adjust
the frequency and amount of premium payments. The Company credits premiums, net
of specified expenses, to an account maintained for the policyholder, as well as
interest, at rates it determines, subject to specified minimums. Specific
charges are made against the policyholder's account for the cost of insurance
protection and for expenses.
Whole life insurance. Whole life insurance products provide a guaranteed
benefit upon the death of the insured in return for the periodic payment of a
fixed premium over a predetermined period. Premium payments may be required for
the whole of the contract period, to a specified age or for a specified period,
and may be level
6
or change in accordance with a predetermined schedule. 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. Because the use of dividends is
specified by the policyholder, this group of products provides significant
flexibility to individuals to tailor the product to suit their specific needs
and circumstances, while at the same time providing guaranteed benefits.
Term insurance. Term insurance provides a guaranteed benefit upon the
death of the insured for a specified time period in return for the periodic
payment of premiums. Specified coverage periods range from one year to 20 years,
but in no event are they longer than the period over which premiums are paid.
Death benefits may be level over the period or decreasing. Decreasing coverage
is used principally to provide for loan repayment in the event of death.
Premiums may be guaranteed at a level amount for the coverage period or may be
non-level and non-guaranteed. Term insurance products are sometimes referred to
as pure protection products, in that there are typically no savings or
investment elements. Term contracts expire without value at the end of the
coverage period when the insured party is still living.
Other individual insurance products. Individual disability products
provide a benefit in the event of the disability of the insured. In most
instances, this benefit is in the form of monthly income paid until the insured
reaches age 65. In addition to income replacement, the product may be used to
provide for the payment of business overhead expenses for disabled business
owners or mortgage payment protection.
MetLife's long-term care insurance provides reimbursement for certain costs
associated with nursing home care and other services that may be provided to
older individuals unable to perform the activities of daily living.
In addition to these products, MetLife supports a group of small face
amount life insurance policies, known as industrial policies, that its agents
sold until 1964. New England Financial also sells a small amount of employee
benefit products and group pension products which are included in the financial
results of the Individual segment.
ANNUITIES AND INVESTMENT PRODUCTS
The Company offers a variety of individual annuities and investment
products, including variable and fixed annuities and mutual funds.
Variable annuities. The Company offers variable annuities for both asset
accumulation and asset distribution needs. Variable annuities allow the
contractholder to make deposits into various investment accounts, as determined
by the contractholder. The investment accounts are separate accounts and risks
associated with such investments are borne entirely by the contractholders.
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 the
Company determines, subject to certain minimums. In addition, contractholders
may also elect certain death benefit and living benefit guarantees.
Fixed annuities. Fixed annuities are used for both asset accumulation and
asset distribution needs. Fixed annuities do not allow the same investment
flexibility provided by variable annuities but provide guarantees related to
preservation of principal and interest credited. Deposits made into these
contracts are allocated to the general account and are credited with interest at
rates the Company determines, subject to certain minimums. Credited interest
rates may be guaranteed not to change for certain limited periods of time,
normally one year.
Mutual funds and securities. MetLife offers both proprietary and
non-proprietary mutual funds. Proprietary funds include those offered by State
Street Research & Management Company, a subsidiary of Metropolitan Life. MetLife
also offers investment accounts for mutual funds and securities that allow
customers to buy, sell and retain holdings in one centralized location, as well
as brokerage accounts that offer the accessibility and liquidity of a money
market mutual fund. Of the mutual funds sold by the Company in 2001, $0.7
billion of the deposited assets were managed by State Street Research &
Management Company and $2.3 billion by third parties.
7
INSTITUTIONAL
The Company's Institutional segment offers a broad range of group insurance
and retirement and savings products and services to corporations and other
institutions.
Group insurance products and services include group life insurance,
non-medical health insurance, such as short- and long-term disability, long-term
care and dental insurance and related administrative services, as well as other
benefits such as employer-sponsored auto and homeowners insurance provided
through the Auto & Home segment and prepaid legal services plans. The Company
sells these products either as an employer-paid benefit or as a voluntary
benefit in which the premiums are paid by the employee. Revenues from these
group insurance products and services were $9.3 billion in 2001, representing
72.9% of total Institutional revenues of $12.7 billion.
MetLife has built a leading position in the U.S. group insurance market
through long-standing relationships with many of the largest corporate employers
in the U.S. In 2001, 88 of the FORTUNE 100 largest companies purchased its
products; these companies have been MetLife customers for an average of
approximately 20 years.
MetLife's retirement and savings products and services include
administrative services sold to sponsors of 401(k) and other defined
contribution plans, guaranteed interest products and other retirement and
savings products and services, including separate account contracts for the
investment of defined benefit and defined contribution plan assets. Revenues
from MetLife's retirement and savings products were $3.4 billion in 2001,
representing 27.1% of total Institutional revenues.
The employee benefit market served by Institutional has begun to change
dramatically in recent years. As the U.S. employment market has become more
competitive, employers are seeking to enhance their ability to hire and retain
employees by providing attractive benefit plans. The market also reflects
employees' increasing concern about the future of government-funded retirement
and safety-net programs, an increasingly mobile workforce and the desire of
employers to share the market risk of retirement benefits with employees.
MetLife believes these trends are facilitating the introduction of "voluntary"
products, such as long-term care and auto and homeowners insurance, as well as
leading more employers to adopt defined contribution pension arrangements, such
as 401(k) plans.
MARKETING AND DISTRIBUTION
Institutional markets its products and services through separate sales
forces, comprised of MetLife employees, for both its group insurance and
retirement and savings lines.
MetLife distributes its group insurance products and services through a
regional sales force that is segmented by the size of the target customer.
Marketing representatives sell either directly to corporate and other
institutional customers or through an intermediary, such as a broker or a
consultant. Voluntary products are sold through the same sales channels, as well
as by specialists for these products. As of December 31, 2001, the group
insurance sales channels had approximately 600 marketing representatives.
MetLife group insurance products and services are distributed through the
following channels:
- The National Accounts unit focuses exclusively on MetLife's largest
customers, generally those having more than 25,000 employees. This unit
assigns account executives and other administrative and technical
personnel to a discrete customer or group of customers in order to
provide them with individualized products and services;
- The regional sales force operates from 27 offices and generally
concentrates on sales to employers with fewer than 25,000 employees,
through selected national and regional brokers, as well as through
consultants; and
- The Small Business Center focuses on improving MetLife's position in the
smaller end of the market. Currently, 25 individual offices staffed with
sales and administrative employees are located throughout the U.S. These
centers provide comprehensive support services on a local basis to
brokers and other intermediaries by providing an array of products and
services designed for smaller businesses.
8
MetLife's retirement and savings organization markets retirement, savings,
investment and payout products and services to sponsors and advisors of benefit
plans of all sizes. These products and services are offered to private and
public plans, collective bargaining units, nonprofit organizations, recipients
of structured settlements and the current and retired members of these and other
institutions.
MetLife distributes retirement and savings products and services through
dedicated, targeted sales teams and relationship managers located in 20 offices
around the country. In addition, the retirement and savings organization works
with the distribution channels in the Individual segment and group insurance to
better reach and service customers, brokers, consultants and other
intermediaries.
MetLife markets pension and other investment-related products to sponsors
of retirement and savings plans covering employees of large private sector
companies with plan assets in excess of $600 million, mid-size and smaller
private sector companies, plans covering public employees, collective bargaining
units, nonprofit organizations and other institutions and individuals. MetLife
distributes its retirement and savings products primarily through separate sales
forces for each of the major product groups, as follows:
- Pension and other investment-related products are marketed and sold
through approximately 50 marketing representatives; and
- Defined contribution services are marketed through several distribution
channels depending on the target market.
For mid- and large-size employers, a dedicated sales force focuses on new
relationships and cross-selling opportunities with other Institutional
distribution channels. With respect to smaller employers, generally those with
less than 500 employees, defined contribution services are distributed through
the agency system, the Small Business Center and the group regional sales force.
The Company has entered into several joint ventures and other arrangements
with third parties to expand the marketing and distribution opportunities of
Institutional products and services. The Company also seeks to sell its
Institutional products and services through sponsoring organizations and
affinity groups. For example, the Company is a preferred provider of long-term
care products for the American Association of Retired Persons and the National
Long-Term Care Coalition, a group of some of the nation's largest employers. In
addition, the Company, together with John Hancock Financial Services, Inc., has
been chosen to be a provider for the Federal Long-Term Care Insurance program.
The program, available to most federal employees and their families, will be the
largest employer-sponsored long-term care insurance program in the country.
GROUP INSURANCE PRODUCTS AND SERVICES
MetLife's group insurance products and services include:
Group life. Group life insurance products and services include group term
life, group universal life, group variable universal life, dependent life and
survivor benefits. These products and services can be standard products or
tailored to meet specific customer needs. This category also includes high face
amount life insurance products covering senior executives for
compensation-related or benefit-funding purposes.
Non-medical health. Non-medical health insurance consists of short- and
long-term disability, long-term care, dental and accidental death and
dismemberment. MetLife also sells excess risk and administrative services-only
arrangements to some employers.
Other products and services. Other products and services include
employer-sponsored auto and homeowners insurance provided through the Auto &
Home segment and prepaid legal plans.
RETIREMENT AND SAVINGS PRODUCTS AND SERVICES
MetLife's retirement and savings products and services include:
Defined contribution plan services. MetLife provides full service
defined contribution programs to small- and mid-size companies in the
401(k) plan market, as well as to the nonprofit, educational and health
care markets.
9
Guaranteed interest products. MetLife offers guaranteed interest
contracts ("GICs"), including the Met Managed GIC, funding agreements and
similar products. MetLife also sells annuity guarantee products, generally
in connection with the termination of pension plans, funds available from
defined contribution plans or the funding of structured settlements.
Substantially all of MetLife's GICs contain provisions limiting early
terminations, including penalties and minimum notice requirements.
Other retirement and savings products and services. Other retirement
and savings products and services include separate account contracts for
the investment and management of defined benefit and defined contribution
plans on behalf of corporations and other institutions.
REINSURANCE
MetLife's Reinsurance segment is comprised of the life reinsurance business
of Reinsurance Group of America, Incorporated ("RGA"), a publicly traded
company, and MetLife's ancillary life reinsurance business. The ancillary life
reinsurance business was an insignificant component of the Individual segment
for periods prior to January 1, 2000. MetLife acquired 49% of RGA's outstanding
common shares through the acquisition of GenAmerica Financial Corporation
("GenAmerica"), the parent corporation of General American Life Insurance
Company ("General American"), on January 6, 2000. This acquisition, together
with the purchase of approximately 4.8 million common shares through a private
placement transaction completed in November 1999, makes MetLife RGA's majority
shareholder. As of December 31, 2001, MetLife beneficially owned approximately
58% of RGA's outstanding common shares. On January 30, 2002, MetLife, Inc. and
its affiliated companies announced their intention to purchase up to $125
million of RGA's outstanding common stock over an unspecified period of time.
These purchases are intended to offset potential future dilution of the
Company's holding of RGA's common stock arising from the issuance by RGA of
company-obligated mandatorily redeemable securities of subsidiary trusts on
December 10, 2001.
RGA's operations in North America are its largest and include RGA
Reinsurance Company (Barbados) Ltd. and RGA Life Reinsurance Company of Canada
Limited (CBCA). In addition to its North American operations, RGA has subsidiary
companies, branch offices, or representative offices in Argentina, Australia,
Barbados, Hong Kong, Japan, Mexico, South Africa, Spain, Taiwan and the United
Kingdom.
In addition to its life reinsurance business, RGA provides reinsurance of
asset-intensive products and financial reinsurance. RGA and its predecessor, the
reinsurance division of General American, have been engaged in the business of
life reinsurance since 1973. As of December 31, 2001, RGA had approximately $6.9
billion in consolidated assets and worldwide life reinsurance in-force of
approximately $616 billion.
RGA'S PRODUCTS AND SERVICES
RGA has five main operational segments segregated primarily by geographic
region: U.S., Canada, Latin America, Asia/Pacific, and Europe and South Africa.
The U.S. operations, which represented 74% of RGA's 2001 net premiums, provide
traditional life, asset-intensive and financial reinsurance to domestic clients.
Asset-intensive products primarily include reinsurance of corporate-owned life
insurance and annuities. The Canadian operations, which represented 10% of RGA's
2001 net premiums, provide insurers with traditional reinsurance, as well as
assistance with capital management activity. The Asia/Pacific and the Europe and
South Africa operations, which represented 7% and 6%, respectively, of RGA's
2001 net premiums, provide primarily traditional life reinsurance. The Latin
America operations, which represented 3% of RGA's 2001 net premiums, provide
traditional reinsurance and reinsurance of privatized pension products primarily
in Argentina. Effective July 1, 2001, the Company stopped renewing any remaining
reinsurance treaties for the privatized pension program in Argentina.
AUTO & HOME
Auto & Home, operating through Metropolitan Property and Casualty Insurance
Company, a wholly-owned subsidiary of Metropolitan Life, and its subsidiaries,
offer personal lines property and casualty insurance directly to employees
through employer-sponsored programs, as well as through a variety of retail
distribution channels, including the MetLife Financial Services career agency
system, independent agents and Auto & Home
10
specialists. Auto & Home primarily sells auto insurance, which represented 74.3%
of Auto & Home's total net premiums earned in 2001, and homeowners insurance,
which represented 24.1% of Auto & Home's total net premiums earned in 2001. Auto
insurance includes both standard and non-standard policies. Non-standard
policies provide insurance for risks having higher loss experience or loss
potential than risks covered by standard insurance.
On September 30, 1999, the Auto & Home segment acquired the standard
personal lines property and casualty insurance operations of The St. Paul
Companies, which, at the time of the acquisition, had in-force premiums of
approximately $1.1 billion and approximately 3,000 independent agents and
brokers. The conversion of St. Paul policies to MetLife Auto & Home policies is
expected to be completed by September 2002.
PRODUCTS
Auto & Home's insurance products include:
- auto, including both standard and non-standard private passenger;
- homeowners, including renters, condominium and dwelling; and
- other personal lines, including umbrella (protection against losses in
excess of amounts covered by other liability insurance policies),
recreational vehicles and boat owners.
Auto coverages. Auto insurance policies include coverages for private
passenger automobiles, utility automobiles and vans, motorcycles, motor homes,
antique or classic automobiles and trailers. Auto & Home offers traditional
coverages such as liability, uninsured motorist, no fault or personal injury
protection and collision and comprehensive coverages. Auto & Home also offers
non-standard auto insurance, which accounted for $131 million in net premiums
earned in 2001.
Homeowners coverages. Homeowners insurance provides protection for
homeowners, renters, condominium owners and residential landlords against losses
arising out of damage to dwellings and contents from a wide variety of perils,
as well as coverage for liability arising from ownership or occupancy.
Traditional insurance policies for dwellings represent the majority of Auto
& Home's homeowners policies providing protection for loss on a "replacement
cost" basis. These policies provide additional coverage for reasonable, normal
living expenses incurred by policyholders who have been displaced from their
homes.
MARKETING AND DISTRIBUTION
Personal lines auto and homeowners insurance products are directly marketed
to employees through employer-sponsored programs. Auto & Home products are also
marketed and sold by the MetLife Financial Services career agency sales force,
independent agents, Auto & Home specialists and through a direct response
channel.
EMPLOYER-SPONSORED PROGRAMS
Net premiums earned through Auto & Home's employer-sponsored distribution
channel have grown at a compound annual rate of 13.6%, from $441 million in 1997
to $734 million in 2001. As of December 31, 2000, Auto & Home was the leading
provider of employer-sponsored auto and homeowners products, according to a
study conducted by IBIS Associates on behalf of MetLife. At December 31, 2001,
over 1,400 employers offered MetLife Auto & Home products to their employees.
Institutional marketing representatives market the employer-sponsored Auto
& Home products to employers through a variety of means, including broker
referrals and cross-selling to MetLife group customers. Once endorsed by the
employer, MetLife commences marketing efforts to employees. Employees who are
interested in the employer-sponsored auto and homeowners products can call a
toll-free number for a quote, purchase coverage and authorize payroll deduction
over the telephone. Auto & Home has also developed proprietary software that
11
permits an employee in most states to obtain a quote for employer-sponsored auto
insurance through Auto & Home's Internet website.
RETAIL DISTRIBUTION CHANNELS
MetLife markets and sells Auto & Home products through its career agency
sales force, independent agents and Auto & Home specialists. In recent years,
MetLife has increased its use of independent agents and Auto & Home specialists
to sell these products.
Independent agencies. At December 31, 2001, Auto & Home maintained
contracts with approximately 5,000 agencies and brokers.
Auto & Home specialists. Approximately 400 Auto & Home specialists sell
products for Auto & Home in 21 states. Auto & Home's strategy is to utilize Auto
& Home specialists, who are MetLife employees, in geographic markets that are
underserved by its career agents.
MetLife Financial Services career agency system. Approximately 2,000
agents in the MetLife Financial Services career agency system sell Auto & Home
insurance products. Sales of Auto & Home products by these agents have been
declining since the early 1990s, due principally to the reduction in the number
of agents in the MetLife Financial Services career agency sales force. See
"-- Individual -- Marketing and Distribution."
Other distribution channels. In 1998, the Company established a direct
response marketing channel which permits sales to be generated through sources
such as target mailings, career agent referrals and the Internet.
In 2001, Auto & Home's business was concentrated in the following states,
as measured by net premiums earned: New York ($368 million or 13.4% of total net
premiums earned), Massachusetts ($319 million or 11.6%), Illinois ($239 million
or 8.7%), Florida ($138 million or 5.0%), and Minnesota ($134 million or 4.9%).
CLAIMS
Auto & Home's claims department includes approximately 2,300 employees
located in Auto & Home's Warwick, Rhode Island home office, 14 field claim
offices, five in-house counsel offices and drive-in inspection and other sites
throughout the United States. These employees include claim adjusters,
appraisers, attorneys, managers, medical specialists, investigators, customer
service representatives, claim financial analysts and support staff. Claim
adjusters, representing the majority of employees, investigate, evaluate and
settle over 900,000 claims annually, principally by telephone.
ASSET MANAGEMENT
Asset Management, through SSRM Holdings, Inc. ("State Street Research"),
provides a broad variety of asset management products and services to MetLife,
third-party institutions and individuals. State Street Research conducts its
operations through two wholly-owned subsidiaries, State Street Research &
Management Company, a full-service investment management firm, and SSR Realty
Advisors, Inc., a full-service real estate investment advisor. State Street
Research offers investment management services in all major investment
disciplines through multiple channels of distribution in both the retail and
institutional marketplaces. At December 31, 2001, State Street Research had
assets under management of $51.3 billion which consisted of fixed income
investments, equities, real estate and money market investments, representing
50%, 39%, 10% and 1%, respectively, of State Street Research's total assets
under management.
State Street Research has been an investment manager for many of the
largest U.S. corporate pension plans for over 30 years. The majority of State
Street Research's institutional business is concentrated in qualified retirement
funds, including both defined benefit and defined contribution plans. State
Street Research also provides investment management services to foundations,
endowments, union programs and affluent investors. In addition, State Street
Research serves as an advisor or subadvisor for 39 mutual funds with assets
totaling $10.7 billion at December 31, 2001, as well as nine portfolios with
assets totaling $7.4 billion at December 31, 2001, underlying MetLife's variable
life and variable annuity products.
12
State Street Research distributes its investment products to institutions
through its own institutional sales force and pension consultants. State Street
Research's mutual fund products are distributed primarily through retail
brokerage firms (79% of mutual fund sales) and by the MetLife career agency
sales force (12% of mutual fund sales). In addition to the primary distribution
channels, State Street Research has developed distribution capabilities through
mutual fund supermarkets, registered investment advisors and financial planners.
State Street Research offers its products to the defined contribution market
directly, as well as through Institutional's defined contribution group.
INTERNATIONAL
International provides life insurance, accident and health insurance,
annuities and savings and retirement products to both individuals and groups,
and auto and homeowners coverage to individuals. The Company focuses on emerging
markets in the Asia/Pacific region, Latin America and selected European
countries as described more fully below. The Company operates in international
markets through subsidiaries and joint ventures.
ASIA/PACIFIC
The Company operates in the Asia/Pacific region in the following countries:
South Korea, Taiwan, Hong Kong, Indonesia, India and the Philippines. In
February 2002, the Company announced the closing of its Philippine operation
which is expected to be completed by June 30, 2002. The operations in South
Korea and Taiwan accounted for 97% of the total premiums and fees in this region
for the year ended December 31, 2001. The South Korean operation offers
individual life insurance, savings and retirement and non-medical health
products, as well as group life and retirement products. The Taiwanese operation
offers individual life, accident and health, and personal travel insurance
products, as well as group life and accident and health insurance products.
Operations under a joint venture arrangement with local partners began in India
during 2001. In addition, the Company recently received approval to operate a
joint venture and pursue licensing in China.
LATIN AMERICA
The Company operates in the Latin America region in the following
countries: Mexico, Argentina, Brazil, Chile and Uruguay. The operations in
Mexico and Chile represent in excess of 80% of the total premiums and fees in
this region for the year ended December 31, 2001. The Mexican operation offers
life insurance, annuities and retirement and savings products to individual and
institutional customers. The operation in Chile was acquired in late 2001 and is
the sixth largest annuity writer in its marketplace based on market share. The
Chilean operation offers individual life insurance, annuity and group insurance
products. For a discussion of the impact of the economic environment in
Argentina on the Company's results see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
EUROPE
In Europe, the Company operates in Spain, Portugal and Poland. Through
September 2001, MetLife's operations in Spain and Portugal, were conducted
through a 50% ownership of a joint venture with Banco Santander Central Hispano,
S.A. ("Banco Santander"). The joint venture, through its Spanish and Portuguese
affiliates, sold personal life insurance, savings and retirement, homeowners,
and auto products through their own sales force, direct marketing and the branch
network of Banco Santander. In September 2001, MetLife and Banco Santander
restructured their joint venture. Under this agreement, MetLife owns shares
representing 20% of the business distributed through the Banco Santander network
and 80% of the other businesses (agency force, direct auto and others). In
addition, the Portuguese Banco Santander life operations were ceded to Banco
Santander, while MetLife continues to provide homeowners coverage to the
Portuguese market. MetLife's operation in Poland offers individual life, group
life and pension products through an agency sales force.
FUTURE POLICY BENEFITS
MetLife establishes, and carries as liabilities, actuarially determined
amounts that are calculated to meet its policy obligations at such time as an
annuitant takes income, a policy matures or surrenders or an insured dies or
becomes disabled. MetLife computes the amounts for future policy benefits
reported in its consolidated financial
13
statements in conformity with accounting principals generally accepted in the
United States of America ("GAAP").
MetLife distinguishes between short duration and long duration contracts.
Short duration contracts arise from the group life and group dental businesses.
The liability for future policy benefits for short duration contracts consists
of gross unearned premiums as of the valuation date and the discounted amount of
the future payments on pending claims as of the valuation date. Long duration
contracts consist of traditional life, term, non-participating whole life,
individual disability, group long-term disability and long-term care contracts.
MetLife determines future policy benefits for long duration contracts using
assumptions based on current experience, plus a margin for adverse deviation for
these policies. Where they exist, MetLife amortizes deferred policy acquisition
costs in relation to the associated gross margins or premium.
MetLife also distinguishes between investment contracts, limited pay
contracts and universal life type contracts. The future policy benefits for
these products primarily consist of policyholders' account balances. The Company
also establishes liabilities for future policy benefits (associated with base
policies and riders, unearned mortality charges and future disability benefits),
for other policyholder funds (associated with unearned revenues and claims
payable) and for unearned revenue (the unamortized portion of front-end loads
charged). Investment contracts primarily consist of individual annuity and
certain group pension contracts that have limited or no mortality risk. MetLife
amortizes the deferred policy acquisition costs on these contracts in relation
to estimated gross profits. Limited pay contracts primarily consist of single
premium immediate individual and group pension annuities. For limited pay
contracts, the Company defers the excess of the gross premium over the net
premium and recognizes such excess into income in relation to anticipated future
benefit payments. Universal life type contracts consist of universal and
variable life contracts. The Company amortizes deferred policy acquisition costs
for limited pay and universal life type contracts using the product's estimated
gross profits. For universal life type contracts with front-end loads, MetLife
defers the charge and amortizes the unearned revenue using the product's
estimated gross profits.
The liability for future policy benefits for participating traditional life
insurance is the net level reserve using the policy's guaranteed mortality rates
and the dividend fund interest rate or nonforfeiture interest rate, as
applicable. MetLife amortizes deferred policy acquisition costs in relation to
the product's estimated gross margins.
MetLife establishes liabilities to account for the estimated ultimate costs
of losses and loss adjustment expenses for claims that have been reported but
not yet settled, and claims incurred but not reported for the Auto & Home
segment. It bases unpaid losses and loss adjustment expenses on:
- case estimates for losses reported on direct business, adjusted in the
aggregate for ultimate loss expectations;
- estimates of incurred but not reported losses based upon past experience;
- estimates of losses on insurance assumed primarily from involuntary
market mechanisms; and
- estimates of future expenses to be incurred in settlement of claims.
MetLife deducts estimated amounts of salvage and subrogation from unpaid
losses and loss adjustment expenses. Implicit in all these estimates are
underlying inflation assumptions because it determines all estimates using
expected amounts to be paid. MetLife derives estimates for the development of
reported claims and for incurred but not reported claims principally from
actuarial analyses of historical patterns of claims and development for each
line of business. Similarly, it derives estimates of unpaid loss adjustment
expenses principally from actuarial analyses of historical development patterns
of the relationship of loss adjustment expenses to losses for each line of
business. It anticipates ultimate recoveries from salvage and subrogation
principally on the basis of historical recovery patterns.
Pursuant to state insurance laws, MetLife's insurance subsidiaries
establish statutory reserves, carried as liabilities, to meet their obligations
on their respective policies. These statutory reserves are established in
amounts sufficient to meet policy and contract obligations, when taken together
with expected future premiums
14
and interest at assumed rates. Statutory reserves generally differ from
liabilities for future policy benefits determined using GAAP.
The New York Insurance Law and regulations require certain MetLife entities
to submit to the New York Superintendent of Insurance, with each annual report,
an opinion and memorandum of a "qualified actuary" 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, make adequate provision for their statutory liabilities with
respect to these obligations.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of its liabilities, MetLife cannot
precisely determine the amounts that it will ultimately pay with respect to
these liabilities, and the ultimate amounts may vary from the estimated amounts,
particularly when payments may not occur until well into the future.
Furthermore, the Company has experienced, and will likely in the future
experience, catastrophe losses and possibly acts of terrorism, that may have an
adverse impact on its business, results of operations and financial condition.
Catastrophes can be caused by various events, including, hurricanes, windstorms,
earthquakes, hail, tornadoes, explosions, severe winter weather (including snow,
freezing water, ice storms and blizzards) and fires. Due to their nature, the
Company cannot predict the incidence, timing and severity of catastrophes and
acts of terrorism. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- September 11, 2001 Tragedies." However,
MetLife believes its liabilities for future benefits adequately cover the
ultimate benefits. MetLife periodically reviews its estimates of liabilities for
future benefits and compares them with its actual experience. It revises
estimates, when appropriate, if it determines that future expected experience
differs from assumptions used in the development of liabilities.
UNDERWRITING AND PRICING
INDIVIDUAL AND INSTITUTIONAL
The Company's individual and group insurance underwriting involves an
evaluation of applications for life, disability, dental, retirement and savings,
and long-term care insurance products and services by a professional staff of
underwriters and actuaries, who determine the type and the amount of risk that
the Company is willing to accept. The Company employs detailed underwriting
policies, guidelines and procedures designed to assist the underwriter to
properly assess and quantify risks before issuing a policy to qualified
applicants or groups.
Individual underwriting considers not only an applicant's medical history,
but also other factors such as financial profiles, foreign travel, avocations
and alcohol, drug and tobacco use. The Company's group underwriters generally
evaluate the risk characteristics of each prospective insured group, although
with certain voluntary products, employees may be underwritten on an individual
basis. Generally, the Company is 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. Requests for coverage are reviewed on their merits and generally a
policy is not issued unless the particular risk or group has been examined and
approved for underwriting. Underwriting is generally done by the Company's
employees, although some policies are reviewed by intermediaries under strict
guidelines established by the Company.
In order to maintain high standards of underwriting quality and
consistency, the Company engages in a multilevel series of ongoing internal
underwriting audits, and is subject to external audits by its reinsurers, at
both its remote underwriting offices and its corporate underwriting office.
The Company has established senior level oversight of this process that
facilitates quality sales and serving the needs of its customers, while
supporting its financial strength and business objectives. Its goal is to
achieve the underwriting, mortality and morbidity levels reflected in the
assumptions in its product pricing. This is accomplished by determining and
establishing underwriting policies, guidelines, philosophies and strategies that
are competitive and suitable for the customer, the agent and the Company.
Individual and group product pricing reflects the Company's insurance
underwriting standards. Product pricing on insurance products is based on the
expected payout of benefits calculated through the use of assumptions for
mortality, morbidity, expenses, persistency and investment returns, as well as
certain macroeconomic factors, such as inflation. Product specifications are
designed to prevent greater than expected
15
mortality, and the Company periodically monitors mortality and morbidity
assumptions. Investment-oriented products are priced based on various factors,
which may include investment return, expenses and persistency.
Unique to group insurance pricing is experience rating. MetLife employs
both prospective and retrospective experience rating. Prospective experience
rating involves the evaluation of past experience for the purpose of determining
future premium rates. Retrospective experience rating involves the evaluation of
past experience for the purpose of determining the actual cost of providing
insurance for the customer for the time period in question.
MetLife continually reviews its underwriting and pricing guidelines so that
its policies remain competitive and supportive of its marketing strategies and
profitability goals. Decisions are based on established actuarial pricing and
risk selection principles to ensure that its underwriting and pricing guidelines
are appropriate.
REINSURANCE
Reinsurance is written on a facultative basis or an automatic treaty basis.
Facultative reinsurance is individually underwritten by the reinsurer for each
policy to be reinsured. Factors taken into account in underwriting facultative
reinsurance are medical history, impairments, employment, hobbies and financial
information. An automatic reinsurance treaty provides that risks will be ceded
on specified blocks of business where the underlying policies meet the ceding
company's underwriting criteria. In contrast to facultative reinsurance, the
reinsurer does not approve each individual risk. Automatic reinsurance treaties
generally provide that the reinsurer will be liable for a portion of the risk
associated with specified policies written by the ceding company. Factors
considered in underwriting automatic reinsurance are the product's underwriting,
pricing, distribution and optionality, as well as the ceding company's retention
and financial strength.
AUTO & HOME
Auto & Home's underwriting function has six principal aspects:
- evaluating potential worksite marketing employer accounts and independent
agencies;
- establishing guidelines for the binding of risks by agents with binding
authority;
- reviewing coverage bound by agents;
- on a case by case basis, underwriting potential insureds presented by
agents outside the scope of their binding authority;
- pursuing information necessary in certain cases to enable Auto & Home to
issue a policy within the Company's guidelines; and
- ensuring that renewal policies continue to be written at rates
commensurate with risk.
Subject to very few exceptions, agents in each of MetLife's distribution
channels have binding authority for risks which fall within Auto & Home's
published underwriting guidelines. Risks falling outside the underwriting
guidelines may be submitted for approval to the underwriting department;
alternatively, agents in such a situation may call the underwriting department
to obtain authorization to bind the risk themselves. In most states, Auto & Home
generally has the right within a specified period (usually the first 60 days) to
cancel any policy.
Auto & Home establishes prices for its major lines of insurance based on
its proprietary database, rather than relying on rating bureaus. Auto & Home
determines prices in part from a number of variables specific to each risk. The
pricing of personal lines insurance products takes into account, among other
things, the expected frequency and severity of losses, the costs of providing
coverage (including the costs of acquiring policyholders and administering
policy benefits and other administrative and overhead costs), competitive
factors and profit considerations.
The major pricing variables for personal lines automobile insurance include
characteristics of the automobile itself, such as age, make and model,
characteristics of insureds, such as driving record and experience, and the
insured's personal financial management. Auto & Home's ability to set and change
rates is subject to regulatory oversight.
16
As a condition of MetLife's license to do business in each state, Auto &
Home, like all other automobile insurers, is required to write or share the cost
of private passenger automobile insurance for higher risk individuals who would
otherwise be unable to obtain such insurance. This "involuntary" market, also
called the "shared market," is governed by the applicable laws and regulations
of each state, and policies written in this market are generally written at
rates higher than standard rates.
REINSURANCE ACTIVITY
MetLife cedes premiums to other insurers under various agreements that
cover individual risks, group risks or defined blocks of business, on a
coinsurance, yearly renewable term, excess or catastrophe excess basis. These
reinsurance agreements spread the risk and minimize the effect of losses. The
amount of each risk retained by MetLife depends on its evaluation of the
specific risk, subject, in certain circumstances, to maximum limits based on
characteristics of coverages. The Company also retrocedes reinsurance contracts,
which represent low mortality risk reinsurance treaties. It also reinsures when
capital requirements and the economic terms of the reinsurance make it
appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer agrees to
reimburse MetLife for the ceded amount in the event the claim is paid. However,
MetLife remains liable to its policyholders with respect to ceded insurance if
any reinsurer fails to meet the obligations assumed by it. Since it bears the
risk of nonpayment by one or more of its reinsurers, MetLife cedes reinsurance
to well-capitalized, highly rated reinsurers.
INDIVIDUAL
MetLife has increased the amount of individual mortality risk coverage
purchased from third-party reinsurers. Since 1996, it has entered into
reinsurance agreements that cede substantially all of the mortality risk on term
insurance policies issued during 1996 and subsequent years, and on survivorship
whole life insurance policies issued in 1997 and subsequent years. In 1998,
MetLife reinsured substantially all of the mortality risk on its universal life
policies issued since 1983. It is continuing to reinsure substantially all of
the mortality risk on the universal life policies. As a result of these
transactions, MetLife now reinsures up to 90% of the mortality risk for all new
individual insurance policies that it writes. In addition to these reinsurance
policies, MetLife reinsures risk on specific coverages.
MetLife Financial Services' retention limit on any one life is $25 million
($30 million for joint life cases), New England Financial's retention limit on
any one life is $5 million and GenAmerica Financial's retention limit on any one
life is $2.5 million. However, the Company may cede amounts below those limits
on a case-by-case basis depending on the characteristics of a particular risk.
In addition, the Company routinely reinsures certain classes of risks in order
to limit its exposure to particular travel, avocation and lifestyle hazards. It
has several individual life reinsurance agreements with a diversified group of
third-party reinsurers. These automatic pools have permitted MetLife to enhance
product performance while decreasing business risk.
AUTO & HOME
Auto & Home purchases reinsurance to control the Company's exposure to
large losses (primarily catastrophe losses), to stabilize earnings and to
protect surplus. Auto & Home cedes to reinsurers a portion of risks and pays
premiums based upon the risk and exposure of the policies subject to
reinsurance.
To control the Company's exposure to large property and casualty losses,
Auto & Home utilizes property catastrophe, casualty, and property per risk
excess loss agreements.
REGULATION
INSURANCE REGULATION
Metropolitan Life is licensed to transact insurance business in, and is
subject to regulation and supervision by, all 50 states, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and Canada. Each of MetLife's
other insurance subsidiaries is licensed and regulated in all U.S. and
international jurisdictions where it conducts insurance business. The extent of
such regulation varies, but most jurisdictions have laws and regulations
17
governing the financial aspects of insurers, including standards of solvency,
reserves, reinsurance and capital adequacy, and the business conduct of
insurers. In addition, statutes and regulations usually require the licensing of
insurers and their agents, the approval of policy forms and related materials
and, for certain lines of insurance, the approval of rates. Such statutes and
regulations also prescribe the permitted types and concentration of investments.
The New York Insurance Law limits the sales commissions and certain other
marketing expenses that may be incurred in connection with the sale of life
insurance policies and annuity contracts. MetLife's insurance subsidiaries are
each required to file reports, generally including detailed annual financial
statements, with insurance regulatory authorities in each of the jurisdictions
in which they do business, and their operations and accounts are subject to
periodic examination by such authorities. These subsidiaries must also file, and
in many jurisdictions and in some lines of insurance obtain regulatory approval
for, rules, rates and forms relating to the insurance written in the
jurisdictions in which they operate.
The National Association of Insurance Commissioners ("NAIC") has
established a program of accrediting state insurance departments. NAIC
accreditation permits accredited states to conduct periodic examinations of
insurers domiciled in such states. NAIC-accredited states will not accept
reports of examination of insurers from unaccredited states, except under
limited circumstances. As a direct result, insurers domiciled in unaccredited
states may be subject to financial examination by accredited states in which
they are licensed, in addition to any examinations conducted by their
domiciliary states. The accreditation of the New York Insurance Department (the
"Department"), Metropolitan Life's principal insurance regulator, has been
suspended as a result of the New York legislature's failure to adopt certain
model NAIC laws. The Company believes that the suspension of the NAIC
accreditation of the Department, even if continued, will not have a significant
impact upon its ability to conduct its insurance businesses.
State and federal insurance and securities regulatory authorities and other
state law enforcement agencies and attorneys general from time to time make
inquiries regarding compliance by MetLife's insurance subsidiaries with
insurance, securities and other laws and regulations regarding the conduct of
MetLife's insurance and securities businesses. MetLife cooperates with such
inquiries and takes corrective action when warranted.
Holding Company regulation. The Holding Company and its insurance
subsidiaries are subject to regulation under the insurance holding company laws
of various jurisdictions. The insurance holding company laws and regulations
vary from jurisdiction to jurisdiction, but generally require a controlled
insurance company (insurers that are subsidiaries of insurance holding
companies) to register with state regulatory authorities and to file with those
authorities certain reports, including information concerning their capital
structure, ownership, financial condition, certain intercompany transactions and
general business operations.
State insurance statutes also typically place restrictions and limitations
on the amount of dividends or other distributions payable by insurance company
subsidiaries to their parent companies, as well as on transactions between an
insurer and its affiliates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- The Holding Company." The New York Insurance Law and the
regulations thereunder also restrict the aggregate amount of investments
Metropolitan Life may make in non-life insurance subsidiaries, and provide for
detailed periodic reporting on subsidiaries.
Guaranty associations and similar arrangements. Most of the jurisdictions
in which MetLife's insurance subsidiaries are admitted to transact business
require life and property and casualty insurers doing business within the
jurisdiction to participate in guaranty associations, which are organized to pay
contractual benefits owed pursuant to insurance policies issued by impaired,
insolvent or failed insurers. These associations levy assessments, up to
prescribed limits, on all member insurers in a particular state 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 is engaged. Some
states permit member insurers to recover assessments paid through full or
partial premium tax offsets.
In the past five years, none of the aggregate assessments levied against
MetLife's insurance subsidiaries has been material. While the amount and timing
of future assessments are not predictable, the Company has established
liabilities for guaranty fund assessments that it considers adequate for
assessments with respect to
18
insurers that are currently subject to insolvency proceedings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Insolvency Assessments."
Statutory examination. As part of their regulatory oversight process,
state insurance departments conduct periodic detailed examinations of the books,
records, accounts, and business practices of insurers domiciled in their states.
These examinations are generally conducted in cooperation with the departments
of two or three other states, representing each of the NAIC zones, under
guidelines promulgated by the NAIC. On March 1, 2000 the Department completed an
examination of Metropolitan Life for each of the five years in the period ended
December 31, 1998 which included recommendations for certain changes in
recordkeeping processes, but did not result in a fine. For the three-year period
ended December 31, 2001, MetLife, Inc. has not received any material adverse
findings resulting from state insurance department examinations of its other
insurance subsidiaries.
Regulatory authorities in a small number of states have conducted
investigations or inquiries relating to Metropolitan Life's, New England Life
Insurance Company's ("New England Life") or General American's sales of
individual life insurance policies or annuities. Over the past several years,
these and a number of investigations by other regulatory authorities were
resolved by monetary payments and certain other relief. The Company may continue
to resolve investigations in a similar manner.
NAIC ratios. On the basis of statutory financial statements filed with
state insurance regulators, the NAIC calculates annually 13 financial ratios to
assist state regulators in monitoring the financial condition of insurers. A
"usual range" of results for each ratio is used as a benchmark. Departure from
the "usual range" on four or more of the ratios can lead to inquiries from
individual state insurance departments. In each of the years 1997 through 2000,
a maximum of one ratio for the Holding Company's insurance subsidiaries fell
outside the usual range. In 2001, five of the 13 financial ratios for
Metropolitan Life fell outside the usual range, three of which were a direct
result of certain transactions between the Holding Company and Metropolitan
Life. These transactions were approved by the applicable individual state
insurance departments. The adoption of new statutory accounting principles in
2001 resulted in one of the ratios falling outside of the normal range. In 2001,
three of the 13 financial ratios for Metropolitan Insurance and Annuity Company
("MIAC") fell outside the usual range, two of which were a direct result of the
inter-company transactions described above. The Company does not anticipate any
inquiries as a result of these departures.
Policy and contract reserve sufficiency analysis. Under the New York
Insurance Law, Metropolitan Life is required to conduct annually an analysis of
the sufficiency of all life and health insurance and annuity statutory reserves.
Additionally, other life insurance affiliates, including New England Life and
General American, are subject to similar requirements in their states of
domicile, Massachusetts and Missouri, respectively, and other states in which
they are licensed. In each case, a qualified actuary must submit an opinion
which states that the statutory reserves, when considered in light of the assets
held with respect to such reserves, make good and sufficient provision for the
associated contractual obligations and related expenses of the insurer. If such
an opinion cannot be provided, the insurer must set up additional reserves by
moving funds from surplus. Since the inception of this requirement, Metropolitan
Life has provided this opinion without any qualifications. MIAC and Metropolitan
Life and its insurance subsidiaries are required by other jurisdictions to
provide similar opinions and has provided them without qualifications.
Surplus and capital. The New York Insurance Law requires New York domestic
stock life insurers to maintain minimum capital. At December 31, 2001,
Metropolitan Life's capital was in excess of such required minimum. Since the
demutualization, Metropolitan Life has continued to offer participating
policies. Metropolitan Life is subject to statutory restrictions that limit to
10% the amount of statutory profits on participating policies written after the
demutualization (measured before dividends to policyholders) that can inure to
the benefit of stockholders. Since the demutualization, the impact of these
restrictions on earnings have not been, and Metropolitan Life believes that in
the future they will not be, significant.
MetLife's U.S. insurance subsidiaries are subject to the supervision of the
regulators in each jurisdiction in which they are licensed to transact business.
Regulators have discretionary authority, in connection with the continued
licensing of these insurance subsidiaries, to limit or prohibit sales to
policyholders if, in their judgment, the regulators determine that such insurer
has not maintained the minimum surplus or capital or that the further
transaction of business will be hazardous to policyholders. See "-- Risk-based
capital."
19
Risk-based capital. The New York Insurance Law requires that New York
domestic life insurers report their risk-based capital ("RBC") based on a
formula calculated by applying factors to various asset, premium and reserve
items. The formula takes into account the risk characteristics of the insurer,
including asset risk, insurance risk, interest rate risk and business risk. The
Department uses the formula only 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. The New York Insurance
Law imposes broad confidentiality requirements on those engaged in the insurance
business (including insurers, agents, brokers and others) and on the Department
as to the use and publication of RBC data.
The New York Insurance Law gives the New York Superintendent of Insurance
explicit regulatory authority to require various actions by, or take various
actions against, insurers whose total adjusted capital does not exceed certain
RBC levels. At December 31, 2001, Metropolitan Life's total adjusted capital was
in excess of each of those RBC levels.
The U.S. insurance subsidiaries of the Holding Company are also subject,
each individually, to RBC requirements. At December 31, 2001, the total adjusted
capital of each of these insurance subsidiaries also was in excess of each of
those RBC levels. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- The
Company -- Support Agreements."
The NAIC adopted the Codification of Statutory Accounting Principles (the
"Codification") which is intended to standardize regulatory accounting and
reporting to state insurance departments and became effective January 1, 2001.
However, statutory accounting principles continue to be established by
individual state laws and permitted practices. The Department required adoption
of the Codification, with certain modifications, for the preparation of
statutory financial statements effective January 1, 2001. The adoption of the
Codification by the NAIC and the Codification as modified by the Department, did
not adversely affect statutory capital and surplus.
Regulation of investments. Metropolitan Life and each of its insurance
subsidiaries are subject to state laws and regulations that require
diversification of their investment portfolios and limit the amount of
investments in certain asset categories, such as below investment grade fixed
income securities, equity real estate, other equity investments, and
derivatives. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring surplus, and, in some instances, would require
divestiture of such non-qualifying investments. The Company believes that the
investments made by Metropolitan Life and each of its insurance subsidiaries
complied with such regulations at December 31, 2001.
Federal initiatives. Although the federal government generally does not
directly regulate the insurance business, federal initiatives often have an
impact on the business in a variety of ways. From time to time, federal measures
are proposed which may significantly affect the insurance business, including
limitations on antitrust immunity and the repeal of the federal estate tax.
Several insurance trade associations have proposed federal legislation that
would allow a state-chartered and regulated insurer, such as MetLife's U.S.
insurance subsidiaries, to choose instead to be regulated exclusively by a
federal insurance regulator. One bill to this effect was introduced in the
Senate in December 2001, and another, similar bill was introduced in the House
in March 2002.
Legislative Developments. On May 26, 2001, President Bush signed into law
the Economic Growth and Taxpayer Relief Reconciliation Act, which includes the
repeal of the federal estate tax over a ten-year period. While it is possible
that the repeal of the federal estate tax could result in reduced sales of some
of the Company's estate planning products, including survivorship/second to die
life insurance policies, the Company does not expect the repeal to have a
material adverse impact on its overall business.
For a discussion of the Gramm-Leach-Bliley Act of 1999, permitting
affiliations between banks and insurers, see "-- Competition."
In addition, management cannot predict what other proposals may be made,
what legislation may be introduced or enacted or the impact of any such
legislation on the Company's business, results of operations and financial
condition.
20
Valuation of life insurance policies model regulation. The NAIC has
adopted a revision to the Valuation of Life Insurance Policies Model Regulation
(known as XXX Regulation). This model regulation establishes new minimum
statutory reserve requirements for certain individual life insurance policies
written after January 1, 2001. The new reserve standard became effective when
individual states adopted the model regulation. As these reserve standards were
adopted, insurers selling certain individual life insurance products, such as
term life insurance with guaranteed premium periods and universal life insurance
products with no-lapse guarantees, redesigned their products or held increased
reserves to be consistent with the new minimum standards with respect to
policies issued after the effective date of the regulation. The Department
promulgated a regulation similar to the model regulation in 1994, and revised
its regulation to be essentially consistent with XXX Regulation.
BROKER/DEALER AND SECURITIES REGULATION
Metropolitan Life, some of its subsidiaries and certain policies and
contracts offered by them, are subject to various levels of regulation under the
federal securities laws administered by the Securities and Exchange Commission.
Metropolitan Life and some of its subsidiaries are investment advisers
registered under the Investment Advisers Act of 1940, as amended. In addition,
some separate accounts and a variety of mutual funds are registered under the
Investment Company Act of 1940, as amended. Some annuity contracts and insurance
policies issued by Metropolitan Life and some of its subsidiaries are funded by
separate accounts, the interests in which are registered under the Securities
Act of 1933, as amended. Metropolitan Life and some of its subsidiaries are
registered as broker/dealers under the Securities Exchange Act of 1934, as
amended, and are members of the National Association of Securities Dealers, Inc.
In the case of some of its subsidiaries, these broker/dealers may also be
registered under various state securities laws.
Metropolitan Life and certain of its subsidiaries also have certain pooled
investment vehicles that are exempt from registration under the Securities Act
and the Investment Company Act, but may be subject to certain other provisions
of such acts.
Federal and state securities regulatory authorities from time to time make
inquiries regarding compliance by Metropolitan Life and its subsidiaries with
securities and other laws and regulations regarding the conduct of their
securities businesses. MetLife cooperates with such inquiries and takes
corrective action when warranted.
These laws and regulations are primarily intended to protect investors in
the securities markets and generally grant supervisory agencies broad
administrative powers, including the power to limit or restrict the conduct of
business for failure to comply with such laws and regulations. The Company may
also be subject to similar laws and regulations in the states and foreign
countries in which it provides investment advisory services, offers the products
described above or conducts other securities-related activities.
ENVIRONMENTAL CONSIDERATIONS
As an owner and operator of real property, the Company is subject to
extensive federal, state and local environmental laws and regulations. Inherent
in such ownership and operation is also the risk that there may be potential
environmental liabilities and costs in connection with any required remediation
of such properties. In addition, the Company holds equity interests in companies
that could potentially be subject to environmental liabilities. The Company
routinely has environmental assessments performed with respect to real estate
being acquired for investment and real property to be acquired through
foreclosure. The Company cannot provide assurance that unexpected environmental
liabilities will not arise. However, based on information currently available to
management, management believes 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 the Company's business, results of
operations and financial condition.
ERISA CONSIDERATIONS
The Company provides certain products and services to certain employee
benefit plans that are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Internal Revenue Code of 1986, as amended
(the "Code"). As such, its activities are subject to the restrictions imposed by
ERISA and the
21
Code, including the requirement under ERISA that fiduciaries must perform their
duties solely in the interests of ERISA plan participants and beneficiaries and
the requirement under ERISA and the Code that fiduciaries may not cause a
covered plan to engage in certain prohibited transactions with persons who have
certain relationships with respect to such plans. The applicable provisions of
ERISA and the Code are subject to enforcement by the Department of Labor, the
Internal Revenue Service and the Pension Benefit Guaranty Corporation.
On December 13, 1993, the U.S. Supreme Court issued its opinion in John
Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank. The
Court held that certain assets in excess of amounts necessary to satisfy
guaranteed obligations held by John Hancock in its general account under a
participating group annuity contract are "plan assets" and therefore subject to
certain fiduciary obligations under ERISA, which specifies that fiduciaries must
perform their duties solely in the interest of ERISA plan participants and
beneficiaries. The Court limited the imposition of ERISA fiduciary obligations
in these instances to certain assets in an insurer's general account that were
not reserved to pay benefits of guaranteed benefit policies. On January 5, 2000,
the Secretary of Labor issued final regulations providing guidance for the
purpose of determining, in cases where an insurer issues one or more policies
backed by the insurer's general account to or for the benefit of an employee
benefit plan, the extent to which assets of the insurer constitute plan assets
for purposes of ERISA and the Code. The regulations apply only with respect to a
policy issued by an insurer on or before December 31, 1998 ("Transition
Policy"). In the case of such a policy, the regulations generally became
applicable on July 5, 2001. Generally, no person will be liable under ERISA or
the Code for conduct occurring prior to the applicability dates, where the basis
of a claim is that insurance company general account assets constitute plan
assets. Insurers issuing new policies after December 31, 1998 that are not
guaranteed benefit policies will generally be subject to fiduciary obligations
under ERISA.
The regulations indicate the requirements that must be met so that assets
supporting a Transition Policy will not be considered plan assets for purposes
of ERISA and the Code. These requirements include detailed disclosures to be
made to the employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 days' notice and receive
without penalty, at the policyholder's option, either (i) the unallocated
accumulated fund balance (which may be subject to market value adjustment) or
(ii) a book value payment of such amount in annual installments with interest.
The Company has taken and continues to take steps designed to ensure compliance
with these regulations, as appropriate.
FINANCIAL HOLDING COMPANY REGULATION
Regulatory agencies. In connection with its acquisition of a
federally-chartered commercial bank, the Holding Company became a bank holding
company and financial holding company on February 28, 2001. As such, the Holding
Company is subject to regulation under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and to inspection, examination, and supervision by the
Board of Governors of the Federal Reserve System (the "FRB"). In addition, the
Holding Company's banking subsidiaries are subject to regulation and examination
primarily by the Office of the Comptroller of the Currency ("OCC") and
secondarily by the FRB and the Federal Deposit Insurance Corporation ("FDIC").
Financial Holding Company Activities. As a financial holding company,
MetLife, Inc.'s activities and investments are restricted by the BHC Act, as
amended by the Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), to those that are
"financial" in nature or "incidental" or "complementary" to such financial
activities. Activities that are financial in nature include securities
underwriting, dealing and market making, sponsoring mutual funds and investment
companies, insurance underwriting and agency, merchant banking and activities
that the FRB has determined to be closely related to banking. In addition, under
the insurance company investment portfolio provision of the GLB Act, financial
holding companies are authorized to make investments in other financial and
non-financial companies, through their insurance subsidiaries, that are in the
ordinary course of business and in accordance with state insurance law, provided
the financial holding company does not routinely manage or operate such
companies except as may be necessary to obtain a reasonable return on
investment.
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Capital. MetLife, Inc. and its insured depository
institution subsidiaries are subject to risk-based and leverage capital
guidelines issued by the federal banking regulatory agencies for banks and
financial holding companies. The federal banking regulatory agencies are
required by law to take specific prompt corrective actions with
22
respect to institutions that do not meet minimum capital standards. At December
31, 2001, MetLife, Inc. and its insured depository institution subsidiaries were
in compliance with the aforementioned guidelines.
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Consumer Protection Laws. Numerous other federal and state
laws also affect the Holding Company and its subsidiary banks' earnings and
activities, including federal and state consumer protection laws. The GLB Act
included consumer privacy provisions that, among other things, require
disclosure of a financial institution's privacy policy to customers. In
addition, these provisions permit states to adopt more extensive privacy
protections through legislation or regulation.
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Change of Control. Because MetLife, Inc. is a "financial
holding company" and "bank holding company" under the federal banking laws, no
person may acquire control of MetLife, Inc. without the prior approval of the
Board of Governors of the Federal Reserve System. A change of control is
conclusively presumed upon acquisitions of 25% or more of any class of voting
securities and rebuttably presumed upon acquisitions of 10% or more of any class
of voting securities. Further, as a result of MetLife, Inc.'s ownership of
MetLife Bank, N.A., a national bank, approval from the Office of the Comptroller
of the Currency would be required in connection with a change of control
(generally presumed upon the acquisition of 10% or more of any class of voting
securities) of MetLife, Inc.
COMPETITION
The Company believes that competition with its business segments is based
on a number of factors, including service, product features, price, commission
structure, financial strength, claims-paying ratings, debt ratings and name
recognition. It competes with a large number of other insurers, as well as
non-insurance financial services companies, such as banks, broker/dealers and
asset managers, for individual consumers, employer and other group customers and
agents and other distributors of insurance and investment products. Some of
these companies offer a broader array of products, have more competitive pricing
or, with respect to other insurers, have higher claims paying ability ratings.
Some may also have greater financial resources with which to compete. National
banks, which may sell annuity products of life insurers in some circumstances,
also have pre-existing customer bases for financial services products.
On November 12, 1999, President Clinton signed into law the GLB Act
implementing fundamental changes in the regulation of the financial services
industry in the U.S. The GLB Act permits mergers that combine commercial banks,
insurers and securities firms under one holding company. Under the GLB Act,
national banks retain their existing ability to sell insurance products in some
circumstances. In addition, bank holding companies that qualify and elect to be
treated as "financial holding companies" may engage in activities, and acquire
companies engaged in activities, that are "financial" in nature or "incidental"
or "complementary" to such financial activities, including acting as principal,
agent or broker in selling life, property and casualty and other forms of
insurance and annuities. A financial holding company can own any kind of insurer
or insurance broker or agent, but its bank subsidiary cannot own the insurer.
Under state law, the financial holding company would need to apply to the
insurance commissioner in the insurer's state of domicile for prior approval of
the acquisition of the insurer, and the GLB Act provides that the commissioner,
in considering the application, may not discriminate against the financial
holding company because it is affiliated with a bank. Under the GLB Act, no
state may prevent or interfere with affiliations between banks and insurers,
insurance agents or brokers, or the licensing of a bank or affiliate as an
insurer or agent or broker. Until passage of the GLB Act, the Glass-Steagall Act
of 1933, as amended, had limited the ability of banks to engage in
securities-related businesses, and the Bank Holding Company Act of 1956, as
amended, had restricted banks from being affiliated with insurers. With the
passage of the GLB Act, among other things, bank holding companies may acquire
insurers, and insurance holding companies may acquire banks. The ability of
banks to affiliate with insurers may materially adversely affect all of the
Company's product lines by substantially increasing the number, size and
financial strength of potential competitors.
The Company must attract and retain productive sales representatives to
sell its insurance, annuities and investment products. Strong competition exists
among insurers for sales representatives with demonstrated ability. The Company
competes with other insurers for sales representatives primarily on the basis of
its financial
23
position, support services and compensation and product features. See
"-- Individual -- Marketing and Distribution." MetLife continues to undertake
several initiatives to grow the MetLife Financial Services career agency force.
The Company cannot provide assurance that these initiatives will succeed in
attracting and retaining new agents. Sales of individual insurance, annuities
and investment products and its results of operations and financial position
could be materially adversely affected if it is unsuccessful in attracting and
retaining agents.
Many of the Company's insurance products, particularly those offered by its
Institutional segment, are underwritten annually, and, accordingly, there is a
risk that group purchasers may be able to obtain more favorable terms from
competitors rather than renewing coverage with the Company. The effect of
competition may, as a result, adversely affect the persistency of these and
other products, as well as the Company's ability to sell products in the future.
The investment management and securities brokerage businesses have
relatively few barriers to entry and continually attract new entrants. Many of
the Company's competitors in these businesses offer a broader array of
investment products and services and are better known than it as sellers of
annuities and other investment products.
Congress has proposed reforms to the nation's health care system. While the
Company offers non-medical health insurance products (such as group dental
insurance, long-term care and disability insurance), it generally does not offer
medical indemnity products or managed care products, and, accordingly, it does
not expect to be directly affected by such proposals to any significant degree.
However, the uncertain environment resulting from health care reform could cause
group health insurance providers to enter some of the markets in which the
Company does business, thereby increasing competition.
COMPANY RATINGS
FINANCIAL STRENGTH RATINGS
Financial strength ratings are a factor in establishing the competitive
position of insurers. A ratings downgrade (or the potential for such a
downgrade) of Metropolitan Life or any of the Company's other insurance
subsidiaries could, among other things, increase the number of policies
surrendered and withdrawals by policyholders of cash values from their policies,
adversely affect relationships with broker/dealers, banks, agents, wholesalers
and other distributors of the Company's products and services, negatively impact
new sales, and adversely affect its ability to compete and thereby have a
material adverse effect on its business, results of operations and financial
condition. The Company's current financial strength ratings are listed in the
table below:
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE
------------- --------------- ------ ----------------
Standard & Poor's Metropolitan Life Insurance Company AA Second highest of
Ratings Services New England Life Insurance Company ("Very Strong") nine ratings
MetLife Investors USA Insurance Company categories and
Metropolitan Insurance and Annuity Company mid-range within
Metropolitan Property and Casualty Insurance the category based
Company on modifiers (e.g.,
RGA Reinsurance Company AA+, AA and AA- are
Metropolitan Casualty Insurance Co. "Very Strong")
Metropolitan Direct Property and Casualty
Insurance Co.
Metropolitan General Insurance Co.
Metropolitan Group Property & Casualty
Insurance Co.
Metropolitan Lloyds Insurance Co. (TX)
General American Life Insurance Company AA- ("Very Second highest of
MetLife Investors Insurance Company Strong") nine ratings
First MetLife Investors Insurance Co. categories and
General Life Insurance Company (TX) lowest within the
Paragon Life Insurance Company category based on
Security Equity Life Insurance Company modifiers
MetLife Investors Insurance Co. (CA)
24
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE
------------- --------------- ------ ----------------
Moody's Investors Metropolitan Life Insurance Company Aa2 Second highest of
Service, Inc. New England Life Insurance Company ("Excellent") nine ratings
General American Life Insurance Company categories and
MetLife Investors Insurance Company mid-range within
the category based
on modifiers (e.g.,
Aa1, Aa2 and Aa3
are "Excellent")
MetLife Investors USA Insurance Company Aa3 Second highest of
Metropolitan Insurance and Annuity Company ("Excellent") nine ratings
Metropolitan Property and Casualty Insurance categories and
Company lower-range within
the category based
on modifiers
RGA Reinsurance Company A1 Third highest of
("Good") nine ratings
categories and
highest within the
category based on
modifiers
A.M. Best Company, Metropolitan Life Insurance Company A+ Highest of nine
Inc. Metropolitan Tower Life Insurance Company ("Superior") ratings categories
New England Life Insurance Company and second highest
MetLife Investors USA Insurance Company within the category
General American Life Insurance Company based on modifiers
RGA Reinsurance Company (e.g., A++ and A+
MetLife Investors Insurance Company are "Superior"
First MetLife Investors Insurance Company while A and A- are
General Life Insurance Company of America "Excellent")
Paragon Life Insurance Company
Security Equity Life Insurance
Company
Metropolitan Insurance and Annuity Company A Second highest of
Texas Life Insurance Company ("Excellent") nine ratings
Metropolitan Property and Casualty Insurance categories and
Company highest within the
category based on
modifiers
Fitch Ratings Metropolitan Life Insurance Company AA+ Second highest of
New England Life Insurance Company ("Very High") eight ratings
MetLife Investors USA Insurance Company categories and
(Still listed as Security First Life Insurance highest within the
Company) category based on
General American Life Insurance Company modifiers (e.g.,
MetLife Investors Insurance Company AA+, AA and AA- are
Paragon Life Insurance Company "Very High")
Security Equity Life Insurance Company
The foregoing ratings reflect each rating agency's opinion of Metropolitan
Life and the Company's other insurance subsidiaries' financial strength,
operating performance and ability to meet their obligations to policyholders,
and are not evaluations directed toward the protection of MetLife, Inc.'s
securityholders.
25
DEBT RATINGS
Debt ratings are also a factor in establishing the competitive position of
insurers and are important to the Company's ability to raise capital through the
issuance of debt and may impact the cost of such financing. The Company's
current debt ratings are listed in the table below:
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE
------------- --------------- ------ ----------------
Standard & Poor's MetLife, Inc. (Senior Unsecured Debt Rating) A Third highest of
Ratings Services ("Strong") nine ratings
categories and
highest within the
category based on
modifiers (e.g.
AA+, AA and AA- are
Very Strong)
MetLife Funding, Inc. (Commercial Paper Debt A-1+ Highest of five
Rating) ("Extremely ratings categories
Strong") and highest within
the category based
on modifiers
MetLife, Inc. (Commercial Paper Debt Rating) A-1 Highest of five
("Extremely ratings categories
Strong") and lowest within
the category based
on modifiers
Moody's Investors MetLife, Inc. (Senior Unsecured Debt Rating) A1 ("Good") Third highest of
Service, Inc. nine ratings
categories and
highest within the
category based on
modifiers (e.g.,
Aa1, Aa2 and Aa3
are "Excellent")
MetLife, Inc. (Commercial Paper Debt Rating) P-1 Highest of four
MetLife Funding, Inc. (Commercial Paper Debt ("Superior") ratings categories
Rating)
A.M. Best Company, MetLife, Inc. (Senior Unsecured Debt Rating) A+ Highest of nine
Inc. ("Superior") ratings categories
and second highest
within the category
based on modifiers
(e.g. A++ and A+
and "Superior"
while A and A- are
"Excellent")
MetLife, Inc. (Commercial Paper Debt Rating) AMB-1+ Highest of five
MetLife Funding, Inc. (Commercial Paper Debt ("Superior") ratings categories
Rating)
Fitch Ratings MetLife, Inc. (Senior Unsecured Debt Rating) A Third highest of
("Strong") eight ratings
categories and
lowest within the
category based on
modifiers
26
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE
------------- --------------- ------ ----------------
MetLife, Inc. (Commercial Paper Debt Rating) F1+ Highest of five
MetLife Funding, Inc. (Commercial Paper Debt ("Highest") ratings categories
Rating) and highest within
the category based
on modifiers
27
EMPLOYEES
At December 31, 2001, the Company employed approximately 46,000 employees.
The Company believes that its relations with its employees are satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding the executive officers of MetLife,
Inc. and Metropolitan Life:
ROBERT H. BENMOSCHE, age 57, has been a Director of MetLife since
August 1999 and Chairman of the Board, President and Chief Executive
Officer of MetLife since September 1999. He has been a Director of
Metropolitan Life since 1997 and Chairman of the Board, President and Chief
Executive Officer of Metropolitan Life since July 1998, was President and
Chief Operating Officer from November 1997 to June 1998, and Executive Vice
President from September 1995 to October 1997. Previously, he was Executive
Vice President of PaineWebber Group Incorporated from 1989 to 1995.
GERALD CLARK, age 58, has been a Director of MetLife since August 1999
and Vice-Chairman of the Board and Chief Investment Officer of MetLife
since September 1999. He has been a Director of Metropolitan Life since
1997 and Vice-Chairman of the Board and Chief Investment Officer of
Metropolitan Life since July 1998, was Senior Executive Vice President and
Chief Investment Officer from December 1995 to July 1998, and Executive
Vice President and Chief Investment Officer from September 1992 to December
1995.
STEWART G. NAGLER, age 59, has been a Director of MetLife since August
1997 and Vice-Chairman of the Board and Chief Financial Officer of MetLife
since September 1999. He has been a Director of Metropolitan Life since
1997 and Vice-Chairman of the Board and Chief Financial Officer of
Metropolitan Life since July 1998, and was its Senior Executive Vice
President and Chief Financial Officer from April 1993 to July 1998. Mr.
Nagler also serves as a Director and Chairman of the Board of RGA.
GARY A. BELLER, age 63, has been Senior Executive Vice President and
General Counsel of MetLife since September 1999 and of Metropolitan Life
since February 1998. He was Executive Vice President and General Counsel of
Metropolitan Life from August 1996 to January 1998, and Executive Vice
President and Chief Legal Officer from November 1994 to July 1996.
JAMES M. BENSON, age 55, has been President of Individual of MetLife
since September 1999 and of Individual of Metropolitan Life since May 1999.
He has been Chairman of the Board of New England Life since May 1998, Chief
Executive Officer since January 1998, and President since June 1997. He was
Chief Operating Officer of New England Life from June 1997 to December
1997. Mr. Benson was the President and Chief Operating Officer of The
Equitable Companies Incorporated from February 1996 to May 1997, and was
President of The Equitable Life Assurance Society of the United States from
February 1994 to May 1997, Chief Executive Officer from February 1996 to
May 1997, and Chief Operating Officer from February 1994 to February 1996.
C. ROBERT HENRIKSON, age 54, has been President of Institutional of
MetLife since September 1999 and President of Institutional of Metropolitan
Life since May 1999. He was Senior Executive Vice President, Institutional,
of Metropolitan Life, from December 1997 to May 1999, Executive Vice
President, Institutional, from January 1996 to December 1997, Executive
Vice President, Pensions, from January 1995 to January 1996, and Senior
Vice President, Pensions, from January 1991 to January 1995.
CATHERINE A. REIN, age 59, has been Senior Executive Vice President of
MetLife since September 1999 and President and Chief Executive Officer of
Metropolitan Property and Casualty Insurance Company since March 1999. She
has been Senior Executive Vice President of Metropolitan Life since
February 1998 and was Executive Vice President from October 1989 to
February 1998.
WILLIAM J. TOPPETA, age 53, has been President of International of
MetLife since June 2001. He was President of Client Services and Chief
Administrative Officer of MetLife from September 1999 to June 2001 and
President of Client Services and Chief Administrative Officer of
Metropolitan Life from May 1999 to June 2001. He was Senior Executive Vice
President, Head of Client Services, of Metropolitan Life from
27
March 1999 to May 1999, Senior Executive Vice President, Individual, from
February 1998 to March 1999, Executive Vice President, Individual, from
July 1996 to February 1998, Senior Vice President from October 1995 to July
1996 and President and Chief Executive Officer, Canadian Operations, from
July 1993 to October 1995.
LISA M. WEBER, age 40, has been Senior Executive Vice President and
Chief Administrative Officer of MetLife and Metropolitan Life since June
2001. She was Executive Vice President of MetLife and Metropolitan Life
from December 1999 to June 2001 and head of Human Resources from March 1998
to June 2001. She was Senior Vice President of MetLife from September 1999
to November 1999 and Senior Vice President of Metropolitan Life from March
1998 to November 1999. Previously, she was Senior Vice President of Human
Resources of PaineWebber Group Incorporated, where she was employed for ten
years.
TRADEMARKS
MetLife has a worldwide trademark portfolio that it considers important in
the marketing of its products and services, including, among others, the
trademark "MetLife" and the license to use the Peanuts(TM) characters. MetLife
has the exclusive right to use the Peanuts(TM) characters in the area of
financial services and health care services in the U.S. and some foreign
countries under an advertising and premium agreement with United Feature
Syndicate. The agreement with United Feature Syndicate expires on December 31,
2002. The Company believes that its rights in its trademarks are well protected.
ITEM 2. PROPERTIES
One Madison Avenue in New York, New York, serves as the Company's
headquarters, and it, along with the adjacent MetLife Tower, contains
approximately 1.4 million rentable square feet of space. The Company has leased
One Madison Avenue and the MetLife Tower to Credit Suisse First Boston (USA),
Inc. ("CSFB"), under a long-term lease. MetLife has subleased for its own use a
portion of One Madison Avenue and the Tower pursuant to a sublease from CSFB.
CSFB has begun occupying portions of One Madison Avenue and the Tower and
expects to complete its occupancy in stages through late 2003. MetLife has begun
to vacate portions of One Madison Avenue and the Tower and expects that on or
about June 1, 2002, it will occupy approximately 270,000 rentable square feet
(which is the square footage subleased to MetLife on a long-term basis under the
sublease from CSFB). In addition to this property, the Company owns 18 other
buildings in the U.S. that it uses in the operation of its business. These
buildings contain approximately 5.3 million rentable square feet and are located
in the following states: Florida, Illinois, Massachusetts, Minnesota, Missouri,
New York, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode Island and Texas. The
Company's computer center in Rensselaer, New York is not owned in fee but rather
is occupied pursuant to a long-term ground lease. The Company leases space in
approximately 780 other locations throughout the U.S., and these leased
facilities consist of approximately 6.3 million rentable square feet.
Approximately 51% of these leases are occupied as sales offices for the
Individual segment, and the Company uses the balance for its other business
activities. It also owns two buildings outside the U.S., comprising more than
49,000 rentable square feet. The Company leases approximately 43,000 rentable
square feet in various locations outside the U.S. Management believes that its
properties are suitable and adequate for the Company's current and anticipated
business operations.
The Company arranges for property and casualty coverage on its owned and
occupied properties, taking into consideration its risk exposures and the cost
and availability of commercial coverages, including deductible loss levels. In
connection with its renewal of those coverages, the Company has arranged $300
million of annual terrorist coverage on certain properties in its real estate
portfolio, effective March 1, 2002.
ITEM 3. LEGAL PROCEEDINGS
Sales Practices Claims
Over the past several years, Metropolitan Life, New England Mutual Life
Insurance Company ("New England Mutual") and General American have faced
numerous claims, including class action lawsuits, alleging improper marketing
and sales of individual life insurance policies or annuities. These lawsuits are
generally referred to as "sales practices claims."
28
In December 1999, the United States District Court for the Western District
of Pennsylvania approved a class action settlement resolving litigation against
Metropolitan Life involving certain alleged sales practices claims. The
settlement class includes most of the owners of permanent life insurance
policies and annuity contracts or certificates issued pursuant to individual
sales in the United States by Metropolitan Life, Metropolitan Insurance and
Annuity Company or Metropolitan Tower Life Insurance Company between January 1,
1982 and December 31, 1997. The class includes owners of approximately six
million in-force or terminated insurance policies and approximately one million
in-force or terminated annuity contracts or certificates. Implementation of the
settlement is substantially completed.
Similar sales practices class actions against New England Mutual, with
which Metropolitan Life merged in 1996, and General American, which was acquired
in 2000, have been settled. The New England Mutual case, approved by the United
States District Court for the District of Massachusetts in October 2000,
involves approximately 600,000 life insurance policies sold during the period
January 1, 1983 through August 31, 1996. Implementation of the New England
Mutual class action settlement is substantially completed. The General American
case, approved by the United States District Court for the Eastern District of
Missouri, and affirmed by the appellate court in October 2001, involves
approximately 250,000 life insurance policies sold during the period January 1,
1982 through December 31, 1996. A petition for writ of certiorari to the United
States Supreme Court has been filed by objectors to the settlement.
Implementation of the General American class action settlement is proceeding.
Metropolitan Life expects that the total cost of its class action
settlement will be approximately $957 million. It is expected that the total
cost of the New England Mutual class action settlement will be approximately
$160 million. General American expects that the total cost of its class action
settlement will be approximately $68 million.
Certain class members have opted out of the class action settlements noted
above and have brought or continued non-class action sales practices lawsuits.
As of December 31, 2001, there are approximately 420 sales practices lawsuits
pending against Metropolitan Life, approximately 40 sales practices lawsuits
pending against New England Mutual and approximately 40 sales practices lawsuits
pending against General American. Metropolitan Life, New England Mutual and
General American continue to vigorously defend themselves against these
lawsuits. Some individual sales practices claims have been resolved through
settlement, won by dispositive motions, or, in a few instances, have gone to
trial. Most of the current cases seek substantial damages, including in some
cases punitive and treble damages and attorneys' fees. Additional litigation
relating to the Company's marketing and sales of individual life insurance may
be commenced in the future.
The Metropolitan Life class action settlement did not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
in Canada, and these actions remain pending. In October 2001, the United States
District Court for the Southern District of New York approved the settlement of
a class action alleging improper sales abroad that was brought against
Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan
Tower Life Insurance Company and various individual defendants. No appeal was
filed and the settlement is being implemented.
The Company believes adequate provision has been made in its consolidated
financial statements for all reasonably probable and estimable losses for sales
practices claims against Metropolitan Life, New England Mutual and General
American.
During 1998, Metropolitan Life purchased excess of loss reinsurance
agreements to provide reinsurance with respect to sales practices claims made on
or prior to December 31, 1999 and for certain mortality losses in 1999. The
premium for the excess of loss reinsurance agreements was $529 million. These
reinsurance agreements had a maximum aggregate limit of $650 million, with a
maximum sublimit of $550 million for losses for sales practices claims. The
coverage was in excess of an aggregate self-insured retention of $385 million
with respect to sales practices claims and $506 million, plus the Company's
statutory policy reserves released upon the death of insureds, with respect to
life mortality losses. The excess of loss reinsurance agreements were amended in
2000 to transfer mortality risks under the Metropolitan Life class action
settlement agreement. Recoveries have been made under the reinsurance agreements
for the sales practices claims. Although there is no assurance that other
reinsurance claim submissions will be paid, the Company believes payment is
likely to occur. The
29
Company accounts for the aggregate excess of loss reinsurance agreements as
reinsurance; however, if deposit accounting were applied, the effect on the
Company's consolidated financial statements in 2001, 2000 and 1999 would not be
significant.
Regulatory authorities in a small number of states have had investigations
or inquiries relating to Metropolitan Life's, New England Mutual's or General
American's sales of individual life insurance policies or annuities. Over the
past several years, these and a number of investigations by other regulatory
authorities were resolved for monetary payments and certain other relief. The
Company may continue to resolve investigations in a similar manner.
Asbestos-Related Claims
Metropolitan Life is also a defendant in thousands of lawsuits seeking
compensatory and punitive damages for personal injuries allegedly caused by
exposure to asbestos or asbestos-containing products. Metropolitan Life has
never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products. Rather, these lawsuits,
currently numbering in the thousands, have principally been based upon
allegations relating to certain research, publication and other activities of
one or more of Metropolitan Life's employees during the period from the 1920's
through approximately the 1950's and alleging that Metropolitan Life 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. Legal
theories asserted against Metropolitan Life have included negligence,
intentional tort claims and conspiracy claims concerning the health risks
associated with asbestos. While Metropolitan Life believes it has meritorious
defenses to these claims, and has not suffered any adverse judgments in respect
of these claims, most of the cases have been resolved by settlements.
Metropolitan Life intends to continue to exercise its best judgment regarding
settlement or defense of such cases, including when trials of these cases are
appropriate. The number of such cases that may be brought or the aggregate
amount of any liability that Metropolitan Life may ultimately incur is
uncertain.
The following table sets forth the total number of asbestos personal injury
claims pending against Metropolitan Life as of the dates indicated, the number
of new claims during the years ended on those dates and the total settlement
payments made to resolve asbestos personal injury claims during those years:
AT OR FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
Asbestos personal injury claims at year end
(approximate)......................................... 89,000 73,000 60,000
Number of new claims during year (approximate).......... 59,500 54,500 35,500
Settlement payments during year (dollars in
millions)(1).......................................... $90.7 $71.1 $113.3
---------------
(1) Settlement payments represent payments made during the year in connection
with settlements made in that year and in prior years. Amounts do not
include Metropolitan Life's attorneys' fees and expenses and do not reflect
amounts received from insurance carriers.
Prior to the fourth quarter of 1998, Metropolitan Life established a
liability for asbestos-related claims based on settlement costs for claims that
Metropolitan Life had settled, estimates of settlement costs for claims pending
against Metropolitan Life and an estimate of settlement costs for unasserted
claims. The amount for unasserted claims was based on management's estimate of
unasserted claims that would be probable of assertion. A liability is not
established for claims which management believes are only reasonably possible of
assertion. Based on this process, the accrual for asbestos-related claims at
December 31, 1997 was $386 million. Potential liabilities for asbestos-related
claims are not easily quantified, due to the nature of the allegations against
Metropolitan Life, which are not related to the business of manufacturing,
producing, distributing or selling asbestos or asbestos-containing products,
adding to the uncertainty as to the number of claims that may be brought against
Metropolitan Life.
During 1998, Metropolitan Life decided to pursue the purchase of excess
insurance to limit its exposure to asbestos-related claims noted above. In
connection with the negotiations with the casualty insurers to obtain this
30
insurance, Metropolitan Life obtained information that caused management to
reassess the accruals for asbestos-related claims. This information included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against Metropolitan Life in the future
was significantly greater than it had assumed in its accruals. The number
of claims brought against Metropolitan Life is generally a reflection of
the number of asbestos-related claims brought against asbestos defendants
generally and the percentage of those claims in which Metropolitan Life
is included as a defendant. The information provided to Metropolitan Life
relating to other insureds indicated that Metropolitan Life had been
included as a defendant for a significant percentage of total
asbestos-related claims and that it may be included in a larger
percentage of claims in the future, because of greater awareness of
asbestos litigation generally by potential plaintiffs and plaintiffs'
lawyers and because of the bankruptcy and reorganization or the
exhaustion of insurance coverage of other asbestos defendants; and that,
although volatile, there was an upward trend in the number of total
claims brought against asbestos defendants.
- Information derived from actuarial calculations Metropolitan Life made in
the fourth quarter of 1998 in connection with these negotiations, which
helped to frame, define and quantify this liability. These calculations
were made using, among other things, current information regarding
Metropolitan Life's claims and settlement experience (which reflected
Metropolitan Life's decision to resolve an increased number of these
claims by settlement), recent and historic claims and settlement
experience of selected other companies and information obtained from the
insurers.
Based on this information, Metropolitan Life concluded that certain claims
that previously were considered as only reasonably possible of assertion were
probable of assertion, increasing the number of assumed claims to approximately
three times the number assumed in prior periods. As a result of this
reassessment, Metropolitan Life increased its liability for asbestos-related
claims to $1,278 million at December 31, 1998.
During 1998, Metropolitan Life paid $878 million in premiums for excess
insurance policies for asbestos-related claims. The excess insurance policies
for asbestos-related claims provide for recovery of losses up to $1,500 million,
which is in excess of a $400 million self-insured retention. The
asbestos-related policies are also subject to annual and per-claim sublimits.
Amounts are recoverable under the policies annually with respect to claims paid
during the prior calendar year. As a result of the excess insurance policies,
$878 million was recorded as a recoverable at December 31, 2001, 2000 and 1999.
Although amounts paid in any given year that are recoverable under the policies
will be reflected as a reduction in the Company's operating cash flows for that
year, management believes that the payments will not have a material adverse
effect on the Company's liquidity. Each asbestos-related policy contains an
experience fund and a reference fund that provides for payments to the Company
at the commutation date if experience under the policy to such date has been
favorable, or pro rata reductions from time to time in the loss reimbursements
to the Company if the cumulative return on the reference fund is less than the
return specified in the experience fund. It is likely that a claim will be made
under the excess insurance policies in 2003 for a portion of the amounts paid
with respect to asbestos litigation in 2002. If at some point in the future, the
Company believes the liability for probable and estimable losses for
asbestos-related claims should be increased, an expense would be recorded and
the insurance recoverable would be adjusted subject to the terms, conditions and
limits of the excess insurance policies. Portions of the change in the insurance
recoverable would be deferred and amortized into income over the estimated
remaining settlement period of the insurance policies.
The Company believes adequate provision has been made in its consolidated
financial statements for all reasonably probable and estimable losses for
asbestos-related claims. Estimates of the Company's asbestos exposure are very
difficult to predict due to the limitations of available data and the
substantial difficulty of predicting with any certainty numerous variables that
can affect liability estimates, including the number of future claims, the cost
to resolve claims and the impact of any possible future adverse verdicts and
their amounts. Recent bankruptcies of other companies involved in asbestos
litigation, as well as advertising by plaintiffs' asbestos lawyers, may be
resulting in an increase in the number of claims and the cost of resolving
claims, as well as the number of trials and possible verdicts Metropolitan Life
may experience. Plaintiffs are seeking additional
31
funds from defendants, including Metropolitan Life, in light of such recent
bankruptcies by certain other defendants. Metropolitan Life is studying its
recent claims experience, published literature regarding asbestos claims
experience in the United States and numerous variables that can affect its
asbestos liability exposure, including the recent bankruptcies of other
companies involved in asbestos litigation and legislative and judicial
developments, to identify trends and to assess their impact on the previously
recorded asbestos liability. It is reasonably possible that the Company's total
exposure to asbestos claims may be greater than the liability recorded by the
Company in its consolidated financial statements and that future charges to
income may be necessary. While the potential future charges could be material in
particular quarterly or annual periods in which they are recorded, based on
information currently known by management, it does not believe any such charges
are likely to have a material adverse effect on the Company's consolidated
financial position.
Property and Casualty Actions
A purported class action suit involving policyholders in four states was
filed in a Rhode Island state court against a Metropolitan Life subsidiary,
Metropolitan Property and Casualty Insurance Company, with respect to claims by
policyholders for the alleged diminished value of automobiles after
accident-related repairs. After the court denied plaintiffs' motion for class
certification, the plaintiffs dismissed the lawsuit with prejudice. Similar
"diminished value" purported class action suits have been filed in Texas and
Tennessee against Metropolitan Property and Casualty Insurance Company; a Texas
trial court recently denied plaintiffs' motion for class certification and a
hearing on plaintiffs' motion in Tennessee for class certification is to be
scheduled. A purported class action has been filed against Metropolitan Property
and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance
Company, in Florida. The complaint alleges breach of contract and unfair trade
practices with respect to allowing the use of parts not made by the original
manufacturer to repair damaged automobiles. Discovery is ongoing and a motion
for class certification is pending. A two-plaintiff individual lawsuit brought
in Alabama alleges that Metropolitan Property and Casualty Insurance Company and
CCC, a valuation company, violated state law by failing to pay the proper
valuation amount for a total loss. Total loss valuation methods also are the
subject of national class actions involving other insurance companies. A
Pennsylvania state court purported class action lawsuit filed in August 2001
alleges that Metropolitan Property and Casualty Insurance Company improperly
took depreciation on partial homeowner losses where the insured replaced the
covered item. In addition, in Florida, Metropolitan Property and Casualty
Insurance Company has been named in a class action alleging that it improperly
established preferred provider organizations (hereinafter "PPO"). Other insurers
have been named in both the Pennsylvania and the PPO cases. Metropolitan
Property and Casualty Insurance Company and Metropolitan Casualty Insurance
Company are vigorously defending themselves against these lawsuits.
Demutualization Actions
Several lawsuits were brought in 2000 challenging the fairness of
Metropolitan Life's plan of reorganization and the adequacy and accuracy of
Metropolitan Life's disclosure to policyholders regarding the plan. These
actions name as defendants some or all of Metropolitan Life, the Holding
Company, the individual directors, the New York Superintendent of Insurance and
the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs &
Company and Credit Suisse First Boston. Five purported class actions pending in
the Supreme Court of the State of New York for New York County have been
consolidated within the commercial part. Metropolitan Life has moved to dismiss
these consolidated cases on a variety of grounds. In addition, there remains a
separate purported class action in New York state court in New York County that
Metropolitan Life also has moved to dismiss. Another purported class action in
New York state court in Kings County has been voluntarily held in abeyance by
plaintiffs. The plaintiffs in the state court class actions seek injunctive,
declaratory and compensatory relief, as well as an accounting and, in some
instances, punitive damages. Some of the plaintiffs in the above described
actions also have brought a proceeding under Article 78 of New York's Civil
Practice Law and Rules challenging the Opinion and Decision of the New York
Superintendent of Insurance that approved the plan. In this proceeding,
petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin
him from granting final approval of the plan. This case also is being held in
abeyance by plaintiffs. Another purported class action is pending in the Supreme
Court of the State of New York for New York County and has been brought on
behalf of a purported class of beneficiaries of Metropolitan Life annuities
purchased to fund structured
32
settlements claiming that the class members should have received common stock or
cash in connection with the demutualization. Metropolitan Life has moved to
dismiss this case on a variety of grounds. Three purported class actions were
filed in the United States District Court for the Eastern District of New York
claiming violation of the Securities Act of 1933. The plaintiffs in these
actions, which have been consolidated, claim that the Policyholder Information
Booklets relating to the plan failed to disclose certain material facts and seek
rescission and compensatory damages. Metropolitan Life's motion to dismiss these
three cases was denied on July 23, 2001. A purported class action also was filed
in the United States District Court for the Southern District of New York
seeking damages from Metropolitan Life and the Holding Company for alleged
violations of various provisions of the Constitution of the United States in
connection with the plan of reorganization. On July 9, 2001, pursuant to a
motion to dismiss filed by Metropolitan Life, this case was dismissed by the
District Court. Plaintiffs have appealed to the United States Court of Appeals
for the Second Circuit. Metropolitan Life, the Holding Company and the
individual defendants believe they have meritorious defenses to the plaintiffs'
claims and are contesting vigorously all of the plaintiffs' claims in these
actions.
In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario,
Canada on behalf of a proposed class of certain former Canadian policyholders
against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance
Company of Canada. Plaintiffs' allegations concern the way that their policies
were treated in connection with the demutualization of Metropolitan Life; they
seek damages, declarations, and other non-pecuniary relief. The defendants
believe they have meritorious defenses to the plaintiffs' claims and will
contest vigorously all of plaintiffs' claims in this matter.
Race-Conscious Underwriting Claims
Insurance Departments in a number of states initiated inquiries in 2000
about possible race-conscious underwriting of life insurance. These inquiries
generally have been directed to all life insurers licensed in their respective
states, including Metropolitan Life and certain of its subsidiaries. The New
York Insurance Department has commenced examinations of certain domestic life
insurance companies, including Metropolitan Life, concerning possible past
race-conscious underwriting practices. Metropolitan Life is cooperating fully
with that inquiry, which is ongoing. Four purported class action lawsuits filed
against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the
marketing, sale, and administration of life insurance policies have been
consolidated in the United States District Court for the Southern District of
New York. The plaintiffs seek unspecified monetary damages, punitive damages,
reformation, imposition of a constructive trust, a declaration that the alleged
practices are discriminatory and illegal, injunctive relief requiring
Metropolitan Life to discontinue the alleged discriminatory practices and adjust
policy values, and other relief. At the outset of discovery, Metropolitan Life
moved for summary judgment on statute of limitations grounds. On June 27, 2001,
the District Court denied that motion, citing, among other things, ongoing
discovery on relevant subjects. The ruling does not prevent Metropolitan Life
from continuing to pursue a statute of limitations defense. Plaintiffs have
moved for certification of a class consisting of all non-Caucasian policyholders
purportedly harmed by the practices alleged in the complaint. Metropolitan Life
has opposed the class certification motion. Metropolitan Life has been involved
in settlement discussions to resolve the regulatory examinations and the actions
pending in the United States District Court for the Southern District of New
York. In that connection, Metropolitan Life has recorded a $250 million pre-tax
charge in the fourth quarter of 2001 as probable and estimable costs associated
with the anticipated resolution of these matters.
In the fall of 2001, 12 lawsuits were filed against Metropolitan Life on
behalf of approximately 109 non-Caucasian plaintiffs in their individual
capacities in state court in Tennessee. The complaints allege under state common
law theories that Metropolitan Life discriminated against non-Caucasians in the
sale, formation and administration of life insurance policies. The plaintiffs
have stipulated that they do not seek and will not accept more than $74,000 per
person if they prevail on their claims. Early in 2002, two individual actions
were filed against Metropolitan Life in federal court in Alabama alleging both
federal and state law claims of racial discrimination in connection with the
sale of life insurance policies issued. Metropolitan Life is contesting
vigorously plaintiffs' claims in the Tennessee and Alabama actions.
33
Other
In March 2001, a putative class action was filed against Metropolitan Life
in the United States District Court for the Southern District of New York
alleging gender discrimination and retaliation in the MetLife Financial Services
unit of the Individual segment. The plaintiffs seek unspecified compensatory
damages, punitive damages, a declaration that the alleged practices are
discriminatory and illegal, injunctive relief requiring Metropolitan Life to
discontinue the alleged discriminatory practices, an order restoring class
members to their rightful positions (or appropriate compensation in lieu
thereof), and other relief. Metropolitan Life is vigorously defending itself
against these allegations.
A lawsuit has been filed against Metropolitan Life in Ontario, Canada by
Clarica Life Insurance Company regarding the sale of the majority of
Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that
Metropolitan Life breached certain representations and warranties contained in
the sale agreement, that Metropolitan Life made misrepresentations upon which
Clarica relied during the negotiations and that Metropolitan Life was negligent
in the performance of certain of its obligations and duties under the sale
agreement. Metropolitan Life is vigorously defending itself against this
lawsuit.
General American has received and responded to subpoenas for documents and
other information from the office of the U.S. Attorney for the Eastern District
of Missouri with respect to certain administrative services provided by its
former Medicare Unit during the period January 1, 1988 through December 31,
1998, which services ended and which unit was disbanded prior to MetLife's
acquisition of General American. The subpoenas were issued as part of the
Government's criminal investigation alleging that General American's former
Medicare Unit engaged in improper billing and claims payment practices. The
Government is also conducting a civil investigation under the federal False
Claims Act. General American is cooperating fully with the Government's
investigations. In March 2002, General American and the Government reached an
agreement in principle to resolve all issues through a civil settlement. The
agreement is subject to approvals and there can be no assurance that it will be
approved.
Various litigation, claims and assessments against the Company, in addition
to those discussed above 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, employer, investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other federal and state authorities
regularly make inquiries and conduct investigations concerning the Company's
compliance with applicable insurance and other laws and regulations.
Summary
It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, except as noted above in connection with specific matters. In
some of the matters referred to above, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. Although in light of these
considerations it is possible that an adverse outcome in certain cases could
have a material adverse effect upon the Company's consolidated financial
position, based on information currently known by the Company's management, in
its opinion, the outcomes of such pending investigations and legal proceedings
are not likely to have such an effect. However, 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 the
Company's operating results or cash flows in particular quarterly or annual
periods.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 2001.
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MetLife, Inc.'s common stock, par value $0.01 per share (the "Common
Stock"), began trading on the New York Stock Exchange ("NYSE") under the symbol
"MET" on April 5, 2000.
The following table presents high and low closing prices for the Common
Stock on the NYSE for the periods indicated, and the dividends declared per
share:
2001
---------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
Common Stock Price
High............................................. $34.88 $32.38 $31.88 $31.68
Low.............................................. $26.05 $28.50 $25.20 $25.65
Dividends Paid..................................... $ -- $ -- $ -- $ 0.20
2000
-----------------------------------
FIRST SECOND(1) THIRD FOURTH
----- --------- ------ ------
Common Stock Price
High.............................................. N/A $21.31 $27.19 $36.50
Low............................................... N/A $15.13 $19.81 $23.75
Dividends Paid...................................... N/A $ -- $ -- $ 0.20
---------------
N/A -- Not applicable
(1) Commencing April 5, 2000.
As of March 1, 2002, there were 35,327 shareholders of record of Common
Stock.
On October 23, 2001, the Holding Company's Board of Directors approved an
annual dividend of $0.20 per share. The dividend was paid on December 14, 2001
to shareholders of record on November 6, 2001. On October 24, 2000, the Holding
Company's Board of Directors approved an annual dividend of $0.20 per share. The
dividend was paid on December 15, 2000 to shareholders of record on November 7,
2000. Future dividend decisions will be based on and affected by a number of
factors, including the operating results and financial requirements of the
Holding Company and the impact of regulatory restrictions. See
"Business -- Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
35
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
for the Company. The consolidated financial information for the years ended
December 31, 2001, 2000 and 1999 and at December 31, 2001 and 2000 has been
derived from the Company's audited consolidated financial statements included
elsewhere herein. The consolidated financial information for the years ended
December 31, 1998 and 1997 and at December 31, 1999, 1998 and 1997 has been
derived from the Company's audited consolidated financial statements not
included elsewhere herein. The following consolidated statements of income and
consolidated balance sheet data, other than the statutory data, have been
prepared in conformity with GAAP. The statutory data have been derived from
Metropolitan Life's Annual Statements filed with insurance regulatory
authorities and have been prepared in accordance with statutory accounting
practices. The following information should be read in conjunction with and is
qualified in its entirety by the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the consolidated financial statements appearing elsewhere herein.
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
STATEMENTS OF INCOME DATA
Revenues:
Premiums................................... $17,212 $16,317 $12,088 $11,503 $11,278
Universal life and investment-type product
policy fees............................. 1,889 1,820 1,433 1,360 1,418
Net investment income(1)................... 11,923 11,768 9,816 10,228 9,491
Other revenues............................. 1,507 2,229 1,861 1,785 1,236
Net realized investment (losses)
gains(2)................................ (603) (390) (70) 2,021 787
------- ------- ------- ------- -------
Total revenues(3)(4)............... 31,928 31,744 25,128 27,106 24,465
------- ------- ------- ------- -------
Expenses:
Policyholder benefits and claims(5)........ 18,454 16,893 13,100 12,638 12,403
Interest credited to policyholder account
balances................................ 3,084 2,935 2,441 2,711 2,878
Policyholder dividends..................... 2,086 1,919 1,690 1,651 1,742
Payments to former Canadian
policyholders(1)........................ -- 327 -- -- --
Demutualization costs...................... -- 230 260 6 --
Other expenses(1)(6)....................... 7,565 8,024 6,462 7,810 5,516
------- ------- ------- ------- -------
Total expenses(3)(4)............... 31,189 30,328 23,953 25,025 22,794
------- ------- ------- ------- -------
Income before provision for income taxes..... 739 1,416 1,175 2,081 1,671
Provision for income taxes(7)................ 266 463 558 738 468
------- ------- ------- ------- -------
Net income................................... $ 473 $ 953 $ 617 $ 1,343 $ 1,203
======= ======= ======= ======= =======
Net income after April 7, 2000 (date of
demutualization)........................... $ 1,173
=======
36
AT DECEMBER 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA
General account assets(1)............... $194,184 $183,884 $160,291 $157,278 $154,444
Separate account assets................. 62,714 70,250 64,941 58,068 48,338
-------- -------- -------- -------- --------
Total assets............................ $256,898 $254,134 $225,232 $215,346 $202,782
======== ======== ======== ======== ========
Liabilities:
Life and health policyholder
liabilities(8)..................... $148,323 $140,012 $122,637 $122,726 $125,849
Property and casualty policyholder
liabilities(8)..................... 2,610 2,559 2,318 1,477 1,509
Short-term debt....................... 355 1,085 4,180 3,572 4,564
Long-term debt........................ 3,628 2,400 2,494 2,886 2,866
Separate account liabilities.......... 62,714 70,250 64,941 58,068 48,338
Other liabilities(1).................. 21,950 20,349 14,972 11,750 5,649
-------- -------- -------- -------- --------
Total liabilities....................... 239,580 236,655 211,542 200,479 188,775
-------- -------- -------- -------- --------
Company-obligated mandatorily redeemable
securities of subsidiary trusts....... 1,256 1,090 -- -- --
-------- -------- -------- -------- --------
Equity:
Common stock, at par value............ 8 8 -- -- --
Additional paid-in capital(9)......... 14,966 14,926 -- -- --
Retained earnings(9).................. 1,349 1,021 14,100 13,483 12,140
Treasury stock, at cost............... (1,934) (613) -- -- --
Accumulated other comprehensive income
(loss)............................. 1,673 1,047 (410) 1,384 1,867
-------- -------- -------- -------- --------
Total equity............................ 16,062 16,389 13,690 14,867 14,007
-------- -------- -------- -------- --------
Total liabilities and equity............ $256,898 $254,134 $225,232 $215,346 $202,782
======== ======== ======== ======== ========
37
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
OTHER DATA
Operating income(2)(10)............... $ 906 $ 1,541 $ 990 $ 23 $ 617
Adjusted operating income(5)(10)...... $ 1,273 $ 1,541 $ 1,307 $ 1,226 $ 807
Operating return on equity(11)........ 6.1% 10.5% 7.2% 0.2% 5.3%
Adjusted operating return on
equity(12)......................... 8.6% 10.5% 9.5% 9.6% 7.0%
Return on equity(13).................. 3.2% 6.5% 4.5% 10.5% 10.4%
Operating cash flows.................. $ 4,799 $ 1,299 $ 3,883 $ 842 $ 2,872
Total assets under management (14).... $282,414 $301,297 $373,612 $360,703 $338,731
STATUTORY DATA(15)
Premiums and deposits................. $ 19,982 $ 23,536 $ 24,642 $ 22,722 $ 20,569
Net income............................ $ 2,782 $ 1,027 $ 789 $ 875 $ 589
Policyholder surplus.................. $ 5,358 $ 7,208 $ 7,630 $ 7,388 $ 7,378
Asset valuation reserve............... $ 3,650 $ 3,205 $ 3,109 $ 3,323 $ 3,814
EARNINGS PER SHARE DATA(16)
Basic earnings per share.............. $ 0.64 $ 1.52 N/A N/A N/A
Diluted earnings per share............ $ 0.62 $ 1.49 N/A N/A N/A
ADJUSTED OPERATING EARNINGS PER SHARE
DATA(17)
Basic earnings per share.............. $ 1.72 $ 1.99 N/A N/A N/A
Diluted earnings per share............ $ 1.67 $ 1.96 N/A N/A N/A
DIVIDENDS PAID PER SHARE................ $ 0.20 $ 0.20 N/A N/A N/A
---------------
(1) In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, with respect to the
Company's securities lending program. Adoption of the provisions had the
effect of increasing assets and liabilities by $3,769 million at December
31, 1998 and increasing revenues and expenses by $266 million for the year
ended December 31, 1998.
(2) Investment gains and losses are presented net of related policyholder
amounts. The amounts netted against investment gains and losses are the
following:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999 1998 1997
----- ----- ----- ------ ------
(DOLLARS IN MILLIONS)
Gross investment (losses) gains...... $(737) $(444) $(137) $2,629 $1,018
----- ----- ----- ------ ------
Less amounts allocable to:
Future policy benefit loss
recognition..................... -- -- -- (272) (126)
Deferred policy acquisition
costs........................... (25) 95 46 (240) (70)
Participating pension contracts.... -- (126) 21 (96) (35)
Policyholder dividend obligation... 159 85 -- -- --
----- ----- ----- ------ ------
Total.............................. 134 54 67 (608) (231)
----- ----- ----- ------ ------
Net investment (losses) gains........ $(603) $(390) $ (70) $2,021 $ 787
===== ===== ===== ====== ======
Investment gains (losses) have been reduced by (i) additions to future
policy benefits resulting from the need to establish additional liabilities
due to the recognition of investment gains, (ii) deferred policy
acquisition amortization to the extent that such amortization results from
investment gains and losses, (iii) additions to participating
contractholder accounts when amounts equal to such investment gains and
losses are credited
38
to the contractholder's accounts, and (iv) adjustments to the policyholder
dividend obligation resulting from investment gains and losses. This
presentation may not be comparable to presentations made by other insurers.
This presentation affected operating income and adjusted operating income.
See note 10 below.
(3) Includes the following combined financial statement data of Conning
Corporation, which was sold on July 2, 2001, the Company's controlling
interest in Nvest Companies L.P. and its affiliates, which were sold in
2000, MetLife Capital Holdings, Inc., which was sold in 1998, and the
Company's Canadian operations and U.K. insurance operations, substantially
all of which were sold in 1998 and 1997:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ------ ------
(DOLLARS IN MILLIONS)
Total revenues......................... $33 $608 $655 $1,405 $2,149
=== ==== ==== ====== ======
Total expenses......................... $35 $582 $603 $1,275 $1,870
=== ==== ==== ====== ======
As a result of these sales, investment gains of $25 million, $663 million,
$520 million and $139 million were recorded for the years ended December
31, 2001, 2000, 1998 and 1997, respectively.
In July 1998, Metropolitan Life sold a substantial portion of its Canadian
operations to Clarica Life. As part of that sale, a large block of policies
in effect with Metropolitan Life in Canada were transferred to Clarica
Life, and the holders of the transferred Canadian policies became
policyholders of Clarica Life. Those transferred policyholders are no
longer policyholders of Metropolitan Life and, therefore, were not entitled
to compensation under the plan of reorganization. However, as a result of a
commitment made in connection with obtaining Canadian regulatory approval
of that sale and in connection with the demutualization, Metropolitan
Life's Canadian branch made cash payments to those who were, or were deemed
to be, holders of these transferred Canadian policies. The payments were
determined in a manner that is consistent with the treatment of, and fair
and equitable to, eligible policyholders of Metropolitan Life.
(4) Included in 2000 total revenues and total expenses are $3,739 million and
$3,561 million, respectively, related to GenAmerica, which was acquired on
January 6, 2000.
(5) Policyholder benefits and claims exclude $(159) million, $41 million, $(21)
million, $368 million and $161 million for the years ended December 31,
2001, 2000, 1999, 1998 and 1997, respectively, of future policy benefit
loss recognition, credits to participating contractholder accounts and
changes in the policyholder dividend obligation that have been charged
against net investment gains and losses as such amounts are directly
related to such gains and losses. This presentation may not be comparable
to presentations made by other insurers.
(6) Other expenses exclude $25 million, $(95) million, $(46) million, $240
million and $70 million for the years ended December 31, 2001, 2000, 1999,
1998 and 1997, respectively, of amortization of deferred policy acquisition
costs that have been charged against net investment gains and losses as
such amounts are directly related to such gains and losses. This
presentation may not be comparable to presentations made by other insurers.
(7) Includes $(145) million, $125 million, $18 million and $(40) million for
surplus tax (credited) accrued by Metropolitan Life for the years ended
December 31, 2000, 1999, 1998 and 1997, respectively. Prior to its
demutualization, Metropolitan Life was subject to surplus tax imposed on
mutual life insurance companies under Section 809 of the Code. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(8) Policyholder liabilities include future policy benefits, policyholder
account balances, other policyholder funds, policyholder dividends payable
and the policyholder dividend obligation.
(9) For additional information regarding these items, see Note 1 of Notes to
Consolidated Financial Statements.
39
(10) The following provides a reconciliation of net income to adjusted operating
income:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------- -------
(DOLLARS IN MILLIONS)
Net income............................ $ 473 $ 953 $ 617 $ 1,343 $ 1,203
------ ------ ------ ------- -------
Adjustments to reconcile net income to
operating income:
Gross investments losses (gains).... 737 444 137 (2,629) (1,018)
Income tax on gross investment gains
and losses....................... (208) (175) (92) 883 312
------ ------ ------ ------- -------
Investment losses (gains), net of
income tax..................... 529 269 45 (1,746) (706)
------ ------ ------ ------- -------
Amounts allocated to investment
gains and losses (see note 4).... (134) (54) (67) 608 231
Income tax on amounts allocated to
investment gains and losses...... 38 21 45 (204) (71)
------ ------ ------ ------- -------
Amount allocated to investment
gains and losses, net of income
tax............................ (96) (33) (22) 404 160
------ ------ ------ ------- -------
Demutualization costs............... -- 230 260 6 --
Income tax on demutualization
costs............................ -- (60) (35) (2) --
------ ------ ------ ------- -------
Demutualization costs, net of
income tax..................... -- 170 225 4 --
------ ------ ------ ------- -------
Payments to former Canadian
policyholders.................... -- 327 -- -- --
------ ------ ------ ------- -------
Surplus tax......................... -- (145) 125 18 (40)
------ ------ ------ ------- -------
Operating income(a)................... 906 1,541 990 23 617
------ ------ ------ ------- -------
Adjustments to reconcile operating
income to adjusted operating income:
September 11, 2001 tragedies........ 325 -- -- -- --
Income tax on September 11, 2001
tragedies........................ (117) -- -- -- --
------ ------ ------ ------- -------
September 11, 2001 tragedies, net
of income tax.................. 208 -- -- -- --
------ ------ ------ ------- -------
Adjustment for charges for alleged
race-conscious underwriting, for
sales practices claims and for
personal injury claims caused by
exposure to asbestos or
asbestos-containing
products(b)...................... 250 -- 499 1,895 300
Income tax on such charges.......... (91) -- (182) (692) (110)
------ ------ ------ ------- -------
Adjustment for charges for
alleged race-conscious
underwriting, for sales
practices claims and for
personal injury claims caused
by exposure to asbestos or
asbestos-containing products,
net of income tax.............. 159 -- 317 1,203 190
------ ------ ------ ------- -------
Adjusted operating income(a).......... $1,273 $1,541 $1,307 $ 1,226 $ 807
====== ====== ====== ======= =======
40
The Company believes the supplemental operating information presented above
allows for a more complete analysis of the results of operations.
Investment gains and losses have been excluded due to their volatility
between periods and because such data are often excluded when evaluating
the overall financial performance of insurers. Demutualization costs,
payments to former Canadian policyholders, and surplus tax have been
excluded since such amounts are associated with Metropolitan Life's
conversion to a stock company. Operating income and adjusted operating
income should not be considered as a substitute for any GAAP measure of
performance. The Company's method of calculating operating income and
adjusted operating income may be different from the method used by other
companies and therefore comparability may be limited.
(a) Operating income and adjusted operating income for the year ended
December 31, 2001 include charges related to several business
realignment initiatives of $330 million, net of income tax, and the
establishment of a policyholder liability for certain group annuity
contracts at New England Financial of $74 million, net of income
tax. See Note 13 of Notes to Consolidated Financial Statements.
(b) The charge for 2001 was recorded to cover costs associated with the
anticipated resolution of class action lawsuits and a related
regulatory inquiry pending against Metropolitan Life, involving
alleged race-conscious underwriting practices prior to 1973. The
charge for 1999 was principally related to the settlement of a
multidistrict litigation proceeding involving alleged improper sales
practices, accruals for sales practices claims not covered by the
settlement and other legal costs. The amounts reported for 1998 and
1997 include charges for sales practices claims and claims for
personal injuries caused by exposure to asbestos or
asbestos-containing products. See Note 11 of Notes to Consolidated
Financial Statements.
The Company believes that supplemental adjusted operating income data
provides information useful in measuring operating trends by excluding the
unusual amounts of expenses associated with the September 11, 2001
tragedies, the anticipated resolution of proceedings alleging
race-conscious underwriting practices, sales practices and asbestos-related
claims.
(11) Operating return on equity is defined as operating income divided by
average total equity excluding accumulated other comprehensive income
(loss). The Company believes the operating return on equity information
presented supplementally allows for a more complete analysis of results of
operations. Accumulated other comprehensive income (loss) has been excluded
due to its volatility between periods and because such data is often
excluded when evaluating the overall financial performance of insurers.
Operating return on equity should not be considered as a substitute for any
GAAP measure of performance. The Company's method of calculating operating
return on equity may be different from the method used by other companies
and, therefore, comparability may be limited.
(12) Adjusted operating return on equity is defined as adjusted operating income
divided by average total equity, excluding accumulated other comprehensive
income (loss). The Company believes that supplemental adjusted operating
return on equity data provides information useful in measuring operating
trends by excluding the unusual amounts of expenses associated with the
September 11, 2001 tragedies, the anticipated resolution of proceedings
alleging race-conscious underwriting practices, sales practices and
asbestos-related claims. Adjusted operating return on equity should not be
considered as a substitute for net income in accordance with GAAP.
(13) Return on equity is defined as net income divided by average total equity,
excluding accumulated other comprehensive income (loss).
(14) Includes MetLife's general account and separate account assets and assets
managed on behalf of third parties. Includes $21 billion of assets under
management managed by Conning at December 31, 2000, which was sold on July
2, 2001. Includes $133 billion, $135 billion, and $125 billion of assets
under management managed by Nvest at December 31, 1999, 1998 and 1997,
respectively, which was sold on October 30, 2000.
41
(15) Metropolitan Life statutory data only.
The decrease in premiums and deposits from 2000 to 2001 is primarily
attributable to a change in accounting required by the Codification, as
adopted by the Department. This change required $7.0 billion of deposits
related to products without mortality or morbidity factors to be recorded
as policyholder liabilities beginning January 1, 2001.
A significant component of the increase in statutory net income is $1.8
billion of investment gains resulting from transactions including the sale
of Metropolitan Insurance and Annuity Company ("MIAC") to MetLife, Inc. and
the sale of certain real estate to MIAC from Metropolitan Life. On a GAAP
basis, the effects of these transactions are eliminated in consolidation.
See Note 21 of Notes to Consolidated Financial Statements.
The decrease in policyholder surplus is primarily due to a special dividend
payment of $3,064 million from Metropolitan Life to MetLife, Inc.
The increase in the asset valuation reserve is primarily attributable to
the aforementioned investment gain.
(16) Based on earnings subsequent to the date of demutualization. For additional
information regarding these items, see Note 19 of Notes to Consolidated
Financial Statements.
(17) Earnings per share amounts for 2000 are proforma and are presented as if
the initial public offering had occurred on January 1, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For purposes of this discussion, the term "Company" refers, at all times
prior to the date of demutualization (as hereinafter defined), to Metropolitan
Life Insurance Company ("Metropolitan Life"), a mutual life insurance company
organized under the laws of the State of New York, and its subsidiaries, and at
all times on and after the date of demutualization, to MetLife, Inc. (the
"Holding Company"), a Delaware corporation, and its subsidiaries, including
Metropolitan Life. Following this summary is a discussion addressing the
consolidated results of operations and financial condition of the Company for
the periods indicated. This discussion should be read in conjunction with the
Company's consolidated financial statements included elsewhere herein.
BUSINESS REALIGNMENT INITIATIVES
During the fourth quarter of 2001, the Company implemented several business
realignment initiatives, which resulted from a strategic review of operations
and an ongoing commitment to reduce expenses. The impact of these actions on a
segment basis is as follows:
FOR THE YEAR ENDED
DECEMBER 31, 2001
---------------------
NET OF
AMOUNT INCOME TAX
------ ----------
(DOLLARS IN MILLIONS)
Institutional............................................... $399 $267
Individual.................................................. 97 61
Auto & Home................................................. 3 2
---- ----
Total.................................................. $499 $330
==== ====
Institutional. The charges to this segment include costs associated with
exiting a business, including the write-off of goodwill, severance,
severance-related expenses, and facility consolidation costs. These expenses are
the result of the discontinuance of certain 401(k) recordkeeping services and
externally-managed guaranteed index separate accounts. These initiatives will
result in the elimination of approximately 450 positions. These actions resulted
in charges to policyholder benefits and claims and other expenses of $215
million and $184 million, respectively.
42
Individual. The charges to this segment include facility consolidation
costs, severance and severance-related expenses, which predominately stem from
the elimination of approximately 560 non-sales positions and 190 operations and
technology positions supporting this segment. The costs were recorded in other
expenses.
Auto & Home. The charges to this segment include severance and related
costs associated with the elimination of approximately 200 positions. The costs
were recorded in other expenses.
These initiatives are expected to result in savings of approximately $100
million, net of income tax, during 2002, comprised of approximately $60 million,
$35 million and $5 million in the Individual, Institutional and Auto & Home
segments, respectively.
Although many of the segments' underlying business initiatives were
completed in 2001, a portion of the activity will continue into 2002. The
liability related to business initiatives at December 31, 2001 was $295 million.
SEPTEMBER 11, 2001 TRAGEDIES
On September 11, 2001 a terrorist attack occurred in New York, Washington,
D.C. and Pennsylvania (collectively, the "tragedies") triggering a significant
loss of life and property which had an adverse impact on certain of the
Company's businesses. The Company has direct exposures to this event with claims
arising from its Individual, Institutional, Reinsurance and Auto & Home
insurance coverages, although it believes the majority of such claims have been
reported or otherwise analyzed by the Company.
As of December 31, 2001, the Company's estimate of the total expected
insurance losses related to the tragedies is $208 million, net of income tax of
$117 million. This estimate is subject to revision in subsequent periods, as
claims are received from insureds and the claims to reinsurers are identified
and processed. Any revision to the estimate of gross losses and reinsurance
recoveries in subsequent periods will affect income before income taxes and net
income in such periods. Reinsurance recoveries are dependent on the continued
creditworthiness of the reinsurers, which may be adversely affected by their
other reinsured losses in connection with the tragedies.
The long-term effects of the tragedies on the Company's businesses cannot
be assessed at this time. The tragedies have had significant adverse effects on
general economic, market and political conditions, increasing many of the
Company's business risks. This may have a negative effect on the Company's
businesses and results of operations over time. In particular, the declines in
share prices experienced after the reopening of the United States equity markets
following the tragedies have contributed, and may continue to contribute, to a
decline in separate account assets, which in turn could have an adverse effect
on fees earned in the Company's businesses. In addition, the Institutional
segment may receive disability claims from individuals suffering from mental and
nervous disorders resulting from the tragedies. This may lead to a revision in
the Company's estimated insurance losses related to the tragedies. The majority
of the Company's disability policies include the provision that such claims be
submitted within two years of the traumatic event.
The Company's general account investment portfolios include investments,
primarily comprised of fixed income securities, in industries that were affected
by the tragedies, including airline, insurance, other travel and lodging and
insurance. Exposures to these industries also exist through mortgage loans and
investments in real estate. The market value of the Company's investment
portfolio exposed to industries affected by the tragedies was approximately $3.0
billion at December 31, 2001.
THE DEMUTUALIZATION
On April 7, 2000 (the "date of demutualization"), pursuant to an order by
the New York Superintendent of Insurance (the "Superintendent") approving its
plan of reorganization, as amended (the "plan"), Metropolitan Life converted
from a mutual life insurance company to a stock life insurance company and
became a wholly-owned subsidiary of the Holding Company. In conjunction
therewith, each policyholder's membership interest was extinguished and each
eligible policyholder received, in exchange for that interest, trust interests
representing shares of Common Stock held in the MetLife Policyholder Trust, cash
or an adjustment to their policy values in the form of policy credits, as
provided in the plan. In addition, Metropolitan Life's Canadian branch made cash
43
payments to holders of certain policies transferred to Clarica Life Insurance
Company in connection with the sale of a substantial portion of Metropolitan
Life's Canadian operations in 1998, as a result of a commitment made in
connection with obtaining Canadian regulatory approval of that sale. The
payments, which were recorded in the second quarter of 2000, were determined in
a manner that was consistent with the treatment of, and fair and equitable to,
eligible policyholders of Metropolitan Life.
On the date of demutualization, the Holding Company conducted an initial
public offering of 202,000,000 shares of its Common Stock and concurrent private
placements of an aggregate of 60,000,000 shares of its Common Stock at an
offering price of $14.25 per share. The shares of Common Stock issued in the
offerings are in addition to 494,466,664 shares of Common Stock of the Holding
Company distributed to the Metropolitan Life Policyholder Trust for the benefit
of policyholders of Metropolitan Life in connection with the demutualization. On
April 10, 2000, the Holding Company issued 30,300,000 additional shares of its
Common Stock as a result of the exercise of over-allotment options granted to
underwriters in the initial public offering.
Concurrently with these offerings, MetLife, Inc. and MetLife Capital Trust
I, a Delaware statutory business trust wholly-owned by MetLife, Inc., issued
20,125,000 8.00% equity security units for an aggregate offering price of $1,006
million. Each unit consists of (i) a contract to purchase shares of Common Stock
and (ii) a capital security of MetLife Capital Trust I.
On the date of demutualization, Metropolitan Life established a closed
block for the benefit of holders of certain individual life insurance policies
of Metropolitan Life. See Note 7 of Notes to Consolidated Financial Statements.
ACQUISITIONS AND DISPOSITIONS
In November 2001, the Company acquired Compania de Seguros de Vida
Santander S.A. and Compania de Reaseguaros de Vida Soince Re S. A., wholly-owned
subsidiaries of Santander Central Hispano in Chile (collectively, the "Chilean
acquisitions"). These acquisitions mark MetLife's entrance into the Chilean
insurance market and the newest addition to the Company's Latin American
operations.
In July 2001, the Company completed its sale of Conning Corporation
("Conning"), an affiliate acquired in the acquisition of GenAmerica.
In May 2001, the Company acquired Seguradora America Do Sul S.A.
("Seasul"), a life and pension company in Brazil. Seasul is being integrated
into MetLife's wholly-owned Brazilian subsidiary, Metropolitan Life Seguros e
Previdencia Privada S.A, or MetLife Brazil.
In February 2001, the Holding Company consummated the purchase of Grand
Bank, N.A. ("Grand Bank"). Grand Bank provides banking services to individuals
and small businesses in the Princeton, New Jersey area. On February 12, 2001,
the Federal Reserve Board approved the Holding Company's application for bank
holding company status and to become a financial holding company upon its
acquisition of Grand Bank.
During the second half of 2000, Reinsurance Group of America, Incorporated
("RGA") acquired the interest in RGA Financial Group, LLC it did not already
own.
In October 2000, the Company completed the sale of its 48% ownership
interest in its affiliates, Nvest, L.P. and Nvest Companies L.P.
In July 2000, the Company acquired the workplace benefits division of
Business Men's Assurance Company ("BMA"), a Kansas City, Missouri-based insurer.
In April 2000, Metropolitan Life acquired the outstanding shares of Conning
common stock not already owned by Metropolitan Life.
In January 2000, Metropolitan Life completed its acquisition of GenAmerica
for $1.2 billion. As part of the GenAmerica acquisition, General American Life
Insurance Company paid Metropolitan Life a fee of $120 million in connection
with the assumption of certain funding agreements. The fee was considered part
of the purchase price of GenAmerica. GenAmerica is a holding company which
included General American Life Insurance Company, 49% of the outstanding shares
of RGA common stock, and 61.0% of the outstanding shares of Conning common
stock, which was subsequently sold in 2001. Metropolitan Life owned 9% of the
outstanding shares of RGA common stock prior to the completion of the GenAmerica
acquisition. At
44
December 31, 2001 Metropolitan Life's ownership percentage of the outstanding
shares of RGA common stock was approximately 58%. On January 30, 2002, MetLife,
Inc. and its affiliated companies announced their intention to purchase up to
$125 million of RGA's outstanding common stock over an unspecified period of
time. These purchases are intended to offset potential future dilution of the
Company's holding of RGA's common stock arising from the issuance by RGA of
company-obligated mandatorily redeemable securities of subsidiary trusts on
December 10, 2001.
In November 1999, the Company acquired the individual disability income
business of Lincoln National Life Insurance Company.
In September 1999, the Auto & Home segment acquired the standard personal
lines property and casualty insurance operations of The St. Paul Companies.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
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 in the consolidated financial statements. The critical
accounting policies and related judgments underlying the Company's consolidated
financial statements are summarized below. In applying these policies,
management makes subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of these policies
are common in the insurance and financial services industries; others are
specific to the Company's businesses and operations. The Company's general
policies are described in detail in Note 1 of Notes to Consolidated Financial
Statements.
INVESTMENTS
The Company's principal investments are in fixed maturities, mortgage loans
and real estate, all of which are exposed to three primary sources of investment
risk: credit, interest rate and market valuation. The financial statement risks
are those associated with the recognition of income, impairments and the
determination of fair values. In addition, the earnings on certain investments
are dependent upon market conditions which could result in prepayments and
changes in amounts to be earned due to changing interest rates or equity
markets.
DERIVATIVES
The Company enters into freestanding derivative transactions to manage the
risk associated with variability in cash flows related to the Company's
financial assets and liabilities or to changing fair values. The Company also
purchases investment securities and issues certain insurance policies with
embedded derivatives. The associated financial statement risk is the volatility
in net income, which can result from (i) changes in fair value of derivatives
that are not designated as hedges, and (ii) ineffectiveness of designated hedges
in an environment of changing interest rates or fair values. In addition,
accounting for derivatives is complex, as evidenced by significant
interpretations of the primary accounting standards which continue to evolve, as
well as the significant judgments and estimates involved in determining fair
value in the absence of quoted market values. These estimates are based on
valuation methodologies and assumptions deemed appropriate in the circumstances;
however, the use of different assumptions may have a material effect on the
estimated fair value amounts.
DEFERRED POLICY ACQUISITION COSTS
The Company incurs significant costs in connection with acquiring new
insurance business. These costs, which vary with and are primarily related to
the production of new business, are deferred. The recovery of such costs is
dependent on the future profitability of the related business. The amount of
future profit is dependent principally on investment returns, mortality,
morbidity, persistency, expenses to administer the business and certain economic
variables, such as inflation. These factors enter into management's estimates of
gross margins and profits which generally are used to amortize certain of such
costs. Revisions to estimates result in changes to the amounts expensed in the
reporting period in which the revisions are made and could result in the
impairment of the asset and a charge to income if estimated future gross margins
and profits are less than amounts deferred.
45
FUTURE POLICY BENEFITS
The Company also establishes liabilities for amounts payable under
insurance policies, including traditional life insurance, annuities and disabled
lives. Generally, amounts are payable over an extended period of time and the
profitability of the products is dependent on the pricing of the products.
Principal assumptions used in pricing policies and in the establishment of
liabilities for future policy benefits are mortality, morbidity, expenses,
persistency, investment returns and inflation. Differences between the actual
experience and assumptions used in pricing the policies and in the establishment
of liabilities result in variances in profit and could result in losses.
The Company establishes liabilities for unpaid claims and claims expenses
for property and casualty insurance. Pricing of this insurance takes into
account the expected frequency and severity of losses, the costs of providing
coverage, competitive factors, characteristics of the property covered and the
insured, and profit considerations. Liabilities for property and casualty
insurance are dependent on estimates of amounts payable for claims reported but
not settled and claims incurred but not reported. These estimates are influenced
by historical experience and actuarial assumptions of current developments,
anticipated trends and risk management strategies.
REINSURANCE
Accounting for reinsurance requires extensive use of assumptions and
estimates, particularly related to the future performance of the underlying
business. The Company periodically reviews actual and anticipated experience
compared to the assumptions used to establish policy benefits. Additionally, for
each of its reinsurance contracts, the Company must determine if the contract
provides indemnification against loss or liability relating to insurance risk,
in accordance with applicable accounting standards. The Company must review all
contractual features, particularly those that may limit the amount of insurance
risk to which the Company is subject or features that delay the timely
reimbursement of claims. If the Company determines that a contract does not
expose it to a reasonable possibility of a significant loss from insurance risk,
the Company records the contract on a deposit method of accounting.
LITIGATION
The Company is a party to a number of legal actions. Given the inherent
unpredictability of litigation, it is difficult to estimate the impact of
litigation on the Company's consolidated financial position. 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
are especially difficult to estimate due to the limitation of available data and
uncertainty around numerous variables used to determine amounts recorded. It is
possible that an adverse outcome in certain cases could have an adverse effect
upon the Company's operating results or cash flows in particular quarterly or
annual periods. See "Legal Proceedings."
46
RESULTS OF OPERATIONS
The following table presents consolidated financial information for the
years indicated:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN MILLIONS)
REVENUES
Premiums................................................ $17,212 $16,317 $12,088
Universal life and investment-type product policy
fees.................................................. 1,889 1,820 1,433
Net investment income................................... 11,923 11,768 9,816
Other revenues.......................................... 1,507 2,229 1,861
Net investment losses (net of amounts allocable to other
accounts of $(134), $(54) and $(67), respectively).... (603) (390) (70)
------- ------- -------
Total revenues..................................... 31,928 31,744 25,128
------- ------- -------
EXPENSES
Policyholder benefits and claims (excludes amounts
directly related to net investment losses of $(159),
$41 and $(21), respectively).......................... 18,454 16,893 13,100
Interest credited to policyholder account balances...... 3,084 2,935 2,441
Policyholder dividends.................................. 2,086 1,919 1,690
Payments to former Canadian policyholders............... -- 327 --
Demutualization costs................................... -- 230 260
Other expenses (excludes amounts directly related to net
investment losses of $25, $(95) and $(46),
respectively)......................................... 7,565 8,024 6,462
------- ------- -------
Total expenses..................................... 31,189 30,328 23,953
------- ------- -------
Income before provision for income taxes................ 739 1,416 1,175
Provision for income taxes.............................. 266 463 558
------- ------- -------
Net income.............................................. $ 473 $ 953 $ 617
======= ======= =======
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 -- THE
COMPANY
Premiums grew by $895 million, or 5%, to $17,212 million for the year ended
December 31, 2001 from $16,317 for the comparable 2000 period. This variance is
attributable to increases in the Institutional, Reinsurance, International and
Auto & Home segments, partially offset by a decrease in the Individual segment.
An improvement of $388 million in the Institutional segment is predominately the
result of sales growth and continued favorable policyholder retention in this
segment's dental, disability and long-term care businesses. In addition,
significant premiums received from several existing group life customers in 2001
and the BMA acquisition in 2000 resulted in higher premiums. The 2000 balance
includes $124 million in additional insurance coverages purchased by existing
customers with funds received in the demutualization and significant premiums
received from existing retirement and savings customers. New premiums from
facultative and automatic treaties and renewal premiums on existing blocks of
business all contributed to the $312 million premium growth in the Reinsurance
segment. A $186 million rise in the International segment is due to growth in
Mexico, South Korea, Spain and Taiwan, as well as acquisitions in Brazil and
Chile. These variances were partially offset by a decline in Argentinean
individual life premiums, reflecting the impact of recent economic and political
events in that country. If these conditions continue, management expects further
declines in Argentinean premiums. Higher average premium resulting from rate
increases is the primary driver of a $119 million rise in the Auto & Home
segment. A $110 million decline in the Individual segment is attributable to
lower sales of traditional life insurance policies, which reflects a continued
shift in customer preference from those policies to variable life products.
47
Universal life and investment-type product policy fees increased by $69
million, or 4%, to $1,889 million for the year ended December 31, 2001 from
$1,820 million for the comparable 2000 period. This variance is due to increases
in the Institutional and Individual segments, partially offset by a decline in
the International segment. Growth in sales and deposits of group universal life
and corporate-owned life insurance products resulted in a $45 million increase
in the Institutional segment. A $39 million rise in the Individual segment is
predominately the result of higher fees from variable life products reflecting a
shift in customer preferences from traditional life products. A decrease of $15
million in the International segment is primarily due to reduced fees in Spain
resulting from fewer assets under management. This is a result of a planned
cessation of product lines offered through a joint venture with Banco Santander
Central Hispano, S.A. ("Banco Santander").
Net investment income increased by $155 million, or 1%, to $11,923 million
for the year ended December 31, 2001 from $11,768 million for the comparable
2000 period. This change is due to higher income from (i) mortgage loans on real
estate of $155 million, or 9%, (ii) other invested assets of $87 million, or
54%, (iii) fixed maturities of $36 million, or less than 1%, and (iv) interest
on policy loans of $21 million, or 4%. These positive variances are partially
offset by lower income from (i) equity securities and other limited partnership
interests of $86 million, or 47%, (ii) real estate and real estate joint
ventures, net of investment expenses and depreciation, of $45 million, or 7%,
and (iii) cash, cash equivalents and short-term investments of $9 million, or
3%, and higher investment expenses of $4 million, or 2%.
The increase in income from mortgage loans on real estate to $1,848 million
in 2001 from $1,693 million in 2000 is predominately the result of higher
mortgage production volume and increases in mortgage prepayment fees and
contingent interest. Income from other invested assets increased to $249 million
in 2001 from $162 million in 2000 primarily due to the reclassification of $19
million from other comprehensive income related to cash flow hedges, $24 million
from derivatives not designated as accounting hedges and the recognition in 2000
of a $20 million loss on an equity method investment. The improvement in income
from fixed maturities to $8,574 million in 2001 from $8,538 million in 2000 is
primarily due to bond prepayments and increased securities lending activity,
offset by lower yields on re-investments. The expense associated with securities
lending activity is included in other expenses. The reduction of income from
equity securities and other limited partnership interests to $97 million in 2001
from $183 million in 2000 is primarily due to fewer sales of underlying assets
held in corporate partnerships and increased partnership write-downs. The
decrease in income from real estate and real estate joint ventures to $584
million in 2001 from $629 million in 2000 is primarily due to a decline in hotel
occupancy rates and reduced real estate joint venture sales.
The increase in net investment income is largely attributable to positive
variances in the Institutional and Individual segments, partially offset by a
decline in Corporate & Other. Net investment income for the Institutional and
Individual segments grew by $202 million and $37 million, respectively. These
increases are predominately due to a higher volume of securities lending
activity, increases in bond and mortgage prepayments and higher contingent
interest on mortgages. The decrease in Corporate & Other is principally the
result of sales in 2000 of underlying assets held in corporate limited
partnerships. The remainder of the variance is attributable to smaller
fluctuations in the other segments.
Other revenues decreased by $722 million, or 32%, to $1,507 million for the
year ended December 31, 2001 from $2,229 million for the comparable 2000 period.
This variance is mainly attributable to reductions in the Asset Management,
Individual and Auto & Home segments, partially offset by an increase in the
Reinsurance segment. The sales of Nvest and Conning on October 30, 2000 and July
2, 2001, respectively, are the primarily drivers of a $562 million decline in
the Asset Management segment. A decrease of $155 million in the Individual
segment is primarily due to reduced commission and fee income associated with
lower sales in the broker/dealer and other subsidiaries which was a result of
the equity market downturn. Such commission and fee income can fluctuate
consistent with movements in the equity market. Auto & Home's other revenues are
lower by $18 million primarily due to a revision of an estimate made in 2000 of
amounts recoverable from reinsurers related to the disposition of this segment's
reinsurance business in 1990. Other revenues in the Reinsurance segment improved
by $13 million due to an increase in fees earned on financial reinsurance,
primarily as a result of the acquisition of the remaining interest in RGA
Financial Group, LLC during the second half of 2000.
48
The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i) deferred
policy acquisition amortization, to the extent that such amortization results
from investment gains and losses, (ii) additions to participating contractholder
accounts when amounts equal to such investment gains and losses are credited to
the contractholder's accounts, and (iii) adjustments to the policyholder
dividend obligation resulting from investment gains and losses.
Net investment losses grew by $213 million, or 55%, to $603 million for the
year ended December 31, 2001 from $390 million for the comparable 2000 period.
This increase reflects total gross investment losses of $737 million, an
increase of $293 million, or 66%, from $444 million in 2000, before offsets for:
the amortization of deferred policy acquisition costs of $(25) million and $95
million in 2001 and 2000, respectively; changes in policyholder dividend
obligation of $159 million and $85 million in 2001 and 2000, respectively; and
additions to participating contracts of $126 million in 2000. Excluding the net
gain on the sale of a subsidiary, net investment losses decreased from the prior
year. The Company continues to recognize deteriorating credits through the
proactive sale of certain assets.
The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its operating performance. Investment gains and losses are often excluded by
investors when evaluating the overall financial performance of insurers. The
Company believes its presentation enables readers of its consolidated statements
of income to easily exclude investment gains and losses and the related effects
on the consolidated statements of income when evaluating its operating
performance. The Company's presentation of investment gains and losses, net of
related policyholder amounts, may be different from the presentation used by
other insurance companies and, therefore, amounts in its consolidated statements
of income may not be comparable to amounts reported by other insurers.
Policyholder benefits and claims rose by $1,561 million, or 9%, to $18,454
million for the year ended December 31, 2001 from $16,893 million for the
comparable 2000 period. This variance reflects total gross policyholder benefits
and claims of $18,295 million, an increase of $1,361 million, or 8%, from
$16,934 million in 2000, before the offsets for reductions in participating
contractholder accounts of $126 million in 2000 and changes in the policyholder
dividend obligation of $159 million and $(85) million in 2001 and 2000,
respectively, directly related to net investment losses. The net variance in
policyholder benefits and claims is mainly attributable to increases in the
Institutional, Reinsurance, Individual, International and Auto & Home segments.
Claims related to the September 11, 2001 tragedies and fourth quarter business
realignment initiatives account for $291 million and $215 million, respectively,
of a $746 million increase in the Institutional segment. The remainder of the
fluctuation is attributable to growth in the group life, dental, disability and
long-term care insurance businesses, commensurate with the variance in premiums,
partially offset by a decrease in policyholder benefits and claims related to
the retirement and savings business. Policyholder benefits and claims for the
Reinsurance segment rose by $388 million due to unfavorable mortality experience
in the first and fourth quarters of 2001, as well as adverse results on the
reinsurance of Argentine pension business, reflecting the impact of recent
economic and political events in that country. In addition, reinsurance claims
arising from the September 11, 2001 tragedies of approximately $16 million, net
of amounts recoverable from reinsurers, contributed to the variance. A $179
million rise in the Individual segment is primarily the result of an increase in
the liabilities for future policy benefits commensurate with the aging of the
in-force block of business. In addition, an increase of $74 million in the
policyholder dividend obligation and $24 million in liabilities and claims
associated with the September 11, 2001 tragedies contributed to the variance.
International policyholder benefits and claims increased by $127 million as a
result of growth in Mexico, South Korea and Taiwan, as well as acquisitions in
Brazil and Chile. These fluctuations are partially offset by a decline in
Argentina, reflecting the impact of recent economic and political events in that
country. A $116 million increase in the Auto & Home segment is predominately the
result of increased average claim costs, growth in the auto business and
increased non-catastrophe weather-related losses.
Interest credited to policyholder account balances grew by $149 million, or
5%, to $3,084 million for the year ended December 31, 2001 from $2,935 million
for the comparable 2000 period, primarily due to an increase of $218 million in
the Individual segment, partially offset by a $77 million reduction in the
Institutional segment. The establishment of a policyholder liability of $118
million with respect to certain group annuity contracts at New England Financial
is the primary driver of the fluctuation in Individual. In addition, higher
average
49
policyholder account balances and slightly increased crediting rates contributed
to the variance. The decrease in the Institutional segment is primarily due to
an overall decline in crediting rates in 2001 as a result of the current
interest rate environment, partially offset by an increase in average customer
account balances stemming from asset growth. The remaining variance is due to
minor fluctuations in the Reinsurance and International segments.
Policyholder dividends increased by $167 million, or 9%, to $2,086 million
for the year ended December 31, 2001 from $1,919 million for the comparable 2000
period, primarily due to increases of $135 million and $25 million in the
Institutional and Individual segments, respectively. The rise in the
Institutional segment is primarily attributed to favorable experience on a large
group life contract in 2001. Policyholder dividends vary from period to period
based on participating contract experience. The change in the Individual segment
reflects growth in the assets supporting policies associated with this segment's
aging block of traditional life insurance business. The remaining variance is
due to minor fluctuations in the International and Reinsurance segments.
Payments of $327 million were made during the second quarter of 2000, as
part of Metropolitan Life's demutualization, to holders of certain policies
transferred to Clarica Life Insurance Company in connection with the sale of a
substantial portion of the Canadian operations in 1998.
Demutualization costs of $230 million were incurred during the year ended
December 31, 2000. These costs are related to Metropolitan Life's
demutualization on April 7, 2000.
Other expenses decreased by $459 million, or 6%, to $7,565 million for the
year ended December 31, 2001 from $8,024 million for the comparable 2000 period.
Excluding the capitalization and amortization of deferred policy acquisition
costs, which are discussed below, other expenses declined by $218 million, or
3%, to $8,191 million in 2001 from $8,409 million in 2000. This variance is
attributable to reductions in the Asset Management, Individual and Auto & Home
segments, partially offset by increases in the other segments. A decrease of
$532 million in the Asset Management segment is predominately the result of the
sales of Nvest and Conning on October 30, 2000 and July 2, 2001, respectively.
The Individual segment's expenses declined by $167 million due to continued
expense management, primarily due to reduced employee costs and lower
discretionary spending. In addition, there were reductions in volume-related
commission expenses in the broker/dealer and other subsidiaries and rebate
expenses associated with the Company's securities lending program. The income
associated with securities lending activity is included in net investment
income. These items are partially offset by an increase of $97 million related
to fourth quarter 2001 business realignment initiatives. A $34 million decrease
in Auto & Home is attributable to a reduction in integration costs associated
with the acquisition of the standard personal lines property and casualty
insurance operations of The St. Paul Companies in September 1999 ("St. Paul
acquisition"). An increase of $232 million in Institutional expenses is
primarily driven by expenses associated with fourth quarter business realignment
initiatives of $184 million and a rise in non-deferrable variable expenses
associated with premium growth in the group insurance businesses. Non-deferrable
variable expenses include premium tax, commissions and administrative expenses
for dental, disability and long-term care businesses. These increases are
partially offset by a decline in rebate expenses associated with the Company's
securities lending program. The income associated with securities lending
activity is included in net investment income. The income associated with
securities lending activity is included in net investment income. Other expenses
in Corporate & Other grew by $219 million primarily due to a $250 million
race-conscious underwriting loss provision which was recorded in the fourth
quarter of 2001, as well as $29 million of additional expenses associated with
MetLife, Inc. shareholder services costs and start-up costs relating to
MetLife's banking initiatives. These increases are partially offset by a $58
million decline in interest expense due to reduced average levels of borrowing
and a lower interest rate environment in 2001. An increase of $43 million in the
International segment is predominately the result of growth in Mexico and South
Korea, and acquisitions in Brazil and Chile, partially offset by a decrease in
Spain's other expenses due to a planned cessation of product lines offered
through a joint venture with Banco Santander. The acquisition of the remaining
interest in RGA Financial Group, LLC during the second half of 2000 contributed
to the $20 million increase in other expenses in the Reinsurance segment.
Deferred policy acquisition costs are principally amortized in proportion
to gross margins or profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization, and other expenses to provide amounts
related to gross margins or profits originating from transactions other than
investment gains and losses.
50
Capitalization of deferred policy acquisition costs increased to $2,039
million for the year ended December 31, 2001 from $1,863 million for the
comparable 2000 period. This variance is attributable to increases in the
Individual, Reinsurance, Institutional and International segments. The growth in
the Individual segment is primarily due to higher sales of variable and
universal life insurance policies and annuity and investment-type products,
resulting in additional commissions and other deferrable expenses. The increases
in the Reinsurance, Institutional and International segments are commensurate
with growth in those businesses. Total amortization of deferred policy
acquisition costs increased to $1,438 million in 2001 from $1,383 million in
2000. Amortization of $1,413 million and $1,478 million are allocated to other
expenses in 2001 and 2000, respectively, while the remainder of the amortization
in each year is allocated to investment gains and losses. The decrease in
amortization of deferred policy acquisition costs allocated to other expenses is
attributable to a decline in the Individual segment, partially offset by
increases in the Reinsurance and International segments. The decline in the
Individual segment is due to refinements in the calculation of estimated gross
margins and profits. Contributing to this variance are modifications made in the
third quarter of 2001 relating to the manner in which estimates of future market
performance are developed. These estimates are used in determining unamortized
deferred policy acquisition costs balances and the amount of related
amortization. The modification will reflect an expected impact of past market
performance on future market performance, as well as improving the ability to
estimate deferred policy acquisition costs balances and related amortization.
The increase in the Reinsurance segment is primarily due to fluctuations in
allowances paid to ceding companies as a result of a change in product mix. The
increase in the International segment is due to a write-off of deferred policy
acquisition costs as a result of the anticipated impact of recent economic and
political events in Argentina.
Income tax expense for the year ended December 31, 2001 was $266 million,
or 36%, of income before provision for income taxes, compared with $463 million,
or 33%, for the comparable 2000 period. The 2001 effective tax rate differs from
the corporate tax rate of 35% due to an increase in prior year taxes on capital
gains. The 2000 effective tax rate differs from the corporate tax rate of 35%
primarily due to the payments made in the second quarter of 2000 to former
Canadian policyholders in connection with the demutualization, the impact of
surplus tax and a reduction in prior year taxes on capital gains recorded in the
third quarter of 2000. This reduction is associated with the previous sale of a
business. Prior to its demutualization, the Company was subject to surplus tax
imposed on mutual life insurance companies under Section 809 of the Internal
Revenue Code. The surplus tax results from the disallowance of a portion of a
mutual life insurance company's policyholder dividends as a deduction from
taxable income.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- THE COMPANY
Premiums increased by $4,229 million, or 35%, to $16,317 million in 2000
from $12,088 million in 1999, in part, due to the acquisition of GenAmerica on
January 6, 2000. Excluding the impact of this acquisition, premiums increased by
$2,273 million, or 19%. This increase is attributable to Institutional, Auto &
Home and International. These increases are partially offset by a $72 million,
or 2%, decrease in Individual. The increase of $1,297 million, or 23%, in
Institutional is predominantly the result of strong sales and continued
favorable policyholder retention in this segment's group life, dental and
disability businesses. The acquisitions of the workplace benefits division from
the BMA acquisition in July 2000 and Lincoln National's disability business in
November 1999 account for $103 million of the variance. In addition, significant
premiums received from existing group life and retirement and savings customers
in 2000 contribute $468 million to the variance. The increase of $885 million,
or 51%, in Auto & Home is primarily due to the St. Paul acquisition, which
represents $755 million of the increase, as well as growth in this segment's
standard auto business. The increase of $137 million, or 26%, in International
is primarily due to overall growth in Mexico, South Korea, Taiwan, Spain and
Brazil. The decrease in Individual is primarily due to a decline in sales of
traditional life insurance policies, which reflects a continued shift in
policyholders' preferences from those policies to variable life products.
Universal life and investment-type product policy fees increased by $387
million, or 27%, to $1,820 million in 2000 from $1,433 million in 1999.
Excluding the impact of the GenAmerica acquisition, universal life and
investment-type product policy fees increased by $145 million, or 10%. This
increase is almost entirely attributable to a $130 million, or 15%, increase in
Individual, which is primarily due to increased sales, including exchanges, of
variable life products, increases in separate account assets and the
acceleration of the recognition of unearned fees in connection with a universal
life product replacement program.
51
Net investment income increased by $1,952 million, or 20%, to $11,768
million in 2000 from $9,816 million in 1999. Excluding the impact of the
GenAmerica acquisition, net investment income increased by $832 million, or 8%.
This increase is primarily due to higher income from (i) fixed maturities of
$653 million, or 9%, (ii) mortgage loans on real estate of $76 million, or 5%,
(iii) interest on policy loans of $17 million, or 5%, (iv) cash and short-term
investments of $79 million, or 46%, (v) real estate and real estate joint
ventures, net of investment expenses and depreciation, of $45 million, or 8%,
and (vi) lower investment expenses of $27 million, or 10%. These increases are
partially offset by reduced income from equity securities and other limited
partnership interests of $54 million, or 23%, and other invested assets of $11
million, or 12%.
The increase in income from fixed maturities to $7,824 million in 2000 from
$7,171 million in 1999 is primarily due to higher volume in the securities
lending program and income from fixed maturities which were part of the St. Paul
acquisition in the fourth quarter of 1999. These increases are partially offset
by decreases in income from equity-linked notes. The increase in income from
mortgage loans on real estate to $1,560 million in 2000 from $1,484 million in
1999 is largely due to higher mortgage production volume. The reduction in
income from equity securities and other limited partnership interests to $185
million in 2000 from $239 million in 1999 is predominantly the result of a
decrease in sales by corporate partnerships.
Other revenues increased by $368 million, or 20%, to $2,229 million in 2000
from $1,861 million in 1999. The impact of the GenAmerica acquisition is an
increase to other revenues of $363 million. The variance year over year,
excluding the impact of GenAmerica, is partially attributable to increases in
the Individual, Institutional segments, largely offset by decreases in the Asset
Management segment and in Corporate & Other. The increase of $96 million in
Individual is largely a result of higher commission and fee income related to
increased sales in the broker/dealer and other subsidiaries. The primary driver
of Institutional's $33 million increase is strong sales growth in its dental and
disability administrative services businesses. A $19 million increase in Auto &
Home is attributable to a revision of an estimate of amounts recoverable from
reinsurers related to the disposition of this segment's reinsurance business in
1990. Offsetting these increases is a $122 million decline in the Asset
Management segment primarily due to the sale of Nvest, on October 30, 2000. The
remaining variance is primarily due to Corporate & Other.
The Company's investment gains and losses are net of related policyholder
amounts. The amounts netted against investment gains and losses are (i) deferred
policy acquisition amortization, to the extent that such amortization results
from investment gains and losses, (ii) additions to participating contractholder
accounts when amounts equal to such investment gains and losses are credited to
the contractholder's accounts, and (iii) adjustments to the policyholder
dividend obligation resulting from investment gains and losses.
Net investment losses increased by $320 million, or 457%, to $390 million
in 2000 from $70 million in 1999. This increase reflects total gross investment
losses of $444 million, an increase of $307 million, or 224%, from $137 million
in 1999, before the offsets for: the amortization of deferred policy acquisition
costs of $95 million and $46 million in 2000 and 1999, respectively; changes in
the policyholder dividend obligation of $85 million in 2000; and (additions to)
or reductions in participating contracts of $(126) million and $21 million in
2000 and 1999, respectively, related to assets sold. Excluding the impact of the
GenAmerica acquisition, net investment losses increased by $378 million, or
540%. This increase reflects the continuation of the Company's strategy to
reposition its investment portfolio in order to provide a higher operating
return on its invested assets and the recognition of losses through the
proactive sale of certain assets. These losses are partially offset by gains of
$660 million, including a gain of $663 million, which was recognized as a result
of the sale of Nvest on October 30, 2000.
The Company believes its policy of netting related policyholder amounts
against investment gains and losses provides important information in evaluating
its operating performance. Investment gains and losses are often excluded by
investors when evaluating the overall financial performance of insurers. The
Company believes its presentation enables readers of its consolidated statements
of income to easily exclude investment gains and losses and the related effects
on the consolidated statements of income when evaluating its operating
performance. The Company's presentation of investment gains and losses, net of
related policyholder amounts, may be different from the presentation used by
other insurance companies, and therefore, amounts in its consolidated statements
of income may not be comparable to amounts reported by other insurers.
52
Policyholder benefits and claims increased by $3,793 million, or 29%, to
$16,893 million in 2000 from $13,100 million in 1999. This increase reflects
total gross policyholder benefits and claims of $16,934 million, an increase of
$3,855 million from $13,079 million in 1999, before the offsets for additions to
or (reductions in) participating contractholder accounts of $126 million in 2000
and $(21) million in 1999 and changes in the policyholder dividend obligation of
$(85) million in 2000 directly related to net investment losses. Excluding the
impact of the GenAmerica acquisition, policyholder benefits and claims increased
$2,044 million, or 16%. This rise is primarily due to increases of $1,366
million, or 20%, in Institutional, $704 million, or 54%, in Auto & Home, and
$104 million, or 23%, in International. These increases are partially offset by
a decrease of $103 million, or 2%, in Individual. The Institutional increase is
largely due to overall growth within the segment's group dental and disability
businesses, as well as the BMA and Lincoln National acquisitions. In addition,
policyholder benefits and claims related to the group life and retirement and
savings businesses increased commensurate with the premium variance noted above.
The increase in Auto & Home is due, in most part, to the St. Paul acquisition,
which represents $580 million of the increase. The remainder of the increase is
largely attributable to a 9% increase in the number of auto policies in force
and increased costs resulting from an increase in the use of original equipment
manufacturer parts and higher labor rates. The increase in International is
primarily due to overall growth in Mexico, Taiwan, South Korea, Spain and
Brazil, commensurate with the increase in International's premiums. The decrease
in Individual is predominately the result of improved mortality and morbidity
experience.
Interest credited to policyholder account balances increased by $494
million, or 20%, to $2,935 million in 2000 from $2,441 million in 1999.
Excluding the impact of the GenAmerica acquisition, interest credited to
policyholder account balances increased by $95 million, or 4%. This is primarily
attributable to increases of $54 million, or 5%, in Institutional and $36
million, or 3%, in Individual. The higher expense in Institutional is largely
due to an increase in group insurance of $84 million, which resulted from asset
growth in customer account balances, growth in the bank-owned life insurance
business and increases in the cash values of executive and corporate-owned
universal life plans. These increases are partially offset by a decrease in
retirement and savings products of $30 million, due to a continued shift in
customers' investment preferences from guaranteed interest products to separate
account alternatives. The increase in Individual is predominately due to higher
policyholder account balances and increases in crediting rates on annuity and
investment products.
Policyholder dividends increased by $229 million, or 14%, to $1,919 million
in 2000 from $1,690 million in 1999. Excluding the acquisition of GenAmerica,
policyholder dividends increased by $20 million, or 1%. Policyholder dividends
vary from period to period based on participating group and traditional
individual life insurance contract experience.
Payments of $327 million were made during the second quarter of 2000, as
part of Metropolitan Life's demutualization, to holders of certain policies
transferred to Clarica Life Insurance Company in connection with the sale of a
substantial portion of the Canadian operations in 1998.
Demutualization costs decreased by $30 million, or 12%, to $230 million in
2000 from $260 million in 1999. These costs are related to Metropolitan Life's
demutualization on April 7, 2000.
Other expenses increased by $1,562 million, or 24%, to $8,024 million in
2000 from $6,462 million in 1999. Excluding the capitalization and amortization
of deferred policy acquisition costs, which are discussed below, other expenses
increased by $1,717 million, or 26%, to $8,409 million in 2000 from $6,692
million in 1999. Excluding the impact of the GenAmerica acquisition, other
expenses increased by $405 million, or 6%. This increase is primarily
attributable to increases in Auto & Home, Individual, Institutional and
International. These increases are partially offset by a $354 million, or 45%,
decrease in Corporate & Other and a $101 million, or 13%, decrease in Asset
Management. The increase in Auto & Home of $311 million, or 59%, is largely due
to the St. Paul acquisition. The increase in Individual of $298 million, or 11%,
is partially attributable to a $111 million increase from the broker/dealer and
other subsidiaries commensurate with the increase in other revenues and
increased securities lending volume. The income associated with securities
lending activity is included in net investment income. The increase in
Institutional of $141 million, or 9%, is primarily due to costs incurred in
connection with initiatives focused on improving service delivery capabilities
through investments in technology and an increase in volume-related expenses
associated with premium growth. Volume-related expenses include
53
premium taxes, separate account investment management expenses and commissions.
The increase in International of $45 million, or 14%, is primarily attributable
to expenses incurred in connection with business expansion efforts in several
countries. The decrease in Corporate & Other is primarily due to a $499 million
charge in 1999 principally related to the settlement of a multidistrict
litigation proceeding involving alleged improper sales practices, accruals for
sales practices claims not covered by the settlement and other legal costs. The
most significant factor contributing to the decline in Asset Management is the
sale of Nvest, which occurred on October 30, 2000.
Deferred policy acquisition costs are principally amortized in proportion
to gross margins or profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization, and other expenses to provide amounts
related to gross margins or profits originating from transactions other than
investment gains and losses.
Capitalization of deferred policy acquisition costs increased to $1,863
million in 2000 from $1,160 million in 1999 while total amortization of deferred
policy acquisition costs, charged to operations, increased to $1,383 million in
2000 from $884 million in 1999. Excluding the impact of the GenAmerica
acquisition, capitalization of deferred policy acquisition costs increased to
$1,413 million in 2000 from $1,160 in 1999 while total amortization of deferred
policy acquisition costs increased to $1,012 million in 2000 from $884 million
in 1999. Amortization of deferred policy acquisition costs of $1,478 million and
$930 million are allocated to other expenses in 2000 and 1999, respectively,
while the remainder of the amortization in each year is allocated to investment
losses. Excluding the impact of the GenAmerica acquisition, amortization of
deferred policy acquisition costs of $1,136 million and $930 million are
allocated to other expenses in 2000 and 1999, respectively, while the remainder
of the amortization in each year is allocated to investment losses. The increase
in amortization of deferred policy acquisition costs allocated to other expenses
was predominately attributable to Auto & Home's acquisition of St. Paul.
Income tax expense for the year ended December 31, 2000 was $463 million,
or 33% of income before provision for income taxes, compared with $558 million,
or 47%, in 1999. The 2000 effective tax rate differs from the corporate tax rate
of 35% due to non-deductible payments made in the second quarter of 2000 to
former Canadian policyholders in connection with the demutualization, a surplus
tax benefit of $145 million and a reduction in prior year taxes on capital gains
associated with the sale of businesses recorded in the third quarter of 2000.
The 1999 effective rate differs from the corporate tax rate of 35% primarily due
to the impact of surplus tax. Prior to its demutualization, Metropolitan Life
was subject to surplus tax imposed on mutual life insurance companies under
Section 809 of the Internal Revenue Code. The surplus tax results from the
disallowance of a portion of a mutual life insurance company's policyholder
dividends as a deduction from taxable income.
54
INDIVIDUAL
The following table presents consolidated financial information for the
Individual segment for the years indicated:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN MILLIONS)
REVENUES
Premiums................................................ $ 4,563 $ 4,673 $ 4,289
Universal life and investment-type product policy
fees.................................................. 1,260 1,221 888
Net investment income................................... 6,512 6,475 5,346
Other revenues.......................................... 495 650 381
Net investment gains (losses)........................... 827 227 (14)
------- ------- -------
Total revenues..................................... 13,657 13,246 10,890
------- ------- -------
EXPENSES
Policyholder benefits and claims........................ 5,233 5,054 4,625
Interest credited to policyholder account balances...... 1,898 1,680 1,359
Policyholder dividends.................................. 1,767 1,742 1,509
Other expenses.......................................... 3,012 3,323 2,542
------- ------- -------
Total expenses..................................... 11,910 11,799 10,035
------- ------- -------
Income before provision for income taxes................ 1,747 1,447 855
Provision for income taxes.............................. 652 527 300
------- ------- -------
Net income.............................................. $ 1,095 $ 920 $ 555
======= ======= =======
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- INDIVIDUAL
Premiums decreased by $110 million, or 2%, to $4,563 million for the year
ended December 31, 2001 from $4,673 million for the comparable 2000 period.
Premiums from insurance products declined by $108 million. This decrease is
primarily due to declines in traditional life insurance policies, which reflects
a maturing of that business and a continued shift in customer preference from
those policies to variable life products. Premiums from annuity and
investment-type products declined by $2 million, due to lower sales of
supplementary contracts with life contingencies and single premium immediate
annuity business.
Universal life and investment-type product policy fees increased by $39
million, or 3%, to $1,260 million for the year ended December 31, 2001 from
$1,221 million for the comparable 2000 period. Policy fees from insurance
products rose by $149 million. This growth is primarily due to increases in
variable life products reflecting a continued shift in customer preferences from
traditional life products. Policy fees from annuity and investment-type products
decreased by $110 million, primarily resulting from a lower average separate
account asset base. Policy fees from annuity and investment-type products are
typically calculated as a percentage of average assets. Such assets can
fluctuate depending on equity market performance. Thus, the amount of fees can
increase or decrease consistent with movements in average separate account
balances.
Other revenues decreased by $155 million, or 24%, to $495 million for the
year ended December 31, 2001 from $650 million for the comparable 2000 period,
primarily due to reduced commission and fee income associated with lower sales
in the broker/dealer and other subsidiaries, which was a result of the equity
market downturn. Such commission and fee income can fluctuate consistent with
movements in the equity market.
Policyholder benefits and claims increased by $179 million, or 4%, to
$5,233 million for the year ended December 31, 2001 from $5,054 million for the
comparable 2000 period. Policyholder benefits and claims for insurance products
rose by $192 million primarily due to increases in the liabilities for future
policy benefits commensurate with the aging of the in-force block of business.
In addition, increases of $74 million and
55
$24 million in the policyholder dividend obligation and liabilities and claims
associated with the September 11, 2001 tragedies, respectively, contributed to
the variance. Partially offsetting these variances is a reduction in
policyholder benefits and claims for annuity and investment products due to a
decrease in liabilities for supplemental contracts with life contingencies.
Interest credited to policyholder account balances rose by $218 million, or
13%, to $1,898 million for the year ended December 31, 2001 from $1,680 million
for the comparable 2000 period. Interest on insurance products increased by $165
million, primarily due to the establishment of a policyholder liability of $118
million with respect to certain group annuity contracts at New England
Financial. The remainder of the variance is predominately a result of higher
average policyholder account balances. Interest on annuity and investment
products grew by $53 million due to slightly higher crediting rates and higher
policyholder account balances stemming from increased sales, including products
with a dollar cost averaging-type feature.
Policyholder dividends increased by $25 million, or 1%, to $1,767 million
for the year ended December 31, 2001 from $1,742 million for the comparable 2000
period. This is largely attributable to the growth in the assets supporting
policies associated with this segment's aging block of traditional life
insurance business.
Other expenses decreased by $311 million, or 9%, to $3,012 for the year
ended December 31, 2001 from $3,323 million for the comparable 2000 period.
Excluding the capitalization and amortization of deferred policy acquisition
costs that are discussed below, other expenses are lower by $167 million, or 5%,
to $3,305 million in 2001 from $3,472 million in 2000. Other expenses related to
insurance products decreased by $204 million due to continued expense
management, primarily due to reduced employee costs and lower discretionary
spending. In addition, there were reductions in volume-related commission
expenses in the broker/dealer and other subsidiaries and rebate expenses
associated with the Company's securities lending program. The income associated
with securities lending activity is included in net investment income. These
decreases are partially offset by an increase of $62 million related to fourth
quarter 2001 business realignment initiatives. The annuity and investment-type
products experienced an increase in other expenses of $37 million primarily due
to expenses associated with the business realignment initiatives.
Deferred policy acquisition costs are principally amortized in proportion
to gross margins or gross profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization, and to other expenses to provide
amounts related to gross margins or profits originating from transactions other
than investment gains and losses.
Capitalization of deferred policy acquisition costs increased by $54
million, or 6%, to $926 million for the year ended December 31, 2001 from $872
million for the comparable 2000 period. This increase is primarily due to higher
sales of variable and universal life insurance policies and annuity and
investment-type products, resulting in higher commissions and other deferrable
expenses. Total amortization of deferred policy acquisition costs increased by
$26 million, or 4%, to $654 million in 2001 from $628 million in 2000.
Amortization of deferred policy acquisition costs of $633 million and $723
million is allocated to other expenses in 2001 and 2000, respectively, while the
remainder of the amortization in each year is allocated to investment gains and
losses. Amortization of deferred policy acquisition costs allocated to other
expenses related to insurance products declined by $48 million due to
refinements in the calculation of estimated gross margins and profits.
Amortization of deferred policy acquisition costs allocated to other expenses
related to annuity and investment products declined by $42 million due to
refinements in the calculation of estimated gross profits. Contributing to this
variance are modifications made in the third quarter of 2001 relating to the
manner in which estimates of future market performance are developed. These
estimates are used in determining unamortized deferred policy acquisition costs
balances and the amount of related amortization. The modification reflects an
expected impact of past market performance on future market performance, and
improves the ability to estimate deferred policy acquisition costs balances and
related amortization.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- INDIVIDUAL
Premiums increased by $384 million, or 9%, to $4,673 million in 2000 from
$4,289 million in 1999. Excluding the impact of the GenAmerica acquisition,
premiums decreased by $72 million, or 2%. Premiums from insurance products
decreased by $82 million, or 2%, to $4,133 million in 2000 from $4,215 million
in 1999.
56
This decrease is primarily due to a decline in sales of traditional life
insurance policies, which reflects a continued shift in policyholders'
preferences from those policies to variable life products. Premiums from annuity
and investment products increased by $10 million, or 14%, to $84 million in 2000
from $74 million in 1999. This increase is largely attributable to increased
sales of supplementary contracts with life contingencies and immediate annuity
products.
Universal life and investment-type product policy fees increased by $333
million, or 38%, to $1,221 million in 2000 from $888 million in 1999. Excluding
the impact of the GenAmerica acquisition, universal life and investment-type
fees increased by $130 million, or 15%. Policy fees from insurance products
increased by $48 million, or 8%, to $619 million in 2000 from $571 million in
1999, primarily due to increased sales of variable life products and continued
growth in separate accounts, reflecting a continued shift in customer
preferences from traditional life products. This increase also reflects the
acceleration of the recognition of unearned fees in connection with a product
replacement program related to universal life policies. Policy fees from annuity
and investment products increased by $82 million, or 26%, to $399 million in
2000 from $317 million in 1999, primarily due to continued growth in separate
account assets.
Other revenues increased by $269 million, or 71%, to $650 million in 2000
from $381 million in 1999. Excluding the impact of the GenAmerica acquisition,
other revenues increased by $96 million, or 25%. Other revenues for insurance
products increased by $98 million, or 28%, to $445 million in 2000 from $347
million in 1999. This increase is principally attributable to higher commission
and fee income associated with increased sales in the broker/dealer and other
subsidiaries. Other revenues for annuity products remained essentially unchanged
at $32 million in 2000 compared with $34 million in 1999.
Policyholder benefits and claims increased by $429 million, or 9%, to
$5,054 million in 2000 from $4,625 million in 1999. Excluding the impact of the
GenAmerica acquisition, policyholder benefits and claims decreased by $103
million, or 2%. Policyholder benefits and claims for insurance products
decreased by $111 million, or 2%, to $4,339 million in 2000 from $4,450 million
in 1999. This decrease is predominately a result of improved mortality and
morbidity experience. Policyholder benefits and claims for annuity and
investment products increased by $8 million, or 5%, to $183 million in 2000 from
$175 million in 1999, commensurate with the increase in premiums discussed
above.
Interest credited to policyholder account balances increased by $321
million, or 24%, to $1,680 million in 2000 from $1,359 million in 1999.
Excluding the impact of the GenAmerica acquisition, interest credited to
policyholder account balances increased by $36 million, or 3%. Interest on
insurance products increased by $26 million, or 6%, to $445 million in 2000 from
$419 million in 1999, largely due to higher policyholder account balances.
Higher crediting rates caused interest on annuity and investment products to
increase by $10 million, or 1%, to $950 million in 2000 from $940 million in
1999.
Policyholder dividends increased by $233 million, or 15%, to $1,742 million
in 2000 from $1,509 million in 1999. Excluding the impact of the GenAmerica
acquisition, policyholder dividends increased by $33 million, or 2%. This
increase is due to growth in cash values of policies associated with this
segment's large block of traditional life insurance business.
Other expenses increased by $781 million, or 31%, to $3,323 million in 2000
from $2,542 million in 1999. Excluding the capitalization and amortization of
deferred policy acquisition costs, which are discussed below, other expenses
increased by $773 million, or 29%, to $3,472 million in 2000 from $2,699 million
in 1999. Excluding the impact of the GenAmerica acquisition, other expenses
increased by $298 million, or 11%. Other expenses related to insurance products
increased by $189 million, or 9%, to $2,252 million in 2000 from $2,063 million
in 1999. This increase is attributable to a $111 million increase from the
broker/dealer and other subsidiaries commensurate with the increase in other
revenues discussed above. In addition, increased volume in the securities
lending program resulted in a $122 million increase in related rebate expense.
The income associated with securities lending activity is included in net
investment income. These increases were partially offset by a $44 million
reduction in general and administrative expenses. Other expenses related to
annuity and investment products increased by $109 million, or 17%, to $745
million in 2000 from $636 million in 1999. This increase resulted from a $54
million increase in rebate expense associated with the Company's securities
lending program. The income associated with securities lending activity is
included in net investment income. The remaining increase is largely
attributable to a $55 million increase in general and administrative expenses
57
incurred in connection with initiatives focused on improving service delivery
capabilities through investments in technology and the consolidation of
operations.
Deferred policy acquisition costs are principally amortized in proportion
to gross margins or gross profits, including investment gains or losses. The
amortization is allocated to investment gains and losses to provide consolidated
statement of income information regarding the impact of investment gains and
losses on the amount of the amortization, and other expenses to provide amounts
related to gross margins or profits originating from transactions other than
investment gains and losses.
Capitalization of deferred policy acquisition costs increased by $90
million to $872 million in 2000 from $782 million in 1999, while total
amortization of deferred policy acquisition costs, charged to operations,
increased by $49 million to $628 million in 2000 from $579 million in 1999.
Excluding the impact of the GenAmerica acquisition, capitalization of deferred
policy acquisition costs decreased by $6 million, or 1%, while total
amortization of deferred policy acquisition costs decreased by $117 million, or
20%. Amortization of deferred policy acquisition costs of $723 million and $625
million are allocated to other expenses in 2000 and 1999, respectively, while
the remainder of the amortization in each year is allocated to investment gains
and losses. Excluding the impact of the GenAmerica acquisition, amortization of
deferred policy acquisition costs of $585 million and $625 million are allocated
to other expenses in 2000 and 1999, respectively, while the remainder of the
amortization in each year is allocated to investment gains and losses.
Amortization of deferred policy acquisition costs allocated to other expenses
related to insurance products decreased by $128 million to $389 million in 2000
from $517 in 1999. This decrease is due to refinements in the calculation of
estimated gross margins and profits, as well as the acceleration of the
recognition of unearned fees in connection with the product replacement program
discussed above. Amortization of deferred policy acquisition costs allocated to
other expenses related to annuity and investment products increased by $88
million to $196 million in 2000 from $108 million in 1999. This increase is
primarily due to refinements in the calculation of estimated gross profits.
INSTITUTIONAL
The following table presents consolidated financial information for the
Institutional segment for the years indicated:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN MILLIONS)
REVENUES
Premiums................................................ $ 7,288 $ 6,900 $ 5,525
Universal life and investment-type product policy
fees.................................................. 592 547 502
Net investment income................................... 4,161 3,959 3,755
Other revenues.......................................... 649 650 609
Net investment losses................................... (15) (475) (31)
------- ------- -------
Total revenues..................................... 12,675 11,581 10,360
------- ------- -------
EXPENSES
Policyholder benefits and claims........................ 8,924 8,178 6,712
Interest credited to policyholder account balances...... 1,013 1,090 1,030
Policyholder dividends.................................. 259 124 159
Other expenses.......................................... 1,907 1,730 1,569
------- ------- -------
Total expenses..................................... 12,103 11,122 9,470
------- ------- -------
Income before provision for income taxes................ 572 459 890
Provision for income taxes.............................. 190 152 323
------- ------- -------
Net income.............................................. $ 382 $ 307 $ 567
======= ======= =======
58
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- INSTITUTIONAL
Premiums increased by $388 million, or 6%, to $7,288 million for the year
ended December 31, 2001 from $6,900 million for the comparable 2000 period.
Group insurance premiums grew by $680 million, due, in most part, to sales
growth and continued favorable policyholder retention in this segment's dental,
disability and long-term care businesses. In addition, premiums received from
several existing group life customers in 2001 and the BMA acquisition
contributed $173 million and $29 million, respectively, to this variance. The
2000 balance includes $124 million in additional insurance coverages purchased
by existing customers with funds received in the demutualization. Retirement and
savings premiums decreased by $292 million, primarily as a result of $270
million in premiums received in 2000 from existing customers.
Universal life and investment-type product policy fees increased by $45
million, or 8%, to $592 million for the year ended December 31, 2001 from $547
million for the comparable 2000 period. The rise in fees reflects growth in
sales and deposits in group universal life and corporate-owned life insurance
products. Higher fees in group universal life products represent an increase in
insured lives for an existing customer, coupled with a change in a customer
preference for group life over optional term products. The increase in
corporate-owned life insurance represents a $27 million fee received in 2001
from an existing customer.
Other revenues decreased by $1 million to $649 million for the year ended
December 31, 2001 from $650 million for the comparable 2000 period. Group
insurance other revenues decreased by $19 million. This decline is primarily
attributable to the renegotiation of an existing contract with a significant
long-term care customer, as well as $20 million in final settlements in 2000 on
several cases relating to the term life and former medical business. This
variance is partially offset by a rise in other revenues stemming from sales
growth in this segment's dental and disability administrative businesses.
Retirement and savings' other revenues increased by $18 million, due to $12
million in earnings on seed money and an increase in administrative services
fees for the defined contribution group businesses.
Policyholder benefits and claims increased by $746 million, or 9%, to
$8,924 million for the year ended December 31, 2001 from $8,178 million for the
comparable 2000 period. Group insurance policyholder benefits and claims grew by
$778 million, primarily due to growth in this segment's group life, dental,
disability and long-term care insurance businesses, commensurate with the
premium variance discussed above. In addition, $291 million in claims related to
the September 11, 2001 tragedies contributed to this variance. Retirement and
savings policyholder benefits and claims declined by $32 million. A decrease
commensurate with the $292 million premium variance discussed above is almost
entirely offset by a $215 million increase in policyholder benefits associated
with fourth quarter business realignment initiatives.
Interest credited to policyholder account balances decreased by $77
million, or 7%, to $1,013 million for the year ended December 31, 2001 from
$1,090 million for the comparable 2000 period. A $24 million drop in group life
is largely attributable to an overall decline in crediting rates in 2001 as a
result of the current interest rate environment. The variance in group life was
partially dampened by an increase in average customer account balances stemming
from asset growth, resulting in $12 million in additional interest credited.
Retirement and savings decreased by $53 million, or 9%, to $549 million in 2001
from $602 million in 2000, due to a overall decline in crediting rates in 2001
as a result of the current interest rate environment.
Policyholder dividends increased by $135 million, or 109%, to $259 million
for the year ended December 31, 2001 from $124 million for the comparable 2000
period. The rise in dividends is primarily attributed to favorable experience on
a large group life contract in 2001. Policyholder dividends vary from period to
period based on insurance contract experience.
Other expenses increased by $177 million, or 10%, to $1,907 million for the
year ended December 31, 2001 from $1,730 million for the comparable 2000 period.
Group insurance expenses grew by $94 million due primarily to a rise in
non-deferrable variable expenses associated with premium growth. Non-deferrable
variable expenses include premium tax, commissions and administrative expenses
for dental, disability and long-term care businesses. This variance is partially
offset by a decline in rebate expenses associated with the Company's securities
lending program. The income associated with securities lending activity is
included in net investment income. Other expenses related to retirement and
savings rose by $83 million and is largely attributable to
59
$184 million in expenses associated with fourth quarter business realignment
initiatives. This variance is partially offset by a decrease in expenses, due in
most part, to expense management initiatives and lower rebate expenses
associated with the Company's securities lending program.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- INSTITUTIONAL
Premiums increased by $1,375 million, or 25%, to $6,900 million in 2000
from $5,525 million in 1999. Excluding the impact of the GenAmerica acquisition,
premiums increased by $1,297 million, or 23%, to $6,822 million in 2000 from
$5,525 million in 1999. Group insurance premiums increased by $953 million, or
19%, to $6,048 million in 2000 from $5,095 million in 1999. This increase is
predominately the result of strong sales and continued favorable policyholder
retention in this segment's group life, dental and disability businesses, as
well as $124 million of additional insurance coverages purchased by existing
customers with funds received in the demutualization. In addition, the BMA and
Lincoln National acquisitions contributed $103 million to the variance.
Retirement and savings premiums increased by $344 million, or 80%, to $774
million in 2000 from $430 million in 1999, primarily due to significant premiums
received from existing customers in 2000.
Universal life and investment-type product policy fees increased by $45
million, or 9%, to $547 million in 2000 from $502 million in 1999. Excluding the
impact of the GenAmerica acquisition, universal life and investment-type product
policy fees increased by $6 million, or 1%, to $508 million in 2000 from $502
million in 1999. This increase reflects growth in group universal life products.
Other revenues increased by $41 million, or 7%, to $650 million in 2000
from $609 million in 1999. Excluding the impact of the GenAmerica acquisition,
other revenues increased by $33 million, or 5%, to $642 million in 2000 from
$609 million in 1999. Group insurance other revenues increased by $53 million,
or 18%, to $355 million in 2000 from $302 million in 1999. The primary driver of
this increase was strong sales growth in this segment's dental and disability
administrative services businesses. Retirement and savings other revenues
decreased by $20 million, or 7%, to $287 million in 2000 from $307 million in
1999, primarily due to a special performance fee received in 1999.
Policyholder benefits and claims increased by $1,466 million, or 22%, to
$8,178 million in 2000 from $6,712 million in 1999. Excluding the impact of the
GenAmerica acquisition, policyholder benefits and claims increased by $1,366
million, or 20%, to $8,078 million in 2000 from $6,712 million in 1999. Group
life increased by $411 million, or 12%, to $3,941 million in 2000 from $3,530
million in 1999, primarily due to overall growth in the business, commensurate
with the premium variance discussed above. Non-medical health increased by $614
million, or 46%, to $1,941 million in 2000 from $1,327 million in 1999. This
increase is largely attributable to significant growth in this segment's dental
and disability businesses. In addition, the BMA and Lincoln National
acquisitions contributed to the variance. Retirement and savings increased by
$341 million, or 18%, to $2,196 million in 2000 from $1,855 million in 1999
commensurate with the premium variance above.
Interest credited to policyholder account balances increased by $60
million, or 6%, to $1,090 million in 2000 from $1,030 million in 1999. Excluding
the impact of the GenAmerica acquisition, interest credited to policyholder
account balances increased by $54 million, or 5%, to $1,084 million in 2000 from
$1,030 million in 1999. Group insurance increased by $84 million, or 21%, to
$482 million in 2000 from $398 million in 1999. This increase is primarily due
to asset growth in customer account balances and the bank-owned life insurance
business, as well as an increase in the cash values of executive and
corporate-owned universal life plans. Retirement and savings decreased by $30
million, or 5%, to $602 million in 2000 from $632 million in 1999, due to a
continued shift in customers' investment preferences from guaranteed interest
products to separate account alternatives.
Policyholder dividends decreased by $35 million, or 22%, to $124 million in
2000 from $159 million in 1999. Policyholder dividends vary from period to
period based on participating group insurance contract experience.
Other expenses increased by $161 million, or 10%, to $1,730 million in 2000
from $1,569 million in 1999. Excluding the impact of the GenAmerica acquisition,
expenses increased by $123 million, or 8%, to $1,692 million in 2000 from $1,569
million in 1999. Other expenses related to group life increased by
60
$56 million, or 15%, to $438 million in 2000 from $382 million in 1999. Other
expenses related to group non-medical health increased by $12 million, or 2%, to
$685 million in 2000 from $673 million in 1999. Other expenses related to
retirement and savings increased by $55 million, or 11%, to $569 million in 2000
from $514 million in 1999. These increases are primarily due to costs incurred
in connection with initiatives that focused on improving service delivery
capabilities through investments in technology and higher expenses associated
with the Company's securities lending program. The income associated with
securities lending activity is included in net investment income. In addition,
an increase in volume-related expenses associated with premium growth
contributed to the variance. Volume-related expenses include premium taxes,
separate account investment management expenses and commissions.
REINSURANCE
The following table presents consolidated financial information for the
Reinsurance segment for the years indicated:
FOR THE
YEAR ENDED
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
REVENUES
Premiums.................................................... $1,762 $1,450
Net investment income....................................... 390 379
Other revenues.............................................. 42 29
Net investment losses....................................... (6) (2)
------ ------
Total revenues......................................... 2,188 1,856
------ ------
EXPENSES
Policyholder benefits and claims............................ 1,484 1,096
Interest credited to policyholder account balances.......... 122 109
Policyholder dividends...................................... 24 21
Other expenses.............................................. 439 446
------ ------
Total expenses......................................... 2,069 1,672
------ ------
Income before provision for income taxes.................... 119 184
Provision for income taxes.................................. 27 48
Minority interest........................................... 52 67
------ ------
Net income.................................................. $ 40 $ 69
====== ======
MetLife beneficially owns approximately 58% of RGA. The Company's
Reinsurance segment is comprised of the life reinsurance business of RGA, and
MetLife's ancillary life reinsurance business. The ancillary life reinsurance
business was an immaterial component of MetLife's Individual segment for years
prior to January 1, 2000.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- REINSURANCE
Premiums increased by $312 million, or 22%, to $1,762 million for the year
ended December 31, 2001 from $1,450 million for the comparable 2000 period. New
premiums from facultative and automatic treaties and renewal premiums on
existing blocks of business all contributed to the premium growth. Premium
levels are significantly influenced by large transactions and reporting
practices of ceding companies and, as a result, can fluctuate from period to
period.
Other revenues increased by $13 million, or 45%, to $42 million for the
year ended December 31, 2001 from $29 million for the comparable 2000 period.
The increase is due to an increase in fees earned on financial
61
reinsurance, primarily as a result of the acquisition of RGA Financial Group,
LLC during the second half of 2000.
Policyholder benefits and claims increased by $388 million, or 35%, to
$1,484 million for the year ended December 31, 2001 from $1,096 million for the
comparable 2000 period. Claims experience for the year ended December 31, 2001,
includes claims arising from the September 11, 2001 tragedies of approximately
$16 million, net of amounts recoverable from reinsurers. As a percentage of
premiums, policyholder benefits and claims increased to 84% for the year ended
December 31, 2001 from 76% for the comparable 2000 period. This increase is
attributed primarily to higher than expected mortality in the U.S. reinsurance
operations during the first and fourth quarters, in addition to the claims
arising from the terrorist attacks. Additionally, increases for benefits and
adverse results on the reinsurance of Argentine pension business contributed to
the increase. Mortality is expected to vary from period to period, but generally
remains fairly constant over the long-term.
Interest credited to policyholder account balances increased by $13
million, or 12%, to $122 million for the year ended December 31, 2001 from $109
million for the comparable 2000 period. Interest credited to policyholder
account balances relates to amounts credited on deposit-type contracts and
certain cash-value contracts. The increase is primarily related to an increase
in the underlying account balances due to a new block of single premium deferred
annuities reinsured in 2001. Additionally, the crediting rate on certain blocks
of annuities is based on the performance of the underlying assets. Therefore,
any fluctuations in interest credited related to these blocks are generally
offset by a corresponding change in net investment income.
Policyholder dividends were essentially unchanged at $24 million for the
year ended December 31, 2001 as compared to $22 million for the year ended
December 31, 2000.
Other expenses decreased by $7 million, or 2%, to $439 million for the year
ended December 31, 2001 from $446 million for the comparable 2000 period. Other
expenses, which include underwriting, acquisition and insurance expenses, were
20% of segment revenues in 2001 compared with 24% in 2000. This percentage
fluctuates depending on the mix of the underlying insurance products being
reinsured.
Minority interest, which represents third-party ownership interests in RGA,
decreased by $15 million, or 22%, to $52 million for the year ended December 31,
2001 from $67 million for the comparable 2000 period due to lower RGA
pre-minority interest net income.
YEAR ENDED DECEMBER 31, 2000 -- REINSURANCE
Revenues were $1,856 million for the year ended December 31, 2000.
Reinsurance revenues are primarily derived from renewal premiums from existing
reinsurance treaties, new business premiums from existing or new reinsurance
treaties and income earned on invested assets. Premium levels are significantly
influenced by large transactions and reporting practices of ceding companies
and, as a result, can fluctuate from period to period.
Expenses were $1,672 million for the year ended December 31, 2000. Policy
benefits and claims were 76% of premiums for the year ended December 31, 2000,
which is consistent with management's expectations. Underwriting, acquisition
and insurance expenses, which are included in other expenses, were 24% of
premiums for the year ended December 31, 2000. This percentage fluctuates
depending on the mix of the underlying insurance products being reinsured.
Interest credited to policyholder account balances are related to amounts
credited on RGA's deposit-type contracts and cash value products, which have a
significant mortality component. This amount fluctuates with the changes in cash
values and changes in interest crediting rates.
Minority interest, which represents third-party ownership interests in RGA,
was $67 million for the year ended December 31, 2000.
62
AUTO & HOME
The following table presents consolidated financial information for the
Auto & Home segment for the years presented:
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
REVENUES
Premiums................................................... $2,755 $2,636 $1,751
Net investment income...................................... 200 194 103
Other revenues............................................. 22 40 21
Net investment (losses) gains.............................. (17) (20) 1
------ ------ ------
Total revenues........................................ 2,960 2,850 1,876
------ ------ ------
EXPENSES
Policyholder benefits and claims........................... 2,121 2,005 1,301
Other expenses............................................. 800 827 514
------ ------ ------
Total expenses........................................ 2,921 2,832 1,815
------ ------ ------
Income before provision for income taxes................... 39 18 61
(Benefit) Provision for income taxes....................... (2) (12) 5
------ ------ ------
Net income................................................. $ 41 $ 30 $ 56
====== ====== ======
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- AUTO & HOME
Premiums increased by $119 million, or 5%, to $2,755 million for the year
ended December 31, 2001 from $2,636 million for the comparable 2000 period. Auto
premiums increased by $99 million. Property premiums increased by $17 million.
Both increases were largely due to rate increases. Due to increased rate
activity, the retention ratio for the existing business declined from 90% to
89%. Premiums from other personal lines increased by $3 million.
Other revenues decreased by $18 million, or 45%, to $22 million for the
year ended December 31, 2001 from $40 million for the comparable 2000 period.
This decrease is primarily due to a revision of an estimate made in 2000 of
amounts recoverable from reinsurers related to the disposition of this segment's
reinsurance business in 1990.
Policyholder benefits and claims increased by $116 million, or 6%, to
$2,121 million for the year ended December 31, 2001 from $2,005 million for the
comparable 2000 period. Auto policyholder benefits and claims increased by $62
million due to increased average claim costs, growth in the business and adverse
weather in the first quarter of 2001. Despite this increase, the auto loss ratio
decreased to 75.9% in 2001 from 76.6% in 2000 as a result of higher premiums per
policy. Property policyholder benefits and claims increased by $41 million due
to increased non-catastrophe weather-related losses in 2001. Correspondingly,
the property loss ratio increased to 80.7% in 2001 from 76.4% in 2000.
Catastrophes represented 13.5% of the loss ratio in 2001 compared to 17.3% in
2000. Other policyholder benefits and claims grew by $13 million, primarily due
to an increase in high liability personal umbrella claims. This segment tends to
be very volatile in the shorter-term versus a longer-term business cycle due to
low premium volume and high liability limits.
Other expenses decreased by $27 million, or 3%, to $800 million for the
year ended December 31, 2001 from $827 million for the comparable 2000 period.
This decrease is due to a reduction in integration costs associated with the St.
Paul acquisition. The expense ratio decreased to 29.0% in 2001 from 31.4% in
2000.
The effective income tax rates for the years ended December 31, 2001 and
2000 differ from the corporate tax rate of 35% due to the impact of non-taxable
investment income.
63
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- AUTO & HOME
Premiums increased by $885 million, or 51%, to $2,636 million in 2000 from
$1,751 million in 1999, primarily due to the St. Paul acquisition in 1999.
Excluding the impact of the St. Paul acquisition, premiums increased by $130
million, or 9%. Auto premiums increased by $95 million, or 8%, to $1,313 million
in 2000 from $1,218 million in 1999. This increase is primarily due to growth in
the standard auto insurance book of business, which was attributable to
increased new business production resulting from an increase in independent
agents in this segment's sales force and improved retention in the existing
business. Policyholder retention in the standard auto business increased by 1%
to 89%. Homeowner premiums increased by $27 million, or 11%, to $282 million in
2000 from $255 million in 1999 due to higher new business production as a result
of a larger sales force and an increase in policyholder retention of 2% to 91%
in 2000 from 89% in 1999. Premiums from other personal lines increased by 44% to
$26 million in 2000 from $18 million in 1999.
Other revenues increased by $19 million, or 90%, to $40 million in 2000
from $21 million in 1999, primarily due to a revision of an estimate of amounts
recoverable from reinsurers related to the disposition of this segment's
reinsurance business in 1990.
Expenses increased by $1,017 million, or 56%, to $2,832 million in 2000
from $1,815 million in 1999. Excluding the impact of the St. Paul acquisition,
expenses increased by $152 million, or 10%, which resulted in an increase in the
combined ratio to 103.9% in 2000 from 102.8% in 1999. As discussed below, higher
overall loss costs, predominately in the homeowners line, is the primary cause
of this increase.
Policyholder benefits and claims increased by $704 million, or 54%, to
$2,005 million in 2000 from $1,301 million in 1999. Automobile policyholder
benefits and claims increased by $438 million, or 42%, to $1,490 million in 2000
from $1,052 million in 1999. Homeowner policyholder benefits and claims
increased by $260 million, or 112%, to $493 million in 2000 from $233 million in
1999. Other policyholder benefits and claims increased by $6 million, or 38%, to
$22 million in 2000 from $16 million in 1999. Correspondingly, the auto loss
ratio increased to 76.6% in 2000 from 76.1% in 1999 and the homeowners loss
ratio increased to 76.4% from 67.2% in 1999. The increase in the homeowners loss
ratio is primarily due to higher catastrophe losses and expenses, predominantly
in the St. Paul book of business. Catastrophes, including multiple storms and
the Los Alamos fire, resulted in an increase in the catastrophe loss ratio to
17.3% in 2000 from 6.3% in 1999.
Excluding the impact of the St. Paul acquisition, policyholder benefits and
claims increased by $124 million, or 11%. Auto policyholder benefits and claims
increased by $102 million, or 11%, to $1,041 million in 2000 from $939 million
in 1999. This is largely attributable to a 9% increase in the number of policies
in force and increased costs resulting from an increase in the use of original
equipment manufacturer parts and higher labor rates. The auto loss ratio
increased to 79.3% in 2000 from 77.1% in 1999. Homeowners benefits and claims
increased by $23 million, or 14%, to $186 million in 2000 from $163 million in
1999, primarily due to the increased volume of this book of business and
increased catastrophe experience as discussed above. The homeowners loss ratio
increased by 1.6% to 66.0% in 2000 from 64.4% in 1999. Other personal lines
benefits and claims decreased by $1 million to $11 million in 2000 from $12
million in 1999.
Other expenses increased by $313 million, or 61%, to $827 million in 2000
from $514 million in 1999, which resulted in an increase in the expense ratio to
31.4% in 2000 from 29.3% in 1999. A portion of the increase in expenses from
1999 to 2000 is associated with the costs incurred in connection with the
integration of the St. Paul business acquired.
64
ASSET MANAGEMENT
The following table presents consolidated financial information for the
Asset Management segment for the years presented:
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
2001 2000 1999
----- ----- -----
(DOLLARS IN MILLIONS)
REVENUES
Net investment income....................................... $ 71 $ 90 $ 80
Other revenues.............................................. 198 760 803
Net investment gains........................................ 25 -- --
---- ---- ----
Total revenues......................................... 294 850 883
---- ---- ----
OTHER EXPENSES.............................................. 252 749 741
---- ---- ----
Income before provision for income taxes and minority
interest.................................................. 42 101 142
Provision for income taxes.................................. 15 32 37
Minority interest........................................... -- 35 54
---- ---- ----
Net income.................................................. $ 27 $ 34 $ 51
==== ==== ====
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- ASSET MANAGEMENT
Other revenues, which are primarily comprised of management and advisory
fees from third parties, decreased by $562 million, or 74%, to $198 million in
2001 from $760 million in 2000. The most significant factors contributing to
this decline were a $522 million decrease resulting from the sale of Nvest,
which occurred on October 30, 2000, and a $48 million decrease resulting from
the sale of Conning, which occurred on July 2, 2001. Excluding the impact of
these transactions, other revenues increased by $8 million, or 5%, to $167
million in 2001 from $159 million in 2000. This is attributable to an increase
in real estate assets under management that command a higher fee. Assets under
management in the remaining Asset Management organization decreased from $56
billion as of December 31, 2000 to $51 billion at December 31, 2001. The decline
occurred as a result of the equity market downturn and MetLife institutional
customer withdrawals. Third party assets under management registered only a
slight decrease of $352 million as a result of the equity market downturn,
substantially offset by strong mutual fund sales and the purchase of a real
estate portfolio in the second quarter of 2001 comprised of new assets of $1.7
billion. Management and advisory fees are typically calculated based on a
percentage of assets under management, and are not necessarily proportionate to
average assets managed due to changes in account mix.
Other expenses decreased by $497 million, or 66%, to $252 million in 2001
from $749 million in 2000. The sale of Nvest reduced other expenses by $457
million and the sale of Conning reduced other expenses by $55 million. Excluding
the impact of these transactions, other expenses increased by $15 million, or
7%, to $217 million in 2001 from $202 million in 2000. This variance is
attributable to an increase in total compensation and benefits and an increase
in discretionary spending. Compensation and benefits expense totaled $111
million in 2001 and is comprised of approximately 63% base compensation and 37%
variable compensation. Base compensation increased by $9 million, or 15%, to $70
million in 2001 from $61 million in 2000, primarily due to higher staffing
levels. Variable compensation decreased by $1 million, or 2%, to $41 million in
2001 from $42 million in 2000 due to lower profitability. Variable incentive
payments are based upon profitability, investment portfolio performance, new
business sales and growth in revenues and profits. The variable compensation
plans reward the employees for growth in their businesses, but also require them
to share in the impact of any declines. Increased sales commissions arising from
higher mutual fund sales in 2001 were largely offset by downward revisions in
other variable compensation due to a decline in profits. Other general and
administrative expenses increased $7 million, or 7%, to $106 million in 2001
from $99 million in 2000, primarily due to increases in occupancy costs and
increased mutual fund reimbursement subsidies.
65
Minority interest, principally reflecting third-party ownership interest in
Nvest, decreased by $35 million, or 100%, due to the sale of Nvest.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- ASSET MANAGEMENT
Other revenues, which are primarily comprised of management and advisory
fees, decreased by $43 million, or 5%, to $760 million in 2000 from $803 million
in 1999. The most significant factor contributing to this decline is a $131
million decrease resulting primarily from the sale of Nvest, which occurred on
October 30, 2000. This reduction is partially offset by a $79 million increase
related to the acquisition of Conning, a component of the GenAmerica
acquisition. Excluding the impact of these transactions, other revenues
increased by $9 million, or 6%, to $159 million in 2000 from $150 million in
1999. This is attributable to an increase in average assets under management
during the year and a change in asset mix. Despite a $1 billion, or 2%, decrease
in assets under management from $57 billion as of December 31, 1999 to $56
billion at December 31, 2000, average assets under management exceed those for
the same period in 1999. The decline occurred during the fourth quarter as a
result of a market downturn. Management and advisory fees are typically
calculated based on a percentage of assets under management, and are not
necessarily proportionate to average assets managed due to changes in account
mix.
Other expenses increased by $8 million, or 1%, to $749 million in 2000 from
$741 million in 1999. The sale of Nvest reduced other expenses by $92 million
and the acquisition of Conning increased other expenses by $90 million.
Excluding the impact of these transactions, other expenses increased by $10
million, or 5%, to $202 million in 2000 from $192 million in 1999. Approximately
half of the variance is attributable to an increase in total compensation and
benefits. This expense totaled $103 million for the year 2000 and is comprised
of approximately 59% base compensation and 41% variable compensation. Base
compensation increased by $2 million, or 3%, to $61 million in 2000 from $59
million in 1999, primarily due to annual salary increases and higher staffing
levels. Variable compensation increased by $3 million, or 8%, to $42 million in
2000 from $39 million in 1999. Variable incentive payments are based upon
profitability, investment portfolio performance, new business sales and growth
in revenues and profits. The variable compensation plans reward the employees
for growth in their businesses, but also require them to share in the impact of
any declines. General administrative expenses increased by $5 million, or 5%, to
$99 million in 2000 from $94 million in 1999. This increase is primarily due to
increased mutual fund expense subsidies, distribution costs and system
enhancements.
Minority interest, reflecting third-party ownership interest in Nvest,
decreased by $19 million, or 35%, to $35 million in 2000 from $54 million in
1999.
66
INTERNATIONAL
The following table presents consolidated financial information for the
International segment for the years indicated:
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
2001 2000 1999
------ ------ ----
(DOLLARS IN MILLIONS)
REVENUES
Premiums.................................................... $ 846 $ 660 $523
Universal life and investment-type product policy fees...... 38 53 43
Net investment income....................................... 267 254 206
Other revenues.............................................. 16 9 12
Net investment (losses) gains............................... (16) 18 1
------ ------ ----
Total revenues......................................... 1,151 994 785
------ ------ ----
EXPENSES
Policyholder benefits and claims............................ 689 562 458
Interest credited to policyholder account balances.......... 51 56 52
Policyholder dividends...................................... 36 32 22
Payments to former Canadian policyholders................... -- 327 --
Other expenses.............................................. 329 292 248
------ ------ ----
Total expenses......................................... 1,105 1,269 780
------ ------ ----
Income (Loss) before provision for income taxes............. 46 (275) 5
Provision (Benefit) for income taxes........................ 32 10 (16)
------ ------ ----
Net income (loss)........................................... $ 14 $ (285) $ 21
====== ====== ====
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2000 -- INTERNATIONAL
Premiums increased by $186 million, or 28%, to $846 million for the year
ended December 31, 2001 from $660 million for the comparable 2000 period.
Mexico's premiums grew by $89 million due to additional sales in group life,
major medical and individual life products. Protection-type product sales
fostered by the continued expansion of the professional sales force in South
Korea accounted for an additional $41 million in premiums. Spain's premiums rose
by $18 million primarily due to continued growth in the direct auto business.
Higher individual life sales resulted in an additional $17 million in Taiwanese
premiums. The 2001 acquisition of Seasul in Brazil and the Chilean acquisitions
increased premiums by $12 million and $7 million, respectively, in those
countries. Hong Kong's premiums grew by $5 million primarily due to continued
growth in the direct marketing, group life, and traditional life businesses.
These variances were partially offset by a $3 million decline in Argentinean
individual life premiums, reflecting the impact of recent economic and political
events in that country. If these conditions continue, management expects further
declines in Argentinean premiums. The remainder of the variance is attributable
to minor fluctuations in several countries.
Universal life and investment-type product policy fees decreased by $15
million, or 28%, to $38 million for the year ended December 31, 2001 from $53
million for the comparable 2000 period. This decline is primarily attributable
to a $19 million reduction in fees in Spain caused by a reduction in assets
under management, as a result of a planned cessation of product lines offered
through a joint venture with Banco Santander. The remainder of the variance is
attributable to minor fluctuations in several countries.
Other revenues increased by $7 million, or 78%, to $16 million for the year
ended December 31, 2001 from $9 million for the comparable 2000 period.
Argentina's other revenues grew by $5 million primarily due to foreign currency
transaction gains in the private pension business, which was introduced in the
third quarter of
67
2001. The required accounting for foreign currency translation fluctuations in
Indonesia, a highly inflationary economy, resulted in a $3 million increase in
other revenues. These variances were partially offset by a $3 million decrease
in Taiwan due to higher group reinsurance commissions received in 2000. The
remainder of the increase is attributable to minor variances in several
countries.
Policyholder benefits and claims increased by $127 million, or 23%, to $689
million for the year ended December 31, 2001 from $562 million for the
comparable 2000 period. Mexico's, South Korea's and Taiwan's policyholder
benefits and claims grew by $74 million, $24 million and $15 million,
respectively, commensurate with the overall premium variance discussed above.
Brazil's policyholder benefits and claims rose by $9 million primarily due to
the acquisition of Seasul. In addition, the Chilean acquisitions contributed $7
million to this variance. These variances are partially offset by a $7 million
decline in Argentina's policyholder benefits and claims as a result of the
impact of recent economic and political events in that country. The remainder of
the variance is attributable to minor fluctuations in several countries.
Interest credited to policyholder account balances decreased by $5 million,
or 9%, to $51 million for the year ended December 31, 2001 from $56 million for
the comparable 2000 period. An overall decline in crediting rates on
interest-sensitive products in 2001 as a result of the current interest rate
environment is primarily responsible for a $6 million reduction in South Korea.
Spain's interest credited dropped by $6 million due to a reduction in assets
under management, as a result of a planned cessation of product lines offered
through a joint venture with Banco Santander. These variances were partially
offset by a $2 million increase in both Mexico and Argentina, due to an increase
in average customer account balances. Although Argentinean average customer
account balances increased in 2001, management expects there will be a future
reduction in assets under management as a result of the recent economic and
political events in that country. However, government-imposed withdrawal
restrictions as well as contract terms, specifically surrender charges, may
moderate the impact. The remainder of the variance is attributable to minor
fluctuations in several countries.
Policyholder dividends increased by $4 million, or 13%, to $36 million for
the year ended December 31, 2001 from $32 million for the comparable 2000
period. The growth in Mexico's group life sales mentioned above resulted in an
increase in policyholder dividends of $2 million. Taiwan's individual life sales
contributed an additional $2 million in policyholder dividends. The remainder of
the variance is attributable to minor fluctuations in several countries.
Payments of $327 million related to Metropolitan Life's demutualization
were made during the second quarter of 2000 to holders of certain policies
transferred to Clarica Life Insurance Company in connection with the sale of a
substantial portion of the Company's Canadian operations in 1998.
Other expenses increased by $37 million, or 13%, to $329 million for the
year ended December 31, 2001 from $292 million in the comparable 2000 period.
Argentina's other expenses rose by $15 million due to a write-off of deferred
policy acquisition costs, resulting from a revision in the calculation of
estimated gross margins and profits caused by the anticipated impact of recent
economic and political events in that country. Mexico and South Korea's other
expenses grew by $13 million and $10 million, respectively, primarily due to the
growth in business in these countries. Brazil's other expenses rose by $7
million primarily due to the acquisition of Seasul. In addition, the Chilean
acquisitions contributed $3 million to this variance. These variances were
partially offset by an $11 million decrease in Spain's other expenses due to a
reduction in payroll, commissions, and administrative expenses as a result of a
planned cessation of product lines offered through a joint venture with Banco
Santander. The remainder of the variance is attributable to minor fluctuations
in several countries.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999 -- INTERNATIONAL
Premiums increased by $137 million, or 26%, to $660 million in 2000 from
$523 million in 1999. Mexico's premiums increased by $45 million, primarily due
to new business growth in the group life and major medical products. South
Korea's increase in premiums of $29 million is mainly attributable to the
establishment of a new professional agency force resulting in higher
productivity levels and an improvement in the individual life business'
persistency. The majority of Taiwan's premium increase of $28 million is due to
overall growth in the individual life business. Increased sales from the direct
auto business is the principal driver behind Spain's premium increase of $18
million. Brazil's premiums increased by $14 million resulting predominately from
68
business expansion. Brazil began selling business late in the second quarter of
1999 and acquired two large blocks of business in the beginning of 2000. The
remainder of the increase is due to minor increases in several other countries.
Universal life and investment-type product policy fees increased by $10
million, or 23%, to $53 million in 2000 from $43 million in 1999, primarily due
to expanded business operations in both Argentina and Spain.
Other revenues decreased by $3 million to $9 million in 2000 from $12
million in 1999. This decrease is attributable to variances in several
countries.
Policyholder benefits and claims increased by $104 million, or 23%, to $562
million in 2000 from $458 million in 1999. Mexico, Taiwan, South Korea and
Brazil's policyholder benefits and claims increased by $35 million, $32 million,
$14 million and $8 million, respectively, commensurate with the overall premium
growth discussed above. Spain's policyholder benefits and claims increased by
$11 million, primarily due to increases in auto claims. This is consistent with
the premium growth discussed above. The remainder of the increase is primarily
due to expanded business operations in several other countries.
Interest credited to policyholder account balances increased by $4 million,
or 8%, to $56 million in 2000 from $52 million in 1999 as a result of growth in
policyholder account balances in Argentina and Mexico.
Policyholder dividends increased by $10 million, or 45%, to $32 million in
2000 from $22 million in 1999. This increase is largely attributable to growth
in Mexico's participating group business and is in line with the increase in
premiums discussed above.
Payments of $327 million related to Metropolitan Life's demutualization
were made during the second quarter of 2000 to holders of certain policies
transferred to Clarica Life Insurance Company in connection with the sale of a
substantial portion of the Company's Canadian operations in 1998.
Other expenses increased by $44 million, or 18%, to $292 million in 2000
from $248 million in 1999. This increase is partially attributable to business
expansion initiatives in Brazil and Uruguay and the establishment of operations
in Poland, the Philippines, and India in 2000. The remaining increase in other
expenses is commensurate with the overall growth discussed above.
CORPORATE & OTHER
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2000
Total revenues for Corporate & Other, which consist of net investment
income, other revenues, and net investment losses that are not allocated to
other business segments, decreased by $1,364 million, or 372%, to $(997) million
in 2001 from $367 million in 2000. This decrease is primarily due to a $1,263
million increase in net investment losses. This rise in net investment losses
reflects the elimination of a $1,526 million inter-segment gain associated with
the inter-company sale of certain real estate properties to Metropolitan
Insurance and Annuity Company, a subsidiary of the Holding Company, from
Metropolitan Life. Total Corporate & Other expenses decreased by $6 million, or
1%, to $777 million in 2001 from $783 million in 2000. This decline in expenses
is attributable to a $230 million reduction in demutualization costs and a $58
million decrease in interest expense due to reduced average levels in borrowing
and a lower interest rate environment in 2001. These variances are partially
offset by an increase in other expenses associated with a $250 million charge
related to race-conscious litigation recorded in the fourth quarter of 2001 and
$29 million of additional expenses associated with MetLife, Inc. shareholder
services costs and start-up costs relating to MetLife's banking initiatives.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999
Total revenues for Corporate & Other, which consist of net investment
income, other revenues, and net investment losses that are not allocated to
other business segments, increased by $33 million, or 10%, to $367 million in
2000 from $334 million in 1999. Excluding the impact of the GenAmerica
acquisition, total revenues decreased by $100 million, or 30%. This decrease is
primarily due to a $163 million increase in net investment losses. These losses
reflect the continuation of the Company's strategy to reposition its investment
portfolio to provide a higher operating return on its invested assets. Total
Corporate & Other expenses decreased
69
by $275 million, or 26%, to $783 million in 2000 from $1,058 million in 1999.
Excluding the impact of the GenAmerica acquisition, total expenses decreased by
$371 million, or 35%. During 1999, the Company reported a $499 million charge
principally related to the settlement of a multidistrict litigation proceeding
involving alleged improper sales practices, accruals for sales practices claims
not covered by the settlement and other legal costs.
LIQUIDITY AND CAPITAL RESOURCES
THE HOLDING COMPANY
The primary uses of liquidity of the Holding Company include: common stock
dividends, debt service on outstanding debt, including the interest payments on
debentures issued to MetLife Capital Trust I and senior notes, contributions to
subsidiaries, payment of general operating expenses and the repurchase of the
Company's common stock. The Holding Company irrevocably guarantees, on a senior
and unsecured basis, the payment in full of distributions on the capital
securities and the stated liquidation amount of the capital securities, in each
case to the extent of available trust funds. The primary source of the Holding
Company's liquidity is dividends it receives from Metropolitan Life. Other
sources of liquidity also include programs for short- and long-term borrowing,
as needed, arranged through the Holding Company and MetLife Funding, Inc., a
subsidiary of Metropolitan Life. In addition, the Holding Company filed a shelf
registration statement, effective June 1, 2001, with the SEC which permits the
registration and issuance of debt and equity securities as described more fully
therein. The Company issued debt in the amount of $1.25 billion in November 2001
under this registration statement. See "-- The Company -- Financing" below.
Under the New York Insurance Law, Metropolitan Life is permitted without
prior insurance regulatory clearance to pay a stockholder dividend to the
Holding Company as long as the aggregate amount of all such dividends in any
calendar year does not exceed the lesser of (i) 10% of its surplus to
policyholders as of the immediately preceding calendar year, and (ii) its
statutory net gain from operations for the immediately preceding calendar year
(excluding realized capital gains). Metropolitan Life will be permitted to pay a
stockholder dividend to the Holding Company in excess of the lesser of such two
amounts only if it files notice of its intention to declare such a dividend and
the amount thereof with the Superintendent and the Superintendent does not
disapprove the distribution. Under the New York 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 stockholders. The New York Insurance Department (the
"Department") has established informal guidelines for such determinations. The
guidelines, among other things, focus on the insurer's overall financial
condition and profitability under statutory accounting practices. Management of
the Company cannot provide assurance that Metropolitan Life will have statutory
earnings to support payment of dividends to the Holding Company in an amount
sufficient to fund its cash requirements and pay cash dividends or that the
Superintendent will not disapprove any dividends that Metropolitan Life must
submit for the Superintendent's consideration. MetLife's other insurance
subsidiaries are also subject to restrictions on the payment of dividends to
their respective parent companies.
The dividend limitation is based on statutory financial results. Statutory
accounting practices, as prescribed by the Department, differ in certain
respects from accounting principles used in financial statements prepared in
conformity with GAAP. The significant differences relate to deferred policy
acquisition costs, deferred income taxes, required investment reserves, reserve
calculation assumptions, goodwill and surplus notes.
Based on the historic cash flows and the current financial results of
Metropolitan Life, subject to any dividend limitations which may be imposed upon
Metropolitan Life or its subsidiaries by regulatory authorities, management
believes that cash flows from operating activities, together with the dividends
Metropolitan Life is permitted to pay without prior insurance regulatory
clearance, will be sufficient to enable the Holding Company to make payments on
the debentures issued to MetLife Capital Trust I and the senior notes, make
dividend payments on its Common Stock, pay all operating expenses and meet its
other obligations.
On March 28, 2001, the Holding Company's Board of Directors authorized a $1
billion common stock repurchase program. This program began after the completion
of an earlier $1 billion repurchase program that was announced on June 27, 2000.
Under these authorizations, the Holding Company may purchase its common
70
stock from the MetLife Policyholder Trust, in the open market and in privately
negotiated transactions. Under these programs, as of December 31, 2001, MetLife
has repurchased 60,065,224 shares of common stock for $1,723 million. At
December 31, 2001, $277 million of the March 28, 2001 authorization remained
available for common stock repurchases. On February 19, 2002, the Holding
Company's Board of Directors authorized an additional $1 billion common stock
repurchase program. This program will begin after the completion of the March
28, 2001 repurchase program.
On August 7, 2001, the Company purchased 10 million shares of its common
stock as part of the sale of 25 million shares of MetLife common stock by
Santusa Holdings, S.L., an affiliate of Banco Santander. The sale by Santusa
Holdings, S.L. was made pursuant to a shelf registration statement, effective
June 29, 2001.
Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Capital. MetLife, Inc. and its insured depository
institution subsidiaries are subject to risk-based and leverage capital
guidelines issued by the federal banking regulatory agencies for banks and
financial holding companies. The federal banking regulatory agencies are
required by law to take specific prompt corrective actions with respect to
institutions that do not meet minimum capital standards. At December 31, 2001
MetLife, Inc. and its insured depository institution subsidiaries were in
compliance with the aforementioned guidelines.
Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Change of Control. As a "financial holding company" and
"bank holding company" under the federal banking laws, the Company is required
to obtain the prior approval of the Board of Governors of the Federal Reserve
System for the changes of control. A change of control is conclusively presumed
upon acquisitions of 25% or more of any class of voting securities and
rebuttably presumed upon acquisitions of 10% or more of any class voting
securities. Further, as a result of MetLife, Inc.'s ownership of MetLife Bank,
N.A., a national bank, the Office of the Comptroller of the Currency's approval
would be required in connection with a change of control (generally presumed
upon the acquisition of 10% or more of any class of voting securities) of
MetLife, Inc.
THE COMPANY
Liquidity sources. The Company's principal cash inflows from its insurance
activities come from life insurance premiums, annuity considerations and deposit
funds. A primary liquidity concern with respect to these cash inflows is the
risk of early contractholder and policyholder withdrawal. The Company seeks to
include provisions limiting withdrawal rights on many of its products, including
general account institutional pension products (generally group annuities,
including guaranteed interest contracts and certain deposit fund liabilities)
sold to employee benefit plan sponsors.
The Company's principal cash inflows from its investment activities result
from repayments of principal, proceeds from maturities and sales of invested
assets and investment income. The primary liquidity concerns with respect to
these cash inflows are the risk of default by debtors, and interest rate and
other market volatilities. The Company closely monitors and manages these risks.
Additional sources of liquidity to meet unexpected cash outflows are
available from the Company's portfolio of liquid assets. These liquid assets
include substantial holdings of U.S. Treasury securities, short-term
investments, marketable fixed maturity securities and common stocks. The
Company's available portfolio of liquid assets was approximately $108 billion
and $101 billion at December 31, 2001 and 2000, respectively.
Sources of liquidity also include facilities for short- and long-term
borrowing as needed, arranged through the Holding Company and MetLife Funding,
Inc., a subsidiary of Metropolitan Life. See "-- Financing" below.
Liquidity uses. The Company's principal cash outflows primarily relate to
the liabilities associated with its various life insurance, annuity and group
pension products, operating expenses and income taxes, as well as principal and
interest on its outstanding debt obligations. Liabilities arising from its
insurance activities primarily relate to benefit payments under the above-named
products, as well as payments for policy surrenders, withdrawals and loans.
The Company's management believes that its sources of liquidity are more
than adequate to meet its current cash requirements, particularly considering
the level of liquid assets referred to in the section above. The nature
71
of the Company's diverse product portfolio and customer base lessen the
likelihood that normal operations will result in any significant strain on
liquidity in 2002. The following table summarizes its major contractual
obligations, apart from those arising from its ordinary product and investment
purchase activities:
CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006 THEREAFTER
----------------------- ------ ---- ---- ------ ------ ---- ----------
Long-term debt............................ $3,628 $207 $439 $ 27 $ 272 $609 $2,074
Operating leases.......................... 607 132 113 92 76 60 134
Company-obligated securities.............. 1,356 -- -- -- 1,006 -- 350
Partnership investments................... 1,898 -- -- 1,898 -- -- --
Mortgage commitments...................... 423 423 -- -- -- -- --
------ ---- ---- ------ ------ ---- ------
Total..................................... $7,912 $762 $552 $2,017 $1,354 $669 $2,558
====== ==== ==== ====== ====== ==== ======
The Company's committed and unsecured credit facilities aggregating $2,250
million expire $1,250 million in April of 2002 and $1,000 million in April of
2003 and are principally used as backup for the Company's commercial paper
program. Additionally, RGA has credit facilities totaling $180 million, all of
which expire in 2005.
At December 31, 2001, the Company had $473 million in letters of credit
from various banks outstanding, all of which expire within one year. Since
commitments associated with letters of credit and financing arrangements may
expire unused, the amounts shown do not necessarily reflect the actual future
cash funding requirements.
Litigation. Various litigation claims and assessments against the Company
have arisen in the course of the Company's business, including, but not limited
to, in connection with its activities as an insurer, employer, investor,
investment advisor and taxpayer. Further, state insurance regulatory authorities
and other federal and state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.
It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses. In some of the matters referred to above, very large and/or
indeterminate amounts, including punitive and treble damages, are sought.
Although in light of these considerations it is possible that an adverse outcome
in certain cases could have a material adverse effect upon the Company's
consolidated financial position, based on information currently known by the
Company's management, in its opinion, the outcomes of such pending
investigations and legal proceedings are not likely to have such an effect.
However, 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 the Company's operating results or cash flows in particular
quarterly or annual periods. See Note 11 of Notes to Consolidated Financial
Statements and "Legal Proceedings."
Risk-based capital ("RBC"). Section 1322 of the New York Insurance Law
requires that New York domestic life insurers report their RBC based on a
formula calculated by applying factors to various asset, premium and statutory
reserve items. The formula takes into account the risk characteristics of the
insurer, including asset risk, insurance risk, interest rate risk and business
risk. Section 1322 gives the Superintendent explicit regulatory authority to
require various actions by, or take various actions against, insurers whose
total adjusted capital does not exceed certain RBC levels. At December 31, 2001,
Metropolitan Life's and each of the other U.S. insurance subsidiaries' total
adjusted capital was in excess of each of the RBC levels required by each state
of domicile.
The National Association of Insurance Commissioners' ("NAIC") adopted the
Codification of Statutory Accounting Principles (the "Codification"), which is
intended to standardize regulatory accounting and reporting to state insurance
departments and became effective January 1, 2001. However, statutory accounting
principles continue to be established by individual state laws and permitted
practices. The Department required adoption of
72
the Codification with certain modifications, for the preparation of statutory
financial statements effective January 1, 2001. The adoption of the Codification
in accordance with NAIC guidance would have increased Metropolitan Life's
statutory capital and surplus by approximately $1.5 billion. The adoption of the
Codification, as modified by the Department, increased Metropolitan Life's
statutory capital and surplus by approximately $84 million, as of January 1,
2001. Further modifications by state insurance departments may impact the effect
of the Codification on Metropolitan Life's statutory surplus and capital.
Financing. MetLife Funding, Inc. ("MetLife Funding") serves as a
centralized finance unit for Metropolitan Life. Pursuant to a support agreement,
Metropolitan Life has agreed to cause MetLife Funding to have a tangible net
worth of at least one dollar. At December 31, 2001 and 2000, MetLife Funding had
a tangible net worth of $10.6 million and $10.3 million, respectively. MetLife
Funding raises funds from various funding sources and uses the proceeds to
extend loans to the Holding Company, Metropolitan Life and other affiliates.
MetLife Funding manages its funding sources to enhance the financial flexibility
and liquidity of Metropolitan Life. At December 31, 2001 and 2000, MetLife
Funding had total outstanding liabilities of $133 million and $1.1 billion,
respectively, consisting primarily of commercial paper. The Holding Company is
authorized to raise funds from various funding sources and uses the proceeds for
general corporate purposes. At December 31, 2001, the Holding Company had no
outstanding short-term debt. In November 2001, the Holding Company issued $750
million 6.125% senior notes due 2011 and $500 million 5.25% senior notes due
2006 under the shelf registration statement discussed above in "-- The Holding
Company."
The Company also maintained approximately $2.4 billion and $2 billion in
committed credit facilities at December 31, 2001 and 2000, respectively. At
December 31, 2001 and 2000, there was approximately $24 million and $98 million,
respectively, outstanding under these facilities. At December 31, 2001, $473
million in letters of credit from various banks were outstanding.
Support agreements. In addition to its support agreement with MetLife
Funding described above, Metropolitan Life has entered into a net worth
maintenance agreement with New England Life Insurance Company ("New England
Life"), whereby it is obligated to maintain New England Life's statutory capital
and surplus at the greater of $10 million or the amount necessary to prevent
certain regulatory action by Massachusetts, the state of domicile of this
subsidiary. The capital and surplus of New England Life at December 31, 2001 was
in excess of the amount that would trigger such an event.
In connection with the Company's acquisition of GenAmerica, Metropolitan
Life entered into a net worth maintenance agreement with General American,
whereby Metropolitan Life is obligated to maintain General American's statutory
capital and surplus at the greater of $10 million or the amount necessary to
maintain the capital and surplus of General American at a level not less than
180% of the NAIC Risk Based Capitalization Model. The capital and surplus of
General American at December 31, 2001 was in excess of the required amount.
Metropolitan Life has also entered into arrangements with some of its other
subsidiaries and affiliates to assist such subsidiaries and affiliates in
meeting various jurisdictions' regulatory requirements regarding capital and
surplus. In addition, Metropolitan Life has entered into a support arrangement
with respect to reinsurance obligations of Metropolitan Insurance and Annuity
Company ("MIAC"). Management does not anticipate that these arrangements will
place any significant demands upon the Company's liquidity resources.
The Holding Company has agreed to make capital contributions, in any event
not to exceed $120 million, to MIAC in the aggregate amount of the excess of (i)
the debt service payments required to be made, and the capital expenditure
payments required to be made or reserved for, under the borrowings made by MIAC
subsidiaries to fund the purchase of certain real estate properties from
Metropolitan Life during the two year period following the date of borrowings,
over (ii) the cash flows generated by these properties.
Consolidated cash flows. Net cash provided by operating activities was
$4,799 million, $1,299 million and $3,883 million for the years ended December
31, 2001, 2000, and 1999, respectively. The fluctuations in cash provided by the
Company's operations between periods are primarily due to the timing in the
settlement of security trades and other receivables and payables. Net cash
provided by operating activities in 2001, 2000 and 1999 was more than adequate
to meet liquidity requirements.
73
Net cash (used in) provided by investing activities was $(3,663) million,
$309 million and $(2,389) million for the years ended December 31, 2001, 2000
and 1999, respectively. Purchases of investments exceeded sales, maturities and
repayments by $3,289 million, $7,101 million and $461 million in 2001, 2000 and
1999, respectively. These net purchases were primarily attributable to the
investment of collateral received in connection with the securities lending
program. In addition, the reinvestment of the proceeds from the sale of Nvest on
October 30, 2000 and the planned increase in the cash position within the
investment portfolio in 2001 contributed to the variance. Cash flows from
investment activities increased by $360 million, $5,840 million and $2,692
million in 2001, 2000 and 1999, respectively, as a result of increased volume in
the securities lending program.
Net cash provided by (used in) financing activities was $2,903 million,
$(963) million and $(2,006) million for the years ended December 31, 2001, 2000
and 1999, respectively. In 2001, the primary sources of cash from financing
activities were the issuance of long-term debt by the Holding Company in the
form of senior notes and the issuance of mandatorily convertible securities by
RGA in connection with the formation of RGA Capital Trust I. The primary uses of
cash in financing activities include stock repurchases, common stock cash
dividends and the pay-down of short-term debt. In 2000, the primary sources of
cash from financing activities include cash proceeds from the Company's initial
public offering and concurrent private placements in April 2000, as well as the
issuance of mandatorily convertible securities in connection with the formation
of MetLife Capital Trust I. The primary uses of cash in financing activities
include cash payments to eligible policyholders in connection with the
demutualization, stock repurchases, common stock cash dividends, and the
pay-down of short-term debt. Deposits to policyholders' account balances
exceeded withdrawals by $3,674 million and $386 million in 2001 and 2000,
respectively, as compared with withdrawals from policyholder account balances
exceeding deposits of $2,222 million in 1999. Short-term financing decreased by
$730 million and $3,095 million in 2001 and 2000, respectively, compared with an
increase of $608 million in 1999, while net additions to long-term debt were
$1,228 million and $83 million in 2001 and 2000 compared with net reductions of
$392 million in 1999.
The operating, investing and financing activities described above resulted
in an increase (decrease) in cash and cash equivalents of $4,039 million, $645
million and $(512) million for the years ended December 31, 2001, 2000 and 1999,
respectively.
INSOLVENCY ASSESSMENTS
Most of the jurisdictions in which the Company is admitted to transact
business require life insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay contractual
benefits owed pursuant to insurance policies issued by impaired, insolvent or
failed life insurers. These associations levy assessments, up to prescribed
limits, on all member insurers in a particular state 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. Some states
permit member insurers to recover assessments paid through full or partial
premium tax offsets. Assessments levied against the Company from January 1, 1999
through December 31, 2001 aggregated $2 million. The Company maintained a
liability of $61 million at December 31, 2001 for future assessments in respect
of currently impaired, insolvent or failed insurers.
In the past five years, none of the aggregate assessments levied against
MetLife's insurance subsidiaries has been material. The Company has established
liabilities for guaranty fund assessments that it considers adequate for
assessments with respect to insurers that are currently subject to insolvency
proceedings.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a material effect on
its consolidated results of operations, except insofar as inflation may affect
interest rates.
ACCOUNTING STANDARDS
During 2001, the Company adopted or applied the following accounting
standards: (i) Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS
133"), (ii) SFAS No. 140, Accounting for Transfers and Servicing of Financial
74
Assets and Extinguishment of Liabilities -- a replacement of FASB No. 125, (iii)
Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and
Impairment on Certain Investments, (iv) SFAS No. 141, Business Combinations, and
(v) Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance and
Documentation Issues. Adoption of these standards did not have a material impact
on the Company's consolidated financial statements. The Financial Accounting
Standards Board ("FASB") continues to issue additional guidance relating to the
accounting for derivatives under SFAS 133, which may result in further
adjustments to the Company's treatment of derivatives in subsequent accounting
periods.
On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). The Company is in the process of developing an
estimate of the impact of the adoption of SFAS 142, if any, on its consolidated
financial statements. On January 1, 2002, the Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). The
adoption of SFAS 144 by the Company is not expected to have a material impact on
the Company's consolidated financial statements at the date of adoption.
The FASB is currently deliberating the issuance of an interpretation of
SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, to provide
additional guidance to assist companies in identifying and accounting for
special purpose entities ("SPEs"), including when SPEs should be consolidated by
the investor. The interpretation would introduce a concept that consolidation
would be required by the primary beneficiary of the activities of an SPE unless
the SPE can meet certain independent economic substance criteria. It is not
possible to determine at this time what conclusions will be included in the
final interpretation; however, the result could impact the accounting treatment
of these entities by the Company.
The FASB is currently deliberating the issuance of a proposed statement
that would amend SFAS No. 133. The proposed statement will address and resolve
certain pending Derivatives Implementation Group ("DIG") issues. The outcome of
the pending DIG issues and other provisions of the statement could impact the
Company's accounting for beneficial interests, loan commitments and other
transactions deemed to be derivatives under the new statement. The Company's
accounting for such transactions is currently based on management's
interpretation of the accounting literature as of March 18, 2002.
INVESTMENTS
The Company had total cash and invested assets at December 31, 2001 of
$169.7 billion. In addition, the Company had $62.7 billion held in its separate
accounts, for which the Company generally does not bear investment risk.
The Company's primary investment objective is to maximize after-tax
operating income consistent with acceptable risk parameters. The Company is
exposed to three primary sources of investment risk:
- credit risk, relating to the uncertainty associated with the continued
ability of a given obligor to make timely payments of principal and
interest;
- interest rate risk, relating to the market price and cash flow
variability associated with changes in market interest rates; and
- market valuation risk for equity holdings.
The Company manages risk through in-house fundamental analysis of the
underlying obligors, issuers, transaction structures and real estate properties.
The Company also manages credit risk and market valuation risk through industry
and issuer diversification and asset allocation. For real estate and
agricultural assets, the Company manages credit risk and valuation risk through
geographic, property type, and product type diversification and asset
allocation. The Company manages interest rate risk as part of its asset and
liability management strategies, product design, such as the use of market value
adjustment features and surrender charges, and proactive monitoring and
management of certain non-guaranteed elements of its products, such as the
resetting of credited interest and dividend rates for policies that permit such
adjustments.
75
The following table summarizes the Company's cash and invested assets at
December 31, 2001 and December 31, 2000:
AT DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
Fixed maturities available-for-sale, at fair
value.......................................... $115,398 68.0% $112,979 70.7%
Mortgage loans on real estate.................... 23,621 13.9 21,951 13.7
Policy loans..................................... 8,272 4.9 8,158 5.1
Cash and cash equivalents........................ 7,473 4.4 3,434 2.1
Real estate and real estate joint ventures....... 5,730 3.4 5,504 3.4
Equity securities and other limited partnership
interests...................................... 4,700 2.8 3,845 2.4
Other invested assets............................ 3,298 1.9 2,821 1.8
Short-term investments........................... 1,203 0.7 1,269 0.8
-------- ----- -------- -----
Total cash and invested assets.............. $169,695 100.0% $159,961 100.0%
======== ===== ======== =====
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INVESTMENT RESULTS
The annual yields on general account cash and invested assets, excluding
net investment gains and losses, were 7.56%, 7.54% and 7.27% for the years ended
December 31, 2001, 2000 and 1999, respectively.
The following table illustrates the annual yields on average assets for
each of the components of the Company's investment portfolio for the years ended
December 31, 2001, 2000 and 1999:
2001 2000 1999
-------------------- -------------------- -------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- -------- -------- -------
(DOLLARS IN MILLIONS)
FIXED MATURITIES:(2)
Investment income............... 7.89% $ 8,574 7.81% $ 8,538 7.45% $ 7,171
Net investment losses........... (645) (1,437) (538)
-------- -------- -------
Total....................... $ 7,929 $ 7,101 $ 6,633
-------- -------- -------
Ending assets................... $115,398 $112,979 $96,981
-------- -------- -------
MORTGAGE LOANS:(3)
Investment income............... 8.17% $ 1,848 7.87% $ 1,693 8.14% $ 1,484
Net investment gains (losses)... (91) (18) 28
-------- -------- -------
Total....................... $ 1,757 $ 1,675 $ 1,512
-------- -------- -------
Ending assets................... $ 23,621 $ 21,951 $19,739
-------- -------- -------
POLICY LOANS:
Investment income............... 6.56% $ 536 6.45% $ 515 6.13% 340
-------- -------- -------
Ending assets................... $ 8,272 $ 8,158 $ 5,598
-------- -------- -------
CASH, CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS:
Investment income............... 5.54% $ 279 5.72% $ 288 4.22% $ 173
Net investment losses........... (5) -- --
-------- -------- -------
Total....................... $ 274 $ 288 $ 173
-------- -------- -------
Ending assets................... $ 8,676 $ 4,703 $ 5,844
-------- -------- -------
REAL ESTATE AND REAL ESTATE
JOINT VENTURES:(4)
Investment income, net of
expenses...................... 10.58% $ 584 11.09% $ 629 9.67% $ 581
Net investment gains (losses)... (4) 101 265
-------- -------- -------
Total....................... $ 580 $ 730 $ 846
-------- -------- -------
Ending assets................... $ 5,730 $ 5,504 $ 5,649
-------- -------- -------
EQUITY SECURITIES AND OTHER
LIMITED PARTNERSHIP INTERESTS:
Investment income............... 2.37% $ 97 4.98% $ 183 7.12% $ 239
Net investment gains (losses)... (96) 185 132
-------- -------- -------
Total....................... $ 1 $ 368 $ 371
-------- -------- -------
Ending assets................... $ 4,700 $ 3,845 $ 3,337
-------- -------- -------
OTHER INVESTED ASSETS:
Investment income............... 7.60% $ 249 6.30% $ 162 6.01% $ 91
Net investment gains (losses)... 79 65 (24)
-------- -------- -------
Total....................... $ 328 $ 227 $ 67
-------- -------- -------
Ending assets................... $ 3,298 $ 2,821 $ 1,501
-------- -------- -------
77
2001 2000 1999
-------------------- -------------------- -------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- -------- -------- -------- -------- -------
(DOLLARS IN MILLIONS)
TOTAL INVESTMENTS:
Investment income before
expenses and fees............. 7.72% $ 12,167 7.70% $ 12,008 7.47% $10,079
Investment expenses and fees.... (0.16)% (244) (0.16)% (240) (0.20)% (263)
----- -------- ----- -------- ----- -------
Net investment income........... 7.56% $ 11,923 7.54% $ 11,768 7.27% $ 9,816
Net investment losses........... (762) (1,104) (137)
Adjustments to investment
losses(5)..................... 134 54 67
Gains from sales of
subsidiaries.................. 25 660 --
-------- -------- -------
Total....................... $ 11,320 $ 11,378 $ 9,746
======== ======== =======
---------------
(1) Yields are based on quarterly average asset carrying values for 2001, 2000
and 1999, excluding recognized and unrealized gains and losses, and for
yield calculation purposes, average assets exclude collateral associated
with the Company's securities lending program. Fixed maturity investment
income has been reduced by rebates paid under the program.
(2) Included in fixed maturities are equity-linked notes of $1,004 million,
$1,232 million and $1,079 million at December 31, 2001, 2000 and 1999,
respectively, which include an equity-like component as part of the notes'
return. Investment income for fixed maturities includes prepayment fees and
income from the securities lending program.
(3) Investment income from mortgage loans includes prepayment fees.
(4) Real estate and real estate joint venture income is shown net of
depreciation of $220 million, $224 million and $247 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
(5) Adjustments to investment gains and losses include amortization of deferred
policy acquisition costs, charges and credits to participating contracts,
and adjustments to the policyholder dividend obligation resulting from
investment gains and losses.
FIXED MATURITIES
Fixed maturities consist principally of publicly traded and privately
placed debt securities, and represented 68.0% and 70.7% of total cash and
invested assets at December 31, 2001 and 2000, respectively.
Based on estimated fair value, public fixed maturities and private fixed
maturities comprised 83.7% and 16.3%, respectively, of total fixed maturities at
December 31, 2001 and 83.6% and 16.4%, respectively, at December 31, 2000. The
Company invests in privately placed fixed maturities to enhance the overall
value of its portfolio, increase diversification and obtain higher yields than
can ordinarily be obtained with comparable public market securities. Generally,
private placements provide the Company with protective covenants, call
protection features and, where applicable, a higher level of collateral.
However, the Company may not freely trade its private placements because of
restrictions imposed by federal and state securities laws and illiquid trading
markets.
The Securities Valuation Office of the NAIC evaluates the bond investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC designations." The NAIC designations
parallel the credit ratings of the Nationally Recognized Statistical Rating
Organizations for marketable bonds. NAIC designations 1 and 2 include bonds
considered investment grade (rated "Baa3" or higher by Moody's Investors Service
("Moody's"), or rated "BBB-" or higher by Standard & Poor's ("S&P")) by such
rating organizations. NAIC designations 3 through 6 include bonds considered
below investment grade (rated "Ba1" or lower by Moody's, or rated "BB+" or lower
by S&P).
78
The following table presents the Company's total fixed maturities by NAIC
designation and the equivalent ratings of the Nationally Recognized Statistical
Rating Organizations at December 31, 2001 and 2000, as well as the percentage,
based on estimated fair value, that each designation comprises:
AT DECEMBER 31, 2001 AT DECEMBER 31, 2000
------------------------------ ------------------------------
NAIC RATING AGENCY AMORTIZED ESTIMATED % OF AMORTIZED ESTIMATED % OF
RATING EQUIVALENT DESIGNATION COST FAIR VALUE TOTAL COST FAIR VALUE TOTAL
------ -------------------------- --------- ---------- ----- --------- ---------- -----
(DOLLARS IN MILLIONS)
1 Aaa/Aa/A $ 72,098 $ 75,265 65.2% $ 72,170 $ 74,389 65.9%
2 Baa 29,128 29,581 25.6 28,470 28,405 25.1
3 Ba 6,021 5,856 5.1 5,935 5,650 5.0
4 B 3,205 3,100 2.7 3,964 3,758 3.3
5 Caa and lower 726 597 0.5 123 95 0.1
6 In or near default 327 237 0.2 319 361 0.3
-------- -------- ----- -------- -------- -----
Subtotal 111,505 114,636 99.3 110,981 112,658 99.7
Redeemable preferred stock 783 762 0.7 321 321 0.3
-------- -------- ----- -------- -------- -----
Total fixed maturities $112,288 $115,398 100.0% $111,302 $112,979 100.0%
======== ======== ===== ======== ======== =====
Based on estimated fair values, total investment grade public and private
placement fixed maturities comprised 90.8% and 91.0% of total fixed maturities
in the general account at December 31, 2001 and 2000, respectively.
The following table shows the amortized cost and estimated fair value of
fixed maturities, by contractual maturity dates (excluding scheduled sinking
funds) at December 31, 2001 and 2000:
AT DECEMBER 31,
-----------------------------------------------
2001 2000
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
Due in one year or less.................... $ 4,001 $ 4,049 $ 3,465 $ 3,460
Due after one year through five years...... 20,168 20,841 21,041 21,275
Due after five years through ten years..... 22,937 23,255 23,872 23,948
Due after ten years........................ 30,565 32,017 29,564 30,402
-------- -------- -------- --------
Subtotal.............................. 77,671 80,162 77,942 79,085
Mortgage-backed and other asset-backed
securities............................... 33,834 34,474 33,039 33,573
-------- -------- -------- --------
Subtotal.............................. 111,505 114,636 110,981 112,658
Redeemable preferred stock................. 783 762 321 321
-------- -------- -------- --------
Total fixed maturities................ $112,288 $115,398 $111,302 $112,979
======== ======== ======== ========
Problem, potential problem and restructured fixed maturities. The Company
monitors fixed maturities to identify investments that management considers to
be problems or potential problems. The Company also monitors investments that
have been restructured.
The Company defines problem securities in the fixed maturities category as
securities as to which principal or interest payments are in default or are to
be restructured pursuant to commenced negotiations, or as securities issued by a
debtor that has entered into bankruptcy.
79
The Company defines potential problem securities in the fixed maturity
category as securities of an issuer deemed to be experiencing significant
operating problems or difficult industry conditions. The Company uses various
criteria, including the following, to identify potential problem securities:
- debt service coverage or cash flow falling below certain thresholds which
vary according to the issuer's industry and other relevant factors;
- significant declines in revenues or margins;
- violation of financial covenants;
- public securities trading at a substantial discount deemed to be
other-than-temporary as a result of specific credit concerns; and
- other subjective factors.
The Company defines restructured securities in the fixed maturities
category as securities to which the Company has granted a concession that it
would not have otherwise considered but for the financial difficulties of the
obligor. The Company enters into a restructuring when it believes it will
realize a greater economic value under the new terms rather than through
liquidation or disposition. The terms of the restructuring may involve some or
all of the following characteristics: a reduction in the interest rate, an
extension of the maturity date, an exchange of debt for equity or a partial
forgiveness of principal or interest.
The following table presents the estimated fair value of the Company's
total fixed maturities classified as performing, problem, potential problem and
restructured fixed maturities at December 31, 2001 and 2000:
AT DECEMBER 31,
---------------------------------------
2001 2000
------------------ ------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
Performing....................................... $114,879 99.6% $112,371 99.5%
Potential Problem................................ 386 0.3 364 0.3
Problem.......................................... 111 0.1 163 0.1
Restructured..................................... 22 0.0 81 0.1
-------- ----- -------- -----
Total....................................... $115,398 100.0% $112,979 100.0%
======== ===== ======== =====
The Company classifies all of its fixed maturities as available-for-sale
and marks them to market. The Company writes down to fair value fixed maturities
that it deems to be other than temporarily impaired. The Company records
write-downs as investment losses and adjusts the cost basis of the fixed
maturities accordingly. The Company does not change the revised cost basis for
subsequent recoveries in value. Such write-downs were $273 million and $339
million for the years ended December 31, 2001 and 2000, respectively.
80
Fixed maturities by sector. The Company diversifies its fixed maturities
by security sector. The following table sets forth the estimated fair value of
the Company's fixed maturities by sector, as well as the percentage of the total
fixed maturities holdings that each security sector comprised at December 31,
2001 and 2000:
AT DECEMBER 31,
---------------------------------------
2001 2000
------------------ ------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
U.S. treasuries/agencies......................... $ 9,213 8.0% $ 9,634 8.5%
Corporate securities............................. 62,656 54.3 60,675 53.8
Foreign government securities.................... 4,890 4.2 5,341 4.7
Mortgage-backed securities....................... 26,328 22.8 25,726 22.8
Asset-backed securities.......................... 8,146 7.1 7,847 6.9
Other fixed income assets........................ 4,165 3.6 3,756 3.3
-------- ----- -------- -----
Total....................................... $115,398 100.0% $112,979 100.0%
======== ===== ======== =====
Corporate fixed maturities. The table below shows the major industry types
that comprise the corporate bond holdings at the dates indicated:
AT DECEMBER 31,
---------------------------------------
2001 2000
------------------ ------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
Industrial....................................... $27,346 43.7% $27,369 45.1%
Utility.......................................... 7,030 11.2 7,014 11.6
Finance.......................................... 12,997 20.7 12,729 21.0
Yankee/Foreign(1)................................ 14,767 23.6 13,233 21.8
Other............................................ 516 0.8 330 0.5
------- ----- ------- -----
Total....................................... $62,656 100.0% $60,675 100.0%
======= ===== ======= =====
---------------
(1) Includes publicly traded, dollar-denominated debt obligations of foreign
obligors, known as Yankee bonds, and other foreign investments.
The Company diversifies its corporate bond holdings by industry and issuer.
The portfolio has no exposure to any single issuer in excess of 1% of its total
invested assets. At December 31, 2001, the Company's combined holdings in the
ten issuers to which it had the greatest exposure totaled $4,176 million, which
was less than 3% of the Company's total invested assets at such date. The
exposure to the largest single issuer of corporate bonds the Company held at
December 31, 2001 was $598 million.
At December 31, 2001, investments of $7,120 million, or 48.2% of the
Yankee/Foreign sector, represented exposure to traditional Yankee bonds. The
balance of this exposure was primarily dollar-denominated, foreign private
placements and project finance loans. The Company diversifies the Yankee/Foreign
portfolio by country and issuer.
The Company does not have material exposure to foreign currency risk in its
invested assets. In the Company's international insurance operations, both its
assets and liabilities are generally denominated in local currencies. Foreign
currency denominated securities supporting U.S. dollar liabilities are generally
swapped back into U.S. dollars.
The Company's exposure to future deterioration in the economic and
political environment in Argentina, with respect to its Argentine-related
investments, is limited to the net carrying value of those assets, which totaled
less than $300 million as of December 31, 2001.
81
Mortgage-backed securities. The following table shows the types of
mortgage-backed securities the Company held at December 31, 2001 and 2000:
AT DECEMBER 31,
---------------------------------------
2001 2000
------------------ ------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
Pass-through securities.......................... $10,542 40.0% $10,610 41.3%
Collateralized mortgage obligations.............. 10,432 39.7 9,866 38.3
Commercial mortgage-backed securities............ 5,354 20.3 5,250 20.4
------- ----- ------- -----
Total....................................... $26,328 100.0% $25,726 100.0%
======= ===== ======= =====
At December 31, 2001, pass-through and collateralized mortgage obligations
totaled $20,974 million, or 79.7% of total mortgage-backed securities, and a
majority of this amount represented agency-issued pass-through and
collateralized mortgage obligations guaranteed or otherwise supported by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Government National Mortgage Association. Other types of
mortgage-backed securities comprised the balance of such amounts reflected in
the table. At December 31, 2001, approximately $2,955 million, or 55.2% of the
commercial mortgage-backed securities, and $20,194 million, or 96.3% of the
pass-through securities and collateralized mortgage obligations, were rated Aaa/
AAA by Moody's or S&P.
The principal risks inherent in holding mortgage-backed securities are
prepayment, extension and collateral risks, which will affect the timing of when
cash flow will be received. The Company's active monitoring of its
mortgage-backed securities mitigates exposure to losses from cash flow risk
associated with interest rate fluctuations.
Asset-backed securities. Asset-backed securities, which include home
equity loans, credit card receivables, collateralized debt obligations and
automobile receivables, are purchased both to diversify the overall risks of the
Company's fixed maturities assets and to provide attractive returns. The
Company's asset-backed securities are diversified both by type of asset and by
issuer. Home equity loans constitute the largest exposure in the Company's
asset-backed securities investments. Except for asset-backed securities backed
by home equity loans, the asset-backed securities investments generally have
little sensitivity to changes in interest rates. Approximately $3,427 million
and $3,149 million, or 42.1% and 40.1%, of total asset-backed securities were
rated Aaa/AAA by Moody's or S&P at December 31, 2001 and 2000, respectively.
The principal risks in holding asset-backed securities are structural,
credit and capital market risks. Structural risks include the security's
priority in the issuer's capital structure, the adequacy of and ability to
realize proceeds from the collateral and the potential for prepayments. Credit
risks include consumer or corporate credits such as credit card holders,
equipment lessees, and corporate obligors. Capital market risks include the
general level of interest rates and the liquidity for these securities in the
marketplace.
Structured investment transactions. The Company participates in structured
investment transactions as part of its risk management strategy, including asset
liability management, and to enhance the Company's total return on its
investment portfolio. These investments are predominately made through
bankruptcy-remote SPEs, which generally acquire financial assets, including
corporate equities, debt securities and purchased options. These investments are
referred to as beneficial interests.
The Company's exposure to losses related to these SPEs is limited to its
carrying value since the Company has not guaranteed the performance, liquidity
or obligations of the SPEs. As prescribed by GAAP, the Company does not
consolidate such SPEs since unrelated third parties hold controlling interests
through ownership of the SPEs' equity, representing at least three percent of
the total assets of the SPE throughout the life of the SPE, and such equity
class has the substantive risks and rewards of the residual interests in the
SPE.
82
The Company also sponsors financial asset securitizations of high yield
debt securities, investment grade bonds and structured finance securities and
also is the collateral manager and a beneficial interest holder in such
transactions. As the collateral manager, the Company earns a management fee on
the outstanding securitized asset balance. When the Company transfers assets to
an SPE and surrenders control over the transferred assets, the transaction is
accounted for as a sale. Gains or losses on securitizations are determined with
reference to the carrying amount of the financial assets transferred, which is
allocated to the assets sold and the beneficial interests retained based on
relative fair values at the date of transfer. The Company has sponsored four
securitizations with a total of approximately $1.5 billion in financial assets
as of December 31, 2001. Two of these transactions, which were executed in 2001,
included the transfer of assets totaling approximately $289 million which
resulted in the recognition of an insignificant amount of investment gains. The
Company's beneficial interests in these SPEs and the related investment income
were insignificant as of and for the years ended December 31, 2001 and 2000.
The Company also invests in structured investment transactions which are
managed and controlled by unrelated third parties. In instances where the
Company exercises significant influence over the operating and financial
policies of an SPE, the beneficial interests are accounted for in accordance
with the equity method of accounting. Where the Company does not exercise
significant influence, the structure of the beneficial interests (i.e., debt or
equity securities) determines the method of accounting for the investment. Such
beneficial interests generally are structured notes, which are classified as
fixed maturities, and the related income is recognized using the retrospective
interest method. Beneficial interests other than structured notes are also
classified as fixed maturities, and the related income is recognized using the
level yield method. The carrying value of all such investments was approximately
$1.6 billion and $1.3 billion at December 31, 2001 and 2000, respectively. The
related income recognized was $44 million and $62 million for the years ended
December 31, 2001 and 2000, respectively.
MORTGAGE LOANS
The Company's mortgage loans are collateralized by commercial, agricultural
and residential properties. Mortgage loans comprised 13.9% and 13.7% of the
Company's total cash and invested assets at December 31, 2001 and 2000,
respectively. The carrying value of mortgage loans is stated at original cost
net of prepayments, amortization of premiums, accretion of discounts and
valuation allowances. The following table shows the carrying value of the
Company's mortgage loans by type at December 31, 2001 and 2000:
AT DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
Commercial......................................... $17,959 76.0% $16,869 76.8%
Agricultural....................................... 5,268 22.3 4,973 22.7
Residential........................................ 394 1.7 109 0.5
------- ----- ------- -----
Total......................................... $23,621 100.0% $21,951 100.0%
======= ===== ======= =====
83
Commercial mortgage loans. The Company diversifies its commercial mortgage
loans by both geographic region and property type, and manages these investments
through a network of regional offices overseen by its investment department. The
following table presents the distribution across geographic regions and property
types for commercial mortgage loans at December 31, 2001 and 2000:
AT DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
REGION
South Atlantic..................................... $ 4,729 26.3% $ 4,542 26.9%
Pacific............................................ 3,593 20.0 3,111 18.4
Middle Atlantic.................................... 3,248 18.1 2,968 17.6
East North Central................................. 2,003 11.2 1,822 10.8
West South Central................................. 1,021 5.7 1,169 6.9
New England........................................ 1,198 6.7 1,157 6.9
Mountain........................................... 733 4.1 753 4.5
West North Central................................. 727 4.0 740 4.4
International...................................... 526 2.9 433 2.6
East South Central................................. 181 1.0 174 1.0
------- ----- ------- -----
Total......................................... $17,959 100.0% $16,869 100.0%
======= ===== ======= =====
PROPERTY TYPE
Office............................................. $ 8,293 46.2% $ 7,577 44.9%
Retail............................................. 4,208 23.4 4,148 24.6
Apartments......................................... 2,553 14.2 2,585 15.3
Industrial......................................... 1,813 10.1 1,414 8.4
Hotel.............................................. 864 4.8 865 5.1
Other.............................................. 228 1.3 280 1.7
------- ----- ------- -----
Total......................................... $17,959 100.0% $16,869 100.0%
======= ===== ======= =====
The following table presents the scheduled maturities for the Company's
commercial mortgage loans at December 31, 2001 and 2000:
AT DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
Due in one year or less............................ $ 840 4.7% $ 644 3.8%
Due after one year through two years............... 677 3.8 934 5.5
Due after two years through three years............ 1,532 8.5 830 4.9
Due after three years through four years........... 1,772 9.9 1,551 9.2
Due after four years through five years............ 2,078 11.6 1,654 9.8
Due after five years............................... 11,060 61.5 11,256 66.8
------- ----- ------- -----
Total......................................... $17,959 100.0% $16,869 100.0%
======= ===== ======= =====
Problem, potential problem and restructured mortgage loans. The Company
monitors its mortgage loan investments on a continual basis. Through this
monitoring process, the Company reviews loans that are restructured, delinquent
or under foreclosure and identifies those that management considers to be
potentially delinquent. These loan classifications are generally consistent with
those used in industry practice.
84
The Company defines restructured mortgage loans, consistent with industry
practice, as loans in which the Company, for economic or legal reasons related
to the debtor's financial difficulties, grants a concession to the debtor that
it would not otherwise consider. This definition provides for loans to exit the
restructured category under certain conditions. The Company defines delinquent
mortgage loans, consistent with industry practice, as loans in which two or more
interest or principal payments are past due. The Company defines mortgage loans
under foreclosure, consistent with industry practice, as loans in which
foreclosure proceedings have formally commenced. The Company defines potentially
delinquent loans as loans that, in management's opinion, have a high probability
of becoming delinquent.
The Company reviews all mortgage loans on an annual basis. These reviews
may include an analysis of the property financial statements and rent roll,
lease rollover analysis, property inspections, market analysis and tenant
creditworthiness. The Company also reviews loan-to-value ratios and debt
coverage ratios for restructured loans, delinquent loans, loans under
foreclosure, potentially delinquent loans, loans with an existing valuation
allowance, loans maturing within two years and loans with a loan-to-value ratio
greater than 90% as determined in the prior year.
The Company establishes valuation allowances for loans that it deems
impaired, as determined through its annual review process. The Company defines
impaired loans consistent with Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, as loans which it
probably will not collect all amounts due according to applicable contractual
terms of the agreement. The Company bases valuation allowances upon the present
value of expected future cash flows discounted at the loan's original effective
interest rate or the value of the loan's collateral. The Company records
valuation allowances as investment losses. The Company records subsequent
adjustments to allowances as investment gains or losses.
The following table presents the amortized cost and valuation allowances
for commercial mortgage loans distributed by loan classification at December 31,
2001 and 2000:
AT DECEMBER 31, 2001 AT DECEMBER 31, 2000
----------------------------------------- -----------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
--------- ----- --------- --------- --------- ----- --------- ---------
(DOLLARS IN MILLIONS)
Performing......................... $17,495 96.6% $ 52 0.3% $16,169 95.5% $15 0.1%
Restructured....................... 448 2.5 55 12.3% 646 3.8 47 7.3%
Delinquent or under foreclosure.... 14 0.1 7 50.0% 24 0.1 4 16.7%
Potentially delinquent............. 136 0.8 20 14.7% 106 0.6 10 9.4%
------- ----- ---- ------- ----- ---
Total.......................... $18,093 100.0% $134 0.7% $16,945 100.0% $76 0.4%
======= ===== ==== ======= ===== ===
---------------
(1) Amortized cost is equal to carrying value before valuation allowances.
The following table presents the changes in valuation allowances for
commercial mortgage loans for the years ended December 31, 2001, 2000 and 1999:
YEAR ENDED DECEMBER 31,
------------------------
2001 2000 1999
----- ----- ------
(DOLLARS IN MILLIONS)
Balance, beginning of period................................ $ 76 $ 69 $ 142
Additions................................................... 84 61 36
Deductions for writedowns and dispositions.................. (26) (54) (109)
---- ---- -----
Balance, end of period...................................... $134 $ 76 $ 69
==== ==== =====
The principal risks in holding commercial mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the geographic location of the property, the physical
condition of the property, the diversity of tenants and the rollover of their
leases and the ability of the property manager to attract tenants and manage
expenses. Supply and demand risks include changes in the supply
85
and/or demand for rental space which cause changes in vacancy rates and/or
rental rates. Financial risks include the overall level of debt on the property
and the amount of principal repaid during the loan term. Capital market risks
include the general level of interest rates, the liquidity for these securities
in the marketplace and the capital available loan for refinancing.
Agricultural mortgage loans. The Company diversifies its agricultural
mortgage loans by both geographic region and product type. The Company manages
these investments through a network of regional offices and field professionals
overseen by its investment department.
Approximately 61.9% of the $5,268 million of agricultural mortgage loans
outstanding at December 31, 2001 was subject to rate resets prior to maturity. A
substantial portion of these loans were successfully renegotiated and remain
outstanding to maturity. The process and policies for monitoring the
agricultural mortgage loans and classifying them by performance status are
generally the same as those for the commercial loans.
The following table presents the amortized cost and valuation allowances
for agricultural mortgage loans distributed by loan classification at December
31, 2001 and 2000:
AT DECEMBER 31, 2001 AT DECEMBER 31, 2000
----------------------------------------- -----------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
--------- ----- --------- --------- --------- ----- --------- ---------
(DOLLARS IN MILLIONS)
Performing......................... $ 5,055 95.8% $ 3 0.1% $ 4,771 95.7% $ 1 0.0%
Restructured....................... 188 3.6 3 1.6% 172 3.5 2 1.2%
Delinquent or under foreclosure.... 29 0.5 2 6.9% 24 0.5 4 16.7%
Potentially delinquent............. 5 0.1 1 20.0% 13 0.3 -- 0.0%
------- ----- ---- ------- ----- ---
Total.......................... $ 5,277 100.0% $ 9 0.2% $ 4,980 100.0% $ 7 0.1%
======= ===== ==== ======= ===== ===
---------------
(1) Amortized cost is equal to carrying value before valuation allowances.
The following table presents the changes in valuation allowances for
agricultural mortgage loans for the years ended December 31, 2001, 2000 and
1999:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999
----- ----- -----
(DOLLARS IN MILLIONS)
Balance, beginning of period................................ $ 7 $ 18 $ 28
Additions................................................... 21 8 4
Deductions for writedowns and dispositions.................. (19) (19) (14)
---- ---- ----
Balance, end of period...................................... $ 9 $ 7 $ 18
==== ==== ====
The principal risks in holding agricultural mortgage loans are property
specific, supply and demand, and financial and capital market risks. Property
specific risks include the geographic location of the property, soil types,
weather conditions and other factors that may impact the borrower's guaranty.
Supply and demand risks include the supply and demand for the commodities
produced on the specific property and the related price for those commodities.
Financial risks include the overall level of debt on the property and the amount
of principal repaid during the loan term. Capital market risks include the
general level of interest rates, the liquidity for these securities in the
marketplace and the capital available for loan refinancing.
REAL ESTATE AND REAL ESTATE JOINT VENTURES
The Company's real estate and real estate joint venture investments consist
of commercial and agricultural properties located throughout the U.S. and
Canada. The Company manages these investments through a network of regional
offices overseen by its investment department. At December 31, 2001 and 2000,
the carrying value of the Company's real estate and real estate joint ventures
was $5,730 and $5,504 million, respectively, or 3.4% of
86
total cash and invested assets in both years. The carrying value of equity real
estate was stated at depreciated cost net of impairments and valuation
allowances. The carrying value of real estate joint ventures was stated at the
Company's equity in the real estate joint ventures net of impairments and
valuation allowances. These holdings consist of real estate, interests in real
estate joint ventures and real estate acquired upon foreclosure of commercial
and agricultural mortgage loans. The following table presents the carrying value
of the Company's real estate and real estate joint ventures at December 31, 2001
and 2000:
AT DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
CARRYING % OF CARRYING % OF
TYPE VALUE TOTAL VALUE TOTAL
---- -------- ----- -------- -----
(DOLLARS IN MILLIONS)
Real estate........................................ $5,325 92.9% $5,069 92.1%
Real estate joint ventures......................... 356 6.2 369 6.7
------ ----- ------ -----
Subtotal...................................... 5,681 99.1 5,438 98.8
Foreclosed real estate............................. 49 0.9 66 1.2
------ ----- ------ -----
Total......................................... $5,730 100.0% $5,504 100.0%
====== ===== ====== =====
Office properties representing 63.5% and 66.1% of the Company's real estate
and real estate joint venture holdings at December 31, 2001 and 2000,
respectively, are well diversified geographically, principally within the United
States. The average occupancy level of office properties was 92% and 94% at
December 31, 2001 and 2000, respectively.
The Company classifies real estate and real estate joint ventures as
held-for-investment or held-for-sale. The carrying value of real estate and real
estate joint ventures held-for-investment was $5,633 million and $5,223 million
at December 31, 2001 and 2000, respectively. The carrying value of real estate
and real estate joint ventures held-for-sale was $97 million and $281 million at
December 31, 2001 and 2000, respectively.
Ongoing management of these investments includes quarterly valuations, as
well as an annual market update and review of each property's budget, financial
returns, lease rollover status and the Company's exit strategy. In addition to
individual property reviews, the Company employs an overall strategy of
selective dispositions and acquisitions as market opportunities arise.
The Company adjusts the carrying value of real estate and real estate joint
ventures held-for-investment for impairments whenever events or changes in
circumstances indicate that the carrying value of the property may not be
recoverable. The Company writes down impaired real estate to estimated fair
value, which it generally computes using the present value of future cash flows
from the property, discounted at a rate commensurate with the underlying risks.
The Company records write-downs as investment losses and reduces the cost basis
of the properties accordingly. The Company does not change the revised cost
basis for subsequent recoveries in value.
The Company records real estate acquired upon foreclosure of commercial and
agricultural mortgage loans at the lower of estimated fair value or the carrying
value of the mortgage loan at the date of foreclosure.
Once the Company identifies a property to be sold and commences a firm plan
for marketing the property, the Company establishes and periodically revises, if
necessary, a valuation allowance to adjust the carrying value of the property to
its expected sales value, less associated selling costs, if it is lower than the
property's carrying value. The Company records allowances as investment losses.
The Company records subsequent adjustments to allowances as investment gains or
losses.
The Company's carrying value of real estate and real estate joint ventures
held-for-sale, including real estate acquired upon foreclosure of commercial and
agricultural mortgage loans, in the amounts of $97 million and $281 million at
December 31, 2001 and 2000, respectively, are net of impairments of $88 million
and $97 million and net of valuation allowances of $35 million and $39 million,
respectively.
87
EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
The Company's carrying value of equity securities, which primarily consists
of investments in common stocks, was $3,063 million and $2,193 million at
December 31, 2001 and 2000, respectively. Substantially all of the common stock
is publicly traded on major securities exchanges. The carrying value of the
other limited partnership interests (which primarily represent ownership
interests in pooled investment funds that make private equity investments in
companies in the U.S. and overseas) was $1,637 million and $1,652 million at
December 31, 2001 and 2000, respectively. The Company classifies its investments
in common stocks as available-for-sale and marks them to market except for
non-marketable private equities which are generally carried at cost. The Company
accounts for its investments in limited partnership interests in which it does
not have a controlling interest in accordance with the equity method of
accounting. The Company's investments in equity securities represented 1.8% and
1.4% of cash and invested assets at December 31, 2001 and 2000, respectively.
Equity securities include, at December 31, 2001 and 2000, $329 million and
$577 million, respectively, of private equity securities. The Company may not
freely trade its private equity securities because of restrictions imposed by
federal and state securities laws and illiquid trading markets.
At December 31, 2001 and 2000, approximately $238 million and $313 million,
respectively, of the Company's equity securities holdings were effectively fixed
at a minimum value of $195 million and $257 million, respectively, primarily
through the use of exchangeable securities. During the year ended December 31,
2001, two exchangeable subordinated debt securities matured, resulting in a
gross investment gain of $44 million on the equity exchanged in satisfaction of
the note. The remaining exchangeable debt security issued by the Company matures
in 2002 and the Company may repurchase it prior to maturity at its discretion.
The Company makes commitments to fund partnership investments in the normal
course of business. The amounts of these unfunded commitments were $1,898
million and $1,311 million at December 31, 2001 and 2000, respectively. The
Company anticipates that these amounts will be invested in the partnerships over
the next three to five years.
PROBLEM AND POTENTIAL PROBLEM EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP
INTERESTS
The Company monitors its equity securities and other limited partnership
interests on a continual basis. Through this monitoring process, the Company
identifies investments that management considers to be problems or potential
problems.
Problem equity securities and other limited partnership interests are
defined as securities (i) in which significant declines in revenues and/or
margins threaten the ability of the issuer to continue operating, or (ii) where
the issuer has subsequently entered bankruptcy.
Potential problem equity securities and other limited partnership interests
are defined as securities issued by a company that is experiencing significant
operating problems or difficult industry conditions. Criteria generally
indicative of these problems or conditions are (i) cash flows falling below
varying thresholds established for the industry and other relevant factors, (ii)
significant declines in revenues and/or margins, (iii) public securities trading
at a substantial discount compared to original cost as a result of specific
credit concerns, and (iv) other information that becomes available.
Equity securities or other limited partnership interests which are deemed
to be other than temporarily impaired are written down to fair value.
Write-downs are recorded as investment losses and the cost basis of the equity
securities and other limited partnership interests are adjusted accordingly. The
Company does not change the revised cost basis for subsequent recoveries in
value. For the years ended December 31, 2001 and 2000, such write-downs were
$142 million and $18 million, respectively.
OTHER INVESTED ASSETS
The Company's other invested assets consist principally of leveraged leases
and funds withheld at interest of $2.7 billion and $2.3 billion at December 31,
2001 and 2000, respectively. The leveraged leases are recorded net
88
of non-recourse debt. The Company participates in lease transactions which are
diversified by geographic area. The Company regularly reviews residual values
and writes down residuals to expected values as needed. Funds withheld represent
amounts contractually withheld by ceding companies in accordance with
reinsurance agreements. For agreements written on a modified coinsurance basis
and certain agreements written on a coinsurance basis, assets equal to the net
statutory reserves are withheld and legally owned by the ceding company.
Interest accrues to these funds withheld at rates defined by the treaty terms.
The Company's other invested assets represented 1.9% and 1.8% of cash and
invested assets at December 31, 2001 and 2000, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative instruments to manage market risk through one
of four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
Additionally, Metropolitan Life enters into income generation and replication
derivative transactions as permitted by its derivatives use plan that was
approved by the Department. The Company's derivative hedging strategy employs a
variety of instruments including financial futures, financial forwards, interest
rate and foreign currency swaps, foreign exchange contracts, and options,
including caps and floors.
The Company designates and accounts for the following as cash flow hedges,
when they have met the effectiveness requirements of SFAS 133: (i) various types
of interest rate swaps to convert floating rate investments to fixed rate
investments, (ii) receive fixed foreign currency swaps to hedge the foreign
currency cash flow exposure of foreign currency denominated investments, (iii)
foreign currency forwards to hedge the exposure of future payments in foreign
currencies, and (iv) other instruments to hedge the cash flows of various other
anticipated transactions. For all qualifying and highly effective cash flow
hedges, the effective portion of changes in fair value of the derivative
instrument is reported in other comprehensive income. The ineffective portion of
changes in fair value of the derivative instrument are reported in net
investment gains or losses. Hedged forecasted transactions, other than the
receipt or payment of variable interest payments, are not expected to occur more
than 12 months after hedge inception.
The Company designates and accounts for the following as fair value hedges,
when they have met the effectiveness requirements of SFAS 133: (i) various types
of interest rate swaps to convert fixed rate investments to floating rate
investments, (ii) receive floating foreign currency swaps to hedge the foreign
currency fair value exposure of foreign currency denominated investments, and
(iii) other instruments to hedge various other fair value exposures of
investments. For all qualifying and highly effective fair value hedges, the
changes in fair value of the derivative instrument are reported as net
investment gains or losses. In addition, changes in fair value attributable to
the hedged portion of the underlying instrument are reported in net investment
gains and losses.
For the year ended December 31, 2001, the amount related to fair value and
cash flow hedge ineffectiveness was insignificant and there were no discontinued
fair value or cash flow hedges.
For the years ended December 31, 2001, 2000 and 1999, the Company
recognized net investment income of $32 million, $13 million and $0.3 million,
respectively, from the periodic settlement of interest rate and foreign currency
swaps.
For the year ended December 31, 2001, the Company recognized other
comprehensive income of $39 million relating to the effective portion of cash
flow hedges. At December 31, 2001, the accumulated amount in other comprehensive
income relating to cash flow hedges was $71 million. During the year ended
December 31, 2001, $19 million of other comprehensive income was reclassified
into net investment income primarily due to the SFAS 133 transition adjustment.
During the next year, other comprehensive income of $17 million related to cash
flow hedges is expected to be reclassified into net investment income. The
reclassifications are recognized over the life of the hedged item.
For the year ended December 31, 2001, the Company recognized net investment
income of $24 million and net investment gains of $100 million from derivatives
not designated as accounting hedges. The use of these non-speculative
derivatives is permitted by the Department.
89
The Company held the following positions in derivative financial
instruments at December 31, 2001 and 2000:
2001 2000
------------------------------------------ ------------------------------------------
CURRENT MARKET CURRENT MARKET
OR FAIR VALUE OR FAIR VALUE
CARRYING NOTIONAL -------------------- CARRYING NOTIONAL --------------------
VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES
-------- -------- ------ ----------- -------- -------- ------ -----------
(DOLLARS IN MILLIONS)
Financial futures.................. $ -- $ -- $ -- $ -- $ 23 $ 254 $ 23 $ --
Interest rate swaps................ 70 1,849 79 9 41 1,450 41 1
Floors............................. 11 325 11 -- -- 325 3 --
Caps............................... 5 7,890 5 -- -- 9,950 -- --
Foreign currency swaps............. 162 1,925 188 26 (1) 1,449 114 44
Exchange traded options............ (12) 1,857 -- 12 1 9 1 --
Foreign exchange contracts......... 4 67 4 -- -- -- -- --
Written covered calls.............. -- 40 -- -- -- 40 -- --
Credit Default swaps............... -- 270 -- -- -- -- -- --
---- ------- ---- ---- ---- ------- ---- ----
Total contractual
commitments................. $240 $14,223 $287 $ 47 $ 64 $13,477 $182 $ 45
==== ======= ==== ==== ==== ======= ==== ====
SECURITIES LENDING
Pursuant to the Company's securities lending program, it lends securities
to major brokerage firms. The Company's policy requires a minimum of 102% of the
fair value of the loaned securities as collateral, calculated on a daily basis.
The Company's securities on loan at December 31, 2001 and 2000 had estimated
fair values of $14,404 million and $12,289 million, respectively.
SEPARATE ACCOUNT ASSETS
The Company manages each separate account's assets in accordance with the
prescribed investment policy that applies to that specific separate account. The
Company establishes separate accounts on a single client and multi-client
commingled basis in conformity with insurance laws. Generally, separate accounts
are not chargeable with liabilities that arise from any other business of the
Company. Separate account assets are subject to the Company's general account
claims only to the extent that the value of such assets exceeds the separate
account liabilities, as defined by the account's contract. If the Company uses a
separate account to support a contract providing guaranteed benefits, the
Company must comply with the asset maintenance requirements stipulated under
Regulation 128 of the New York Insurance Department. The Company monitors these
requirements at least monthly and, in addition, performs cash flow analyses,
similar to that conducted for the general account, on an annual basis. The
Company reports separately as assets and liabilities investments held in
separate accounts and liabilities of the separate accounts. The Company reports
substantially all separate account assets at their fair market value. Investment
income and gains or losses on the investments of separate accounts accrue
directly to contract holders, and, accordingly, the Company does not reflect
them in its consolidated statements of income and cash flows. The Company
reflects in its revenues fees charged to the separate accounts by the Company,
including mortality charges, risk charges, policy administration fees,
investment management fees and surrender charges.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company must effectively manage, measure and monitor the market risk
associated with its invested assets and interest rate sensitive insurance
contracts. It has developed an integrated process for managing risk, which it
conducts through its Corporate Risk Management Department, several
asset/liability committees and additional specialists at the business segment
level. The Company has established and implemented comprehensive policies and
procedures at both the corporate and business segment level to minimize the
effects of potential market volatility.
90
MARKET RISK EXPOSURES
The Company has exposure to market risk through its insurance operations
and investment activities. For purposes of this disclosure, "market risk" is
defined as the risk of loss resulting from changes in interest rates, equity
prices and foreign exchange rates.
Interest rates. The Company's exposure to interest rate changes results
from its significant holdings of fixed maturities, as well as its interest rate
sensitive liabilities. The fixed maturities include U.S. and foreign government
bonds, securities issued by government agencies, corporate bonds and
mortgage-backed securities, all of which are mainly exposed to changes in
medium- and long-term treasury rates. The interest rate sensitive liabilities
for purposes of this disclosure include guaranteed interest contracts and fixed
annuities, which have the same interest rate exposure (medium- and long-term
treasury rates) as the fixed maturities. The Company employs product design,
pricing and asset/liability management strategies to reduce the adverse effects
of interest rate volatility. Product design and pricing strategies include the
use of surrender charges or restrictions on withdrawals in some products.
Asset/liability management strategies include the use of derivatives, the
purchase of securities structured to protect against prepayments, prepayment
restrictions and related fees on mortgage loans and consistent monitoring of the
pricing of the Company's products in order to better match the duration of the
assets and the liabilities they support.
Equity prices. The Company's investments in equity securities expose it to
changes in equity prices. It manages this risk on an integrated basis with other
risks through its asset/liability management strategies. The Company also
manages equity price risk through industry and issuer diversification and asset
allocation techniques.
Foreign exchange rates. The Company's exposure to fluctuations in foreign
exchange rates against the U.S. dollar results from its holdings in non-U.S.
dollar denominated fixed maturity securities and equity securities and through
its investments in foreign subsidiaries. The principal currencies which create
foreign exchange rate risk in the Company's investment portfolios are Canadian
dollars, Euros, Mexican pesos, Chilean pesos and British pounds. The Company
mitigates the majority of its fixed maturities' foreign exchange rate risk
through the utilization of foreign currency swaps and forward contracts. Through
its investments in foreign subsidiaries, the Company is primarily exposed to the
Euro, Mexican peso and South Korean won. The Company has denominated
substantially all assets and liabilities of its foreign subsidiaries in their
respective local currencies, thereby minimizing its risk to foreign exchange
rate fluctuations.
RISK MANAGEMENT
Corporate risk management. MetLife has established several financial and
non-financial senior management committees as part of its risk management
process. These committees manage capital and risk positions, approve
asset/liability management strategies and establish appropriate corporate
business standards.
MetLife also has a separate Corporate Risk Management Department, which is
responsible for risk throughout MetLife and reports directly to Metropolitan
Life's Chief Actuary. The Corporate Risk Management Department's primary
responsibilities consist of:
- implementing a board of directors-approved corporate risk framework,
which outlines the Company's approach for managing risk on an
enterprise-wide basis;
- developing policies and procedures for managing, measuring and monitoring
those risks identified in the corporate risk framework;
- establishing appropriate corporate risk tolerance levels;
- deploying capital on a risk-adjusted basis; and
- reporting on a periodic basis to the Audit Committee of the Holding
Company's board of directors and various financial and non-financial
senior management committees.
Asset/liability management. At MetLife, asset/liability management is the
responsibility of the General Account Portfolio Management Department ("GAPM"),
the operating business segments and various GAPM boards. The GAPM boards are
comprised of senior officers from the investment department, senior managers
from each business segment and the Chief Actuary. The GAPM boards' duties
include setting broad asset/
91
liability management policy and strategy, reviewing and approving target
portfolios, establishing investment guidelines and limits, and providing
oversight of the portfolio management process.
The portfolio managers and asset sector specialists, who have
responsibility on a day-to-day basis for risk management of their respective
investing activities, implement the goals and objectives established by the GAPM
boards. The goals of the investment process are to optimize after-tax,
risk-adjusted investment income and after-tax, risk-adjusted total return while
ensuring that the assets and liabilities are managed on a cash flow and duration
basis. The risk management objectives established by the GAPM boards stress
quality, diversification, asset/liability matching, liquidity and investment
return.
Each of MetLife's business segments has an asset/liability officer who
works with portfolio managers in the investment department to monitor
investment, product pricing, hedge strategy and liability management issues.
MetLife establishes target asset portfolios for each major insurance product,
which represent the investment strategies used to profitably fund its
liabilities within acceptable levels of risk. These strategies include
objectives for effective duration, yield curve sensitivity, convexity,
liquidity, asset sector concentration and credit quality.
To manage interest rate risk, the Company performs periodic projections of
asset and liability cash flows to evaluate the potential sensitivity of its
securities investments and liabilities to interest rate movements. These
projections involve evaluating the potential gain or loss on most of the
Company's in-force business under various increasing and decreasing interest
rate environments. The Company has developed models of its in-force business
that reflect specific product characteristics and include assumptions based on
current and anticipated experience regarding lapse, mortality and interest
crediting rates. In addition, these models include asset cash flow projections
reflecting interest payments, sinking fund payments, principal payments, bond
calls, mortgage prepayments and defaults. New York Insurance Department
regulations require that MetLife perform some of these analyses annually as part
of the annual proof of the sufficiency of its regulatory reserves to meet
adverse interest rate scenarios.
Hedging activities. MetLife's risk management strategies incorporate the
use of various interest rate derivatives that are used to adjust the overall
duration and cash flow profile of its invested asset portfolios to better match
the duration and cash flow profile of its liabilities to reduce interest rate
risk. Such instruments include interest rate swaps, futures and caps. MetLife
also uses foreign currency swaps and forward contracts to hedge its foreign
currency denominated fixed income investments.
RISK MEASUREMENT; SENSITIVITY ANALYSIS
The Company measures market risk related to its holdings of invested assets
and other financial instruments, including certain market risk sensitive
insurance contracts ("other financial instruments"), based on changes in
interest rates, equity prices and currency exchange rates, utilizing a
sensitivity analysis. This analysis estimates the potential changes in fair
value, cash flows and earnings based on a hypothetical 10% change (increase or
decrease) in interest rates, equity prices and currency exchange rates. The
Company believes that a 10% change (increase or decrease) in these market rates
and prices is reasonably possible in the near-term. In performing this analysis,
the Company used market rates at December 31, 2001 to re-price its invested
assets and other financial instruments. The sensitivity analysis separately
calculated each of MetLife's market risk exposures (interest rate, equity price
and currency exchange rate) related to its non-trading invested assets and other
financial instruments. The Company does not maintain a trading portfolio.
The sensitivity analysis performed included the market risk sensitive
holdings described above. The Company modeled the impact of changes in market
rates and prices on the fair values of its invested assets, earnings and cash
flows as follows:
Fair values. The Company bases its potential change in fair values on
an immediate change (increase or decrease) in:
- the net present values of its interest rate sensitive exposures
resulting from a 10% change (increase or decrease) in interest rates;
- the U.S. dollar equivalent balances of the Company's currency
exposures due to a 10% change (increase or decrease) in currency
exchange rates; and
- the market value of its equity positions due to a 10% change (increase
or decrease) in equity prices.
92
Earnings and cash flows. MetLife calculates the potential change in
earnings and cash flows on the change in its earnings and cash flows over a
one-year period based on an immediate 10% change (increase or decrease) in
market rates and equity prices. The following factors were incorporated
into the earnings and cash flows sensitivity analyses:
- the reinvestment of fixed maturity securities;
- the reinvestment of payments and prepayments of principal related to
mortgage-backed securities;
- the re-estimation of prepayment rates on mortgage-backed securities
for each 10% change (increase or decrease) in the interest rates; and
- the expected turnover (sales) of fixed maturities and equity
securities, including the reinvestment of the resulting proceeds.
The sensitivity analysis is an estimate and should not be viewed as
predictive of the Company's future financial performance. The Company cannot
assure that its actual losses in any particular year will not exceed the amounts
indicated in the table below. Limitations related to this sensitivity analysis
include:
- 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 mortgages;
- the analysis excludes other significant real estate holdings and
liabilities pursuant to insurance contracts; and
- the model assumes that the composition of assets and liabilities remains
unchanged throughout the year.
Accordingly, the Company uses such models as tools and not substitutes for
the experience and judgment of its corporate risk and asset/liability management
personnel.
Based on its analysis of the impact of a 10% change (increase or decrease)
in market rates and prices, MetLife has determined that such a change could have
a material adverse effect on the fair value of its interest rate sensitive
invested assets. The equity and foreign currency portfolios do not expose the
Company to material market risk.
The table below illustrates the potential loss in fair value of the
Company's interest rate sensitive financial instruments at December 31, 2001 and
2000. In addition, the potential loss with respect to the fair value of currency
exchange rates and the Company's equity price sensitive positions at December
31, 2001 and 2000 is set forth in the table below.
The potential loss in fair value for each market risk exposure of the
Company's portfolio, all of which is non-trading, for the periods indicated was:
AT DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
Interest rate risk.......................................... $3,430 $3,959
Equity price risk........................................... $ 228 $ 181
Currency exchange rate risk................................. $ 521 $ 302
The change in potential loss in fair value related to market risk exposure
between December 31, 2001 and 2000 was primarily attributable to a shift in the
yield curve.
93
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
-----
Independent Auditors' Report................................ F-1
Financial Statements as of December 31, 2001 and 2000 and
for the years ended December 31, 2001, 2000 and 1999:
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Income......................... F-3
Consolidated Statements of Stockholders' Equity........... F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements................ F-7
Financial Statement Schedules as of December 31, 2001 and
for the years ended December 31, 2001, 2000 and 1999:
Schedule I -- Consolidated Summary of Investments -- Other
Than Investments in Affiliates......................... 97
Schedule II -- Condensed Financial Information of MetLife,
Inc. (Registrant)...................................... 98
Schedule III -- Consolidated Supplementary Insurance
Information............................................ 100
Schedule IV -- Consolidated Reinsurance................... 102
94
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MetLife, Inc.:
We have audited the accompanying consolidated balance sheets of MetLife,
Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2001. Our audits
also included the financial statement schedules listed in the Index to
Consolidated Financial Statements and Schedules. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of MetLife, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 12, 2002
F-1
METLIFE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2001 2000
-------- --------
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value........ $115,398 $112,979
Equity securities, at fair value.......................... 3,063 2,193
Mortgage loans on real estate............................. 23,621 21,951
Real estate and real estate joint ventures................ 5,730 5,504
Policy loans.............................................. 8,272 8,158
Other limited partnership interests....................... 1,637 1,652
Short-term investments.................................... 1,203 1,269
Other invested assets..................................... 3,298 2,821
-------- --------
Total investments.................................. 162,222 156,527
Cash and cash equivalents................................... 7,473 3,434
Accrued investment income................................... 2,062 2,050
Premiums and other receivables.............................. 6,437 7,459
Deferred policy acquisition costs........................... 11,167 10,618
Other assets................................................ 4,823 3,796
Separate account assets..................................... 62,714 70,250
-------- --------
Total assets....................................... $256,898 $254,134
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits.................................... $ 84,924 $ 81,974
Policyholder account balances............................. 58,923 54,095
Other policyholder funds.................................. 5,332 5,035
Policyholder dividends payable............................ 1,046 1,082
Policyholder dividend obligation.......................... 708 385
Short-term debt........................................... 355 1,085
Long-term debt............................................ 3,628 2,400
Current income taxes payable.............................. 306 112
Deferred income taxes payable............................. 1,526 752
Payables under securities loaned transactions............. 12,661 12,301
Other liabilities......................................... 7,457 7,184
Separate account liabilities.............................. 62,714 70,250
-------- --------
Total liabilities.................................. 239,580 236,655
-------- --------
Commitments and contingencies (Note 11)
Company-obligated mandatorily redeemable securities of
subsidiary trusts......................................... 1,256 1,090
-------- --------
Stockholders' Equity:
Preferred stock, par value $0.01 per share; 200,000,000
shares authorized; none issued.......................... -- --
Series A junior participating preferred stock; none
issued.................................................. -- --
Common stock, par value $0.01 per share; 3,000,000,000
shares authorized; 786,766,664 shares issued at December
31, 2001 and 2000; 715,506,525 shares outstanding at
December 31, 2001 and 760,681,913 shares outstanding at
December 31, 2000....................................... 8 8
Additional paid-in capital................................ 14,966 14,926
Retained earnings......................................... 1,349 1,021
Treasury stock, at cost; 71,260,139 shares at December 31,
2001 and 26,084,751 shares at December 31, 2000......... (1,934) (613)
Accumulated other comprehensive income.................... 1,673 1,047
-------- --------
Total stockholders' equity......................... 16,062 16,389
-------- --------
Total liabilities and stockholders' equity......... $256,898 $254,134
======== ========
See accompanying notes to consolidated financial statements.
F-2
METLIFE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2001 2000 1999
------- ------- -------
REVENUES
Premiums.................................................... $17,212 $16,317 $12,088
Universal life and investment-type product policy fees...... 1,889 1,820 1,433
Net investment income....................................... 11,923 11,768 9,816
Other revenues.............................................. 1,507 2,229 1,861
Net investment losses (net of amounts allocable to other
accounts of $(134), $(54) and $(67), respectively)........ (603) (390) (70)
------- ------- -------
Total revenues.................................... 31,928 31,744 25,128
------- ------- -------
EXPENSES
Policyholder benefits and claims (excludes amounts directly
related to net investment losses of $(159), $41 and $(21),
respectively)............................................. 18,454 16,893 13,100
Interest credited to policyholder account balances.......... 3,084 2,935 2,441
Policyholder dividends...................................... 2,086 1,919 1,690
Payments to former Canadian policyholders................... -- 327 --
Demutualization costs....................................... -- 230 260
Other expenses (excludes amounts directly related to net
investment losses of $25, $(95) and $(46),
respectively)............................................. 7,565 8,024 6,462
------- ------- -------
Total expenses.................................... 31,189 30,328 23,953
------- ------- -------
Income before provision for income taxes.................... 739 1,416 1,175
Provision for income taxes.................................. 266 463 558
------- ------- -------
Net income.................................................. $ 473 $ 953 $ 617
======= ======= =======
Net income after April 7, 2000 (date of demutualization)
(Note 19)................................................. $ 1,173
=======
Net income per share
Basic..................................................... $ 0.64 $ 1.52
======= =======
Diluted................................................... $ 0.62 $ 1.49
======= =======
Cash dividends per share.................................... $ 0.20 $ 0.20
======= =======
See accompanying notes to consolidated financial statements.
F-3
METLIFE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
-----------------------------------------
NET FOREIGN MINIMUM
ADDITIONAL TREASURY UNREALIZED CURRENCY PENSION
COMMON PAID-IN RETAINED STOCK AT INVESTMENT TRANSLATION LIABILITY
STOCK CAPITAL EARNINGS COST GAINS (LOSSES) ADJUSTMENT ADJUSTMENT TOTAL
------ ---------- -------- -------- -------------- ----------- ---------- -------
Balance at January 1, 1999...... $ -- $ -- $ 13,483 $ -- $ 1,540 $(144) $(12) $14,867
Comprehensive loss:
Net income.................... 617 617
Other comprehensive loss:
Unrealized investment
losses, net of related
offsets, reclassification
adjustments and income
taxes..................... (1,837) (1,837)
Foreign currency translation
adjustments............... 50 50
Minimum pension liability
adjustment................ (7) (7)
-------
Other comprehensive loss.... (1,794)
-------
Comprehensive loss............ (1,177)
---- ------- -------- ------- ------- ----- ---- -------
Balance at December 31, 1999.... -- -- 14,100 -- (297) (94) (19) 13,690
Policy credits and cash payments
to eligible policyholders..... (2,958) (2,958)
Common stock issued in
demutualization............... 5 10,917 (10,922) --
Initial public offering of
common stock.................. 2 3,152 3,154
Private placement of common
stock......................... 1 854 855
Unit offering................... 3 3
Treasury stock acquired......... (613) (613)
Dividends on common stock....... (152) (152)
Comprehensive income:
Net loss before date of
demutualization............. (220) (220)
Net income after date of
demutualization............. 1,173 1,173
Other comprehensive income:
Unrealized investment gains,
net of related offsets,
reclassification
adjustments and income
taxes..................... 1,472 1,472
Foreign currency translation
adjustments............... (6) (6)
Minimum pension liability
adjustment................ (9) (9)
-------
Other comprehensive
income.................... 1,457
-------
Comprehensive income.......... 2,410
---- ------- -------- ------- ------- ----- ---- -------
Balance at December 31, 2000.... 8 14,926 1,021 (613) 1,175 (100) (28) 16,389
Treasury stock acquired......... (1,321) (1,321)
Dividends on common stock....... (145) (145)
Issuance of warrants -- by
subsidiary.................... 40 40
Comprehensive income:
Net income.................... 473 473
Other comprehensive income:
Cumulative effect of change
in accounting for
derivatives, net of income
taxes..................... 22 22
Unrealized gains on
derivative instruments,
net of income taxes....... 24 24
Unrealized investment gains,
net of related offsets,
reclassification
adjustments and income
taxes..................... 658 658
Foreign currency translation
adjustments............... (60) (60)
Minimum pension liability
adjustment................ (18) (18)
-------
Other comprehensive
income.................... 626
-------
Comprehensive income.......... 1,099
---- ------- -------- ------- ------- ----- ---- -------
Balance at December 31, 2001.... $ 8 $14,966 $ 1,349 $(1,934) $ 1,879 $(160) $(46) $16,062
==== ======= ======== ======= ======= ===== ==== =======
See accompanying notes to consolidated financial statements.
F-4
METLIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS)
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 473 $ 953 $ 617
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expenses................. (87) (77) 105
Losses from sales of investments and businesses, net... 737 444 137
Interest credited to other policyholder account
balances............................................. 3,084 2,935 2,441
Universal life and investment-type product policy
fees................................................. (1,889) (1,820) (1,433)
Change in premiums and other receivables............... 1,024 430 (619)
Change in deferred policy acquisition costs, net....... (563) (560) (321)
Change in insurance-related liabilities................ 2,523 2,014 2,243
Change in income taxes payable......................... 477 239 22
Change in other liabilities............................ 212 (2,119) 874
Other, net............................................. (1,192) (1,140) (183)
-------- -------- --------
Net cash provided by operating activities................... 4,799 1,299 3,883
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities and repayments of:
Fixed maturities....................................... 52,045 57,295 73,120
Equity securities...................................... 2,108 909 760
Mortgage loans on real estate.......................... 2,318 2,163 1,992
Real estate and real estate joint ventures............. 303 655 1,062
Other limited partnership interests.................... 463 422 469
Purchases of:
Fixed maturities....................................... (52,424) (63,779) (72,253)
Equity securities...................................... (3,064) (863) (410)
Mortgage loans on real estate.......................... (3,845) (2,836) (4,395)
Real estate and real estate joint ventures............. (696) (407) (341)
Other limited partnership interests.................... (497) (660) (465)
Net change in short-term investments...................... 74 2,043 (1,577)
Purchase of businesses, net of cash received.............. (276) (416) (2,972)
Proceeds from sales of businesses......................... 81 869 --
Net change in payable under securities loaned
transactions........................................... 360 5,840 2,692
Other, net................................................ (613) (926) (71)
-------- -------- --------
Net cash (used in) provided by investing activities......... $ (3,663) $ 309 $ (2,389)
-------- -------- --------
F-5
METLIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS)
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits............................................... $ 29,084 $ 28,621 $ 18,428
Withdrawals............................................ (25,410) (28,235) (20,650)
Net change in short-term debt............................. (730) (3,095) 608
Long-term debt issued..................................... 1,600 207 42
Long-term debt repaid..................................... (372) (124) (434)
Common stock issued....................................... -- 4,009 --
Treasury stock acquired................................... (1,321) (613) --
Net proceeds from issuance of company-obligated
mandatorily redeemable securities of subsidiary
trust.................................................. 197 969 --
Cash payments to eligible policyholders................... -- (2,550) --
Dividends on common stock................................. (145) (152) --
-------- -------- --------
Net cash provided by (used in) financing activities......... 2,903 (963) (2,006)
-------- -------- --------
Change in cash and cash equivalents......................... 4,039 645 (512)
Cash and cash equivalents, beginning of year................ 3,434 2,789 3,301
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 7,473 $ 3,434 $ 2,789
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 349 $ 448 $ 388
======== ======== ========
Income taxes........................................... $ 380 $ 256 $ 587
======== ======== ========
Non-cash transactions during the year:
Policy credits to eligible policyholders............... $ -- $ 408 $ --
======== ======== ========
Business acquisitions -- assets........................ $ 1,335 $ 22,936 $ 5,328
======== ======== ========
Business acquisitions -- liabilities................... $ 1,060 $ 22,437 $ 1,860
======== ======== ========
Business dispositions -- assets........................ $ 102 $ 1,184 $ --
======== ======== ========
Business dispositions -- liabilities................... $ 44 $ 1,014 $ --
======== ======== ========
Real estate acquired in satisfaction of debt........... $ 11 $ 22 $ 37
======== ======== ========
See accompanying notes to consolidated financial statements.
F-6
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
MetLife, Inc. (the "Holding Company") and its subsidiaries (together with
the Holding Company, "MetLife" or the "Company") is a leading provider of
insurance and financial services to a broad section of individual and
institutional customers. The Company offers life insurance, annuities and mutual
funds to individuals and group insurance, reinsurance and retirement and savings
products and services to corporations and other institutions.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Holding Company and its subsidiaries, partnerships and joint ventures in
which the Company has a majority voting interest or general partner interest
with limited removal rights by limited partners. 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. Intercompany accounts and transactions have been
eliminated.
The Company uses the equity method to account for its investments in real
estate joint ventures and other limited partnership interests in which it does
not have a controlling interest, but has more than a minimal interest.
Minority interest related to consolidated entities included in other
liabilities was $442 million and $409 million at December 31, 2001 and 2000,
respectively.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 2001 presentation.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
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 in the consolidated financial statements. The critical
accounting policies and related judgments underlying the Company's consolidated
financial statements are summarized below. In applying these policies,
management makes subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of these policies
are common in the insurance and financial services industries; others are
specific to the Company's businesses and operations.
Investments
The Company's principal investments are in fixed maturities, mortgage loans
and real estate, all of which are exposed to three primary sources of investment
risk: credit, interest rate and market valuation. The financial statement risks
are those associated with the recognition of income, impairments and the
determination of fair values. In addition, the earnings on certain investments
are dependent upon market conditions which could result in prepayments and
changes in amounts to be earned due to changing interest rates or equity
markets.
Derivatives
The Company enters into freestanding derivative transactions to manage the
risk associated with variability in cash flows related to the Company's
financial assets and liabilities or to changing fair values. The Company also
purchases investment securities and issues certain insurance policies with
embedded derivatives. The associated financial statement risk is the volatility
in net income, which can result from (i) changes in fair value of derivatives
that are not designated as hedges, and (ii) ineffectiveness of designated hedges
in an environment of changing interest rates or fair values. In addition,
accounting for derivatives is complex, as evidenced by significant
interpretations of the primary accounting standards which continue to evolve, as
well as the significant
F-7
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
judgments and estimates involved in determining fair value in the absence of
quoted market values. These estimates are based on valuation methodologies and
assumptions deemed appropriate in the circumstances; however, the use of
different assumptions may have a material effect on the estimated fair value
amounts.
Deferred Policy Acquisition Costs
The Company incurs significant costs in connection with acquiring new
insurance business. These costs, which vary with, and are primarily related to,
the production of new business, are deferred. The recovery of such costs is
dependent on the future profitability of the related business. The amount of
future profit is dependent principally on investment returns, mortality,
morbidity, persistency, expenses to administer the business (and additional
charges to the policyholders) and certain economic variables, such as inflation.
These factors enter into management's estimates of gross margins and profits
which generally are used to amortize certain of such costs. Revisions to
estimates result in changes to the amounts expensed in the reporting period in
which the revisions are made and could result in the impairment of the asset and
a charge to income if estimated future gross margins and profits are less than
amounts deferred.
Future Policy Benefits
The Company also establishes liabilities for amounts payable under
insurance policies, including traditional life insurance, annuities and disabled
lives. Generally, amounts are payable over an extended period of time and the
profitability of the products is dependent on the pricing of the products.
Principal assumptions used in pricing policies and in the establishment of
liabilities for future policy benefits are mortality, morbidity, expenses,
persistency, investment returns and inflation. Differences between the actual
experience and assumptions used in pricing the policies and in the establishment
of liabilities result in variances in profit and could result in losses.
The Company establishes liabilities for unpaid claims and claims expenses
for property and casualty insurance. Pricing of this insurance takes into
account the expected frequency and severity of losses, the costs of providing
coverage, competitive factors, characteristics of the property covered and the
insured, and profit considerations. Liabilities for property and casualty
insurance are dependent on estimates of amounts payable for claims reported but
not settled and claims incurred but not reported. These estimates are influenced
by historical experience and actuarial assumptions of current developments,
anticipated trends and risk management strategies.
Reinsurance
Accounting for reinsurance requires extensive use of assumptions and
estimates, particularly related to the future performance of the underlying
business. The Company periodically reviews actual and anticipated experience
compared to the assumptions used to establish policy benefits. Additionally, for
each of its reinsurance contracts, the Company must determine if the contract
provides indemnification against loss or liability relating to insurance risk,
in accordance with applicable accounting standards. The Company must review all
contractual features, particularly those that may limit the amount of insurance
risk to which the Company is subject or features that delay the timely
reimbursement of claims. If the Company determines that a contract does not
expose it to a reasonable possibility of a significant loss from insurance risk,
the Company records the contract on a deposit method of accounting.
Litigation
The Company is a party to a number of legal actions. Given the inherent
unpredictability of litigation, it is difficult to estimate the impact of
litigation on the Company's consolidated financial position. 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
are especially difficult to estimate due to the limitation of available data and
uncertainty around numerous variables used to determine amounts recorded. It is
possible that
F-8
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an adverse outcome in certain cases could have an adverse effect upon the
Company's operating results or cash flows in particular quarterly or annual
periods. See "Legal Proceedings."
GENERAL ACCOUNTING POLICIES
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income or loss, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as investment losses. Investment gains and losses on
sales of securities are determined on a specific identification basis. All
security transactions are recorded on a trade date basis.
Mortgage loans on real estate are stated at amortized cost, net of
valuation allowances. Valuation allowances are established for the excess
carrying value of the mortgage loan over its estimated fair value when it is
probable that, based upon current information and events, the Company will be
unable to collect all amounts due under the contractual terms of the loan
agreement. Valuation allowances are included in net investment gains and losses
and are based upon the present value of expected future cash flows discounted at
the loan's original effective interest rate or the collateral value if the loan
is collateral dependent. Interest income earned on impaired loans is accrued on
the net carrying value amount of the loan based on the loan's effective interest
rate. However, interest ceases to be accrued for loans on which interest is more
than 60 days past due.
Real estate, including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis over
the estimated useful life of the asset (typically 20 to 40 years). Cost is
adjusted for impairment whenever events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. Impaired real estate is
written down to estimated fair value with the impairment loss being included in
net investment gains and losses. Impairment losses are based upon the estimated
fair value of real estate, which is generally computed using the present value
of expected future cash flows from the real estate discounted at a rate
commensurate with the underlying risks. Real estate acquired in satisfaction of
debt is recorded at estimated fair value at the date of foreclosure. Valuation
allowances on real estate held-for-sale are computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost, which approximates
fair value.
Other invested assets consist principally of leveraged leases and funds
withheld at interest. The leveraged leases are recorded net of non-recourse
debt. The Company participates in lease transactions which are diversified by
geographic area. The Company regularly reviews residual values and writes down
residuals to expected values as needed. Funds withheld represent amounts
contractually withheld by ceding companies in accordance with reinsurance
agreements. For agreements written on a modified coinsurance basis and certain
agreements written on a coinsurance basis, assets equal to the net statutory
reserves are withheld and legally owned by the ceding company. Interest accrues
to these funds withheld at rates defined by the treaty terms.
Structured Investment Transactions
The Company participates in structured investment transactions, primarily
asset securitizations and structured notes. These transactions enhance the
Company's total return of the investment portfolio principally by generating
management fee income on asset securitizations and by providing equity-based
returns on debt securities through structured notes and similar type
instruments.
F-9
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sponsors financial asset securitizations of high yield debt
securities, investment grade bonds and structured finance securities and also is
the collateral manager and a beneficial interest holder in such transactions. As
the collateral manager, the Company earns management fees on the outstanding
securitized asset balance, which are recorded in income as earned. When the
Company transfers assets to a bankruptcy-remote special purpose entity ("SPE")
and surrenders control over the transferred assets, the transaction is accounted
for as a sale. Gains or losses on securitizations are determined with reference
to the carrying amount of the financial assets transferred, which is allocated
to the assets sold and the beneficial interests retained based on relative fair
values at the date of transfer. Beneficial interests in securitizations are
carried at fair value in fixed maturities. Income on the beneficial interests is
recognized using the prospective method in accordance with Emerging Issues Task
Force ("EITF") Issue No. 99-20, Recognition of Interest Income and Impairment on
Certain Investments. The SPEs used to securitize assets are not consolidated by
the Company because unrelated third parties hold controlling interests through
ownership of equity in the SPEs, representing at least three percent of the
value of the total assets of the SPE throughout the life of the SPE, and such
equity class has the substantive risks and rewards of the residual interest of
the SPE.
The Company purchases or receives beneficial interests in SPEs, which
generally acquire financial assets including corporate equities, debt securities
and purchased options. The Company has not guaranteed the performance, liquidity
or obligations of the SPEs and the Company's exposure to loss is limited to its
carrying value of the beneficial interests in the SPEs. The Company uses the
beneficial interests as part of its risk management strategy, including
asset-liability management. These SPEs are not consolidated by the Company
because unrelated third parties hold controlling interests through ownership of
equity in the SPEs, representing at least three percent of the value of the
total assets of the SPE throughout the life of the SPE, and such equity class
has the substantive risks and rewards of the residual interest of the SPE. The
beneficial interests in SPEs where the Company exercises significant influence
over the operating and financial policies of the SPE are accounted for in
accordance with the equity method of accounting. Impairments of these beneficial
interests are included in investment gains and losses. The beneficial interests
in SPEs where the Company does not exercise significant influence are accounted
for based on the substance of the beneficial interest's rights and obligations.
Beneficial interests are accounted for and are included in fixed maturities.
These beneficial interests are generally structured notes, as defined by EITF
Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification
of Structured Notes, and their income is recognized using the retrospective
interest method or the level yield method, as appropriate.
Derivative Instruments
The Company uses derivative instruments to manage risk through one of four
principal risk management strategies: the hedging of liabilities, invested
assets, portfolios of assets or liabilities and anticipated transactions.
Additionally, Metropolitan Life enters into income generation and replication
derivative transactions as permitted by its derivatives use plan that was
approved by the New York State Insurance Department (the "Department"). The
Company's derivative hedging strategy employs a variety of instruments,
including financial futures, financial forwards, interest rate, credit and
foreign currency swaps, foreign exchange contracts, and options, including caps
and floors.
On the date the Company enters into a derivative contract, management
designates the derivative as a hedge of the identified exposure (fair value,
cash flow or foreign currency). If a derivative does not qualify as a hedge,
according to Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS
133"), the derivative is recorded at fair value and changes in its fair value
are reported in net investment gains or losses.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedge transactions. In this documentation, the
Company specifically identifies the asset, liability, firm commitment, or
forecasted transaction that has been
F-10
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
designated as a hedged item and states how the hedging instrument is expected to
hedge the risks related to the hedged item. The Company formally measures
effectiveness of its hedging relationships both at the hedge inception and on an
ongoing basis in accordance with its risk management policy. The Company
generally determines hedge effectiveness based on total changes in fair value of
a derivative instrument. The Company discontinues hedge accounting prospectively
when: (i) it is determined that the derivative is no longer effective in
offsetting changes in the fair value or cash flows of a hedged item, (ii) the
derivative expires or is sold, terminated, or exercised, (iii) the derivative is
designated as a hedge instrument, (iv) it is probable that the forecasted
transaction will not occur, (v) a hedged firm commitment no longer meets the
definition of a firm commitment, or (vi) management determines that designation
of the derivative as a hedge instrument is no longer appropriate.
The Company designates and accounts for the following as cash flow hedges,
when they have met the effectiveness requirements of SFAS 133: (i) various types
of interest rate swaps to convert floating rate investments to fixed rate
investments, (ii) receive U.S. dollar fixed on foreign currency swaps to hedge
the foreign currency cash flow exposure of foreign currency denominated
investments, (iii) foreign currency forwards to hedge the exposure of future
payments or receipts in foreign currencies, and (iv) other instruments to hedge
the cash flows of various other anticipated transactions. For all qualifying and
highly effective cash flow hedges, the effective portion of changes in fair
value of the derivative instrument is reported in other comprehensive income or
loss. The ineffective portion of changes in fair value of the derivative
instrument is reported in net investment gains or losses. Hedged forecasted
transactions, other than the receipt or payment of variable interest payments,
are not expected to occur more than 12 months after hedge inception.
The Company designates and accounts for the following as fair value hedges
when they have met the effectiveness requirements of SFAS 133: (i) various types
of interest rate swaps to convert fixed rate investments to floating rate
investments, (ii) receive U.S. dollar floating on foreign currency swaps to
hedge the foreign currency fair value exposure of foreign currency denominated
investments, and (iii) other instruments to hedge various other fair value
exposures of investments. For all qualifying and highly effective fair value
hedges, the changes in fair value of the derivative instrument are reported as
net investment gains or losses. In addition, changes in fair value attributable
to the hedged portion of the underlying instrument are reported in net
investment gains and losses.
When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, the derivative
continues to be carried on the consolidated balance sheet at its fair value, but
the hedged asset or liability will no longer be adjusted for changes in fair
value. When hedge accounting is discontinued because the hedged item no longer
meets the definition of a firm commitment, the derivative continues to be
carried on the consolidated balance sheet at its fair value, and any asset or
liability that was recorded pursuant to recognition of the firm commitment is
removed from the consolidated balance sheet and recognized as a net investment
gain or loss in the current period. When hedge accounting is discontinued
because it is probable that a forecasted transaction will not occur, the
derivative continues to be carried on the consolidated balance sheet at its fair
value, and gains and losses that were accumulated in other comprehensive income
or loss are recognized immediately in net investment gains or losses. When the
hedged forecasted transaction is no longer probable, but is reasonably possible,
the accumulated gain or loss remains in other comprehensive income or loss and
is recognized when the transaction affects net income or loss; however,
prospective hedge accounting for the transaction is terminated. In all other
situations in which hedge accounting is discontinued, the derivative is carried
at its fair value on the consolidated balance sheet, with changes in its fair
value recognized in the current period as net investment gains or losses.
The Company may enter into contracts that are not themselves derivative
instruments but contain embedded derivatives. For each contract, the Company
assesses whether the economic characteristics of the embedded derivative are
clearly and closely related to those of the host contract and determines whether
a separate instrument with the same terms as the embedded instrument would meet
the definition of a derivative instrument.
F-11
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If it is determined that the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract, and that a separate instrument with the
same terms would qualify as a derivative instrument, the embedded derivative is
separated from the host contract and accounted for as a stand-alone derivative.
Such embedded derivatives are recorded on the consolidated balance sheet at fair
value and changes in their fair value are recorded currently in net investment
gains or 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 consolidated balance sheet at fair value, with changes in fair
value recognized in the current period as net investment gains or losses.
The Company also uses derivatives to synthetically create investments that
are either more expensive to acquire or otherwise unavailable in the cash
markets. These securities, called replication synthetic asset transactions
("RSATs"), are a combination of a derivative and a cash security to
synthetically create a third replicated security. These derivatives are not
designated as hedges. As of December 31, 2001, 15 such RSATs, with notional
amounts totaling $205 million, have been created through the combination of a
credit default swap and a U.S. Treasury security. The Company records the
premiums received on the credit default swaps in investment income over the life
of the contract and changes in fair value are recorded in net investment gains
and losses.
The Company enters into written covered call options and net written
covered collars to generate additional investment income on the underlying
assets it holds. These derivatives are not designated as hedges. The Company
records the premiums received as net investment income over the life of the
contract and changes in fair value of such options and collars as net investment
gains and losses.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity
of three months or less to be cash equivalents.
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 either the straight-line or sum-of-
the-years-digits method over the estimated useful lives of the assets. Estimated
lives range from ten to 40 years for leasehold improvements and three to 15
years for all other property and equipment. Accumulated depreciation of property
and equipment and accumulated amortization on leasehold improvements was $1,352
million and $1,287 million at December 31, 2001 and 2000, respectively. Related
depreciation and amortization expense was $97 million, $89 million and $106
million for the years ended December 31, 2001, 2000 and 1999, respectively.
Computer software, which is included in other assets, is stated at cost,
less accumulated amortization. Purchased software costs, as well as internal and
external costs incurred to develop internal-use computer software during the
application development stage, are capitalized. Such costs are amortized
generally over a three-year period using the straight-line method. Accumulated
amortization of capitalized software was $169 million and $86 million at
December 31, 2001 and 2000, respectively. Related amortization expense was $110
million, $45 million and $5 million for the years ended December 31, 2001, 2000
and 1999, respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new insurance business that vary with, and are
primarily related to, the production of new business are deferred. Such costs,
which consist principally of commissions, agency and policy issue expenses, are
amortized with interest over the expected life of the contract for participating
traditional life, universal life and investment-type products. Generally,
deferred policy acquisition costs are amortized in proportion to the present
value of estimated gross margins or profits from investment, mortality, expense
margins and surrender charges. Interest rates are based on rates in effect at
the inception or acquisition of the contracts.
F-12
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual gross margins or profits can vary from management's estimates resulting
in increases or decreases in the rate of amortization. Management periodically
updates these estimates and evaluates the recoverability of deferred policy
acquisition costs. When appropriate, management revises its assumptions of the
estimated gross margins or profits of these contracts, and the cumulative
amortization is re-estimated and adjusted by a cumulative charge or credit to
current operations.
Deferred policy acquisition costs for non-participating traditional life,
non-medical health and annuity policies with life contingencies are amortized in
proportion to anticipated premiums. Assumptions as to anticipated premiums are
made at the date of policy issuance or acquisition and are consistently applied
during the lives of the contracts. Deviations from estimated experience are
included in operations when they occur. For these contracts, the amortization
period is typically the estimated life of the policy.
Deferred policy acquisition costs related to internally replaced contracts
are expensed at the date of replacement.
Deferred policy acquisition costs for property and casualty insurance
contracts, which are primarily comprised of commissions and certain underwriting
expenses, are deferred and amortized on a pro rata basis over the applicable
contract term or reinsurance treaty.
Value of business acquired, included as part of deferred policy acquisition
costs, represents the present value of future profits generated from existing
insurance contracts in force at the date of acquisition and is amortized over
the expected policy or contract duration in relation to the present value of
estimated gross profits from such policies and contracts.
Information regarding deferred policy acquisition costs is as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Balance at January 1..................................... $10,618 $ 9,070 $ 7,028
Capitalization of policy acquisition costs............... 2,039 1,863 1,160
Value of business acquired............................... 102 1,681 156
------- ------- -------
Total.......................................... 12,759 12,614 8,344
------- ------- -------
Amortization allocated to:
Net investment losses............................... 25 (95) (46)
Unrealized investment losses........................ 140 590 (1,628)
Other expenses...................................... 1,413 1,478 930
------- ------- -------
Total amortization............................. 1,578 1,973 (744)
------- ------- -------
Dispositions and other................................... (14) (23) (18)
------- ------- -------
Balance at December 31................................... $11,167 $10,618 $ 9,070
======= ======= =======
Amortization of deferred policy acquisition costs is allocated to (i)
investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (ii) unrealized investment gains and losses to provide information
regarding the amount of deferred policy acquisition costs that would have been
amortized if such gains and losses had been recognized, and (iii) other expenses
to provide amounts related to the gross margins or profits originating from
transactions other than investment gains and losses.
Investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs. Presenting
investment gains and losses net of related amortization of deferred policy
F-13
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition costs provides information useful in evaluating the operating
performance of the Company. This presentation may not be comparable to
presentations made by other insurers.
Goodwill
The excess of cost over the fair value of net assets acquired ("goodwill")
is included in other assets. Goodwill has been amortized on a straight-line
basis over a period ranging from ten to 30 years through December 31, 2001. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments through 2001 were recognized in operating
results when permanent diminution in value was deemed to have occurred.
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
Net Balance at January 1.................................... $ 703 $ 611 $ 404
Acquisitions................................................ 54 286 237
Amortization................................................ (47) (69) (30)
Dispositions................................................ (101) (125) --
----- ----- -----
Net Balance at December 31.................................. $ 609 $ 703 $ 611
===== ===== =====
DECEMBER 31,
-------------
2001 2000
----- -----
(DOLLARS IN
MILLIONS)
Accumulated Amortization.................................... $ 108 $ 81
===== =====
See "-- Application of Accounting Pronouncements" below regarding changes
in amortization and impairment testing effective January 1, 2002.
Future Policy Benefits and Policyholder Account Balances
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of (i) net level premium reserves
for death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 2% to 11%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (ii) the
liability for terminal dividends, and (iii) premium deficiency reserves, which
are established when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses after deferred policy acquisition costs are
written off.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and the
present value of expected future payments after annuitization. Interest rates
used in establishing such liabilities range from 3% to 12%. Future policy
benefit liabilities for non-medical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals and
interest, which provide a margin for adverse deviation. Interest rates used in
establishing such liabilities range from 3% to 11%. 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. Interest rates used in establishing such liabilities range from 3% to
11%.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of an
accumulation of gross premium payments plus credited interest, ranging from 2%
to 17%, less expenses, mortality charges, and withdrawals.
F-14
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The liability for unpaid claims and claim expenses for property and
casualty insurance represents the amount estimated for claims that have been
reported but not settled and claims incurred but not reported. Liabilities for
unpaid claims are estimated based upon the Company's 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. Revisions of these estimates are included in operations in the
year such refinements are made.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated lives of
the 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 operations in a constant relationship to insurance in-force or,
for annuities, the amount of expected future policy benefit payments.
Premiums related to non-medical health 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 amounts assessed against policyholder account balances for mortality, policy
administration and surrender charges. Amounts that are charged to operations
include interest credited and benefit claims incurred in excess of related
policyholder account balances.
Premiums related to property and casualty contracts are recognized as
revenue on a pro rata basis over the applicable contract term. Unearned premiums
are included in other liabilities.
Policyholder Dividends
Policyholder dividends are approved annually by the 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.
Participating Business
Participating business represented approximately 18% and 22% of the
Company's life insurance in-force, and 78% and 81% of the number of life
insurance policies in-force, at December 31, 2001 and 2000, respectively.
Participating policies represented approximately 43% and 45%, 47% and 50%, and
50% and 54% of gross and net life insurance premiums for the years ended
December 31, 2001, 2000 and 1999, respectively. The percentages indicated are
calculated excluding the business of the Reinsurance segment.
Income Taxes
The Holding Company 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
(the "Code"). Non-includable subsidiaries file either separate tax returns or
separate consolidated tax returns. Under the Code, the amount of federal income
tax expense incurred by mutual life insurance companies includes an equity tax
calculated based upon a prescribed formula that incorporates a differential
earnings rate between stock and mutual life insurance companies. Metropolitan
Life has not been subject to the equity tax since the date of demutualization.
The future tax consequences of temporary differences between financial reporting
and tax bases of assets and liabilities are measured at the balance sheet dates
and are recorded as deferred income tax assets and liabilities.
F-15
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reinsurance
The Company has reinsured certain of its life insurance and property and
casualty insurance contracts with other insurance companies under various
agreements. Amounts due from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Policy and contract liabilities are reported
gross of reinsurance credits. Deferred policy acquisition costs are reduced by
amounts recovered under reinsurance contracts. Amounts received from reinsurers
for policy administration are reported in other revenues.
The Company assumes and retrocedes financial reinsurance contracts, which
represent low mortality risk reinsurance treaties. These contracts are reported
as deposits and are included in other assets. The amount of revenue reported on
these contracts represents fees and the cost of insurance under the terms of the
reinsurance agreement.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are
generally not chargeable with 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.
Investments (stated at estimated fair value) and liabilities of the separate
accounts are reported separately as assets and liabilities. Deposits to separate
accounts, investment income and recognized and unrealized gains and losses on
the investments of the separate accounts accrue directly to contractholders and,
accordingly, are not reflected in the Company's consolidated statements of
income and cash flows. Mortality, policy administration and surrender charges to
all separate accounts are included in revenues.
Stock Based Compensation
The Company accounts for the stock-based compensation plans using the
accounting method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and has included in the
notes to consolidated financial statements the pro forma disclosures required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") in Note 17.
Foreign Currency Translation
Balance sheet accounts of foreign operations are translated at the exchange
rates in effect at each year-end and income and expense accounts are translated
at the average rates of exchange prevailing during the year. The local
currencies of foreign operations are the functional currencies unless the local
economy is highly inflationary. Translation adjustments are charged or credited
directly to other comprehensive income or loss. Gains and losses from foreign
currency transactions are reported in earnings.
Earnings Per Share
Earnings per share amounts, on a basic and diluted basis, have been
calculated based upon the weighted average common shares outstanding or deemed
to be outstanding only for the period after the date of demutualization.
Basic earnings per share is computed based on the weighted average number
of shares outstanding during the period. Diluted earnings per share includes the
dilutive effect of the assumed conversion of forward purchase contracts and
exercise of stock options, using the treasury stock method. Under the treasury
stock method, exercise of the forward purchase contracts is assumed 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.
F-16
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEMUTUALIZATION AND INITIAL PUBLIC OFFERING
On April 7, 2000 (the "date of demutualization"), Metropolitan Life
Insurance Company ("Metropolitan Life") 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 (the "Superintendent") approving Metropolitan Life's
plan of reorganization, as amended (the "plan").
On the date of demutualization, policyholders' membership interests in
Metropolitan Life were extinguished and eligible policyholders received, in
exchange for their interests, trust interests representing 494,466,664 shares of
common stock of MetLife, Inc. to be held in a trust, cash payments aggregating
$2,550 million and adjustments to their policy values in the form of policy
credits aggregating $408 million, as provided in the plan. In addition,
Metropolitan Life's Canadian branch made cash payments of $327 million in the
second quarter of 2000 to holders of certain policies transferred to Clarica
Life Insurance Company in connection with the sale of a substantial portion of
Metropolitan Life's Canadian operations in 1998, as a result of a commitment
made in connection with obtaining Canadian regulatory approval of that sale.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted SFAS 133 which established
new accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The cumulative effect of the adoption of SFAS 133, as of January 1,
2001, resulted in a $33 million increase in other comprehensive income, net of
income taxes of $18 million, and had no material impact on net income. The
increase to other comprehensive income is attributable to net gains on cash
flow-type hedges at transition. Also at transition, the amortized cost of fixed
income securities decreased and other invested assets increased by $22 million,
representing the fair value of certain interest rate swaps that were accounted
for prior to SFAS 133 using fair value-type settlement accounting. During the
year ended December 31, 2001, $18 million of the pre-tax gain reported in
accumulated other comprehensive income at transition was reclassified into net
investment income. The FASB continues to issue additional guidance relating to
the accounting for derivatives under SFAS 133, which may result in further
adjustments to the Company's treatment of derivatives in subsequent accounting
periods.
Effective April 1, 2001, the Company adopted certain additional accounting
and reporting requirements of SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125, relating to the derecognition of
transferred assets and extinguished liabilities and the reporting of servicing
assets and liabilities. The adoption of these requirements had no material
impact on the Company's consolidated financial statements.
Effective April 1, 2001, the Company adopted EITF 99-20. This pronouncement
requires investors in certain asset-backed securities to record changes in their
estimated yield on a prospective basis and to apply specific evaluation methods
to these securities for an other-than-temporary decline in value. The adoption
of EITF 99-20 had no material impact on the Company's consolidated financial
statements.
In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS
141"), and SFAS 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS
141, which was generally effective July 1, 2001, requires the purchase method of
accounting for all business combinations and separate recognition of intangible
assets apart from goodwill if such intangible assets meet certain criteria. SFAS
142, effective for fiscal years beginning after December 15, 2001, eliminates
the systematic amortization and establishes criteria for measuring the
impairment of goodwill and certain other intangible assets by reporting unit.
Amortization of goodwill and other intangible assets was $48 million, $101
million and $65 million for the years ended December 31, 2001, 2000 and 1999,
respectively. These amounts are not necessarily indicative of the amortization
that will not be recorded in future periods in accordance with SFAS 142. The
Company is in the process of developing an
F-17
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimate of the impact of the adoption of SFAS 142, if any, on its consolidated
financial statements. The Company has tentatively determined that there will be
no significant reclassifications between goodwill and other intangible asset
balances, and no significant impairment of other intangible assets as of January
1, 2002. The Company will complete the first step of the impairment test, the
comparison of the reporting units' fair value to carrying value, by June 30,
2002 and, if necessary, will complete the second step, the estimate of goodwill
impairment, by December 31, 2002.
In July 2001, the SEC released Staff Accounting Bulletin ("SAB") No. 102,
Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102
summarizes certain of the SEC's views on the development, documentation and
application of a systematic methodology for determining allowances for loan and
lease losses. The application of SAB 102 by the Company did not have a material
impact on the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a
single model for accounting for long-lived assets to be disposed of by
superceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at
the lower of carrying value or fair value less costs to sell, rather than on a
net realizable value basis. Future operating losses relating to discontinued
operations also are no longer recognized before they occur. SFAS 144 broadens
the definition of a discontinued operation to include a component of an entity
(rather than a segment of a business). SFAS 144 also requires long-lived assets
to be disposed of other than by sale to be considered held and used until
disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the
presentation of discontinued operations in the statements of income, (ii) SFAS
121 relating to recognition and measurement of impaired long-lived assets (other
than goodwill) and (iii) SFAS 121 relating to the measurement of long-lived
assets classified as held for sale. SFAS 144 must be adopted beginning January
1, 2002. The adoption of SFAS 144 by the Company is not expected to have a
material impact on the Company's consolidated financial statements at the date
of adoption.
Effective October 1, 2000, the Company adopted SAB No. 101, Revenue
Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of
the Securities and Exchange Commission's views in applying GAAP to revenue
recognition in financial statements. The requirements of SAB 101 did not have a
material effect on the Company's consolidated financial statements.
Effective January 1, 2000, the Company adopted Statement of Position
("SOP") No. 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method
of accounting for insurance and reinsurance contracts that do not transfer
insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies
insurance and reinsurance contracts for which the deposit method is appropriate
into those that (i) transfer only significant timing risk, (ii) transfer only
significant underwriting risk, (iii) transfer neither significant timing nor
underwriting risk and (iv) have an indeterminate risk. Adoption of SOP 98-7 did
not have a material effect on the Company's consolidated financial statements.
The FASB is currently deliberating the issuance of an interpretation of
SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, to provide
additional guidance to assist companies in identifying and accounting for
special purpose entities, including when SPEs should be consolidated by the
investor. The interpretation would introduce a concept that consolidation would
be required by the primary beneficiary of the activities of a special purpose
entity unless the SPE can meet certain substantive independent economic
substance criteria. It is not possible to determine at this time what
conclusions will be included in the final interpretation; however, the result
could impact the accounting treatment of these entities.
F-18
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The FASB is currently deliberating the issuance of a proposed statement
that would amend SFAS No. 133. The proposed statement will address and resolve
certain pending Derivatives Implementation Group ("DIG") issues. The outcome of
the pending DIG issues and other provisions of the statement could impact the
Company's accounting for beneficial interests, loan commitments and other
transactions deemed to be derivatives under the new statement. The Company's
accounting for such transactions is currently based on management's best
interpretation of the accounting literature as of March 18, 2002.
2. SEPTEMBER 11, 2001 TRAGEDIES
On September 11, 2001 a terrorist attack occurred in New York, Washington
D.C. and Pennsylvania (collectively, the "tragedies") triggering a significant
loss of life and property which had an adverse impact on certain of the
Company's businesses. The Company has direct exposures to this event with claims
arising from its Individual, Institutional, Reinsurance and Auto & Home
insurance coverages, although it believes the majority of such claims have been
reported or otherwise analyzed by the Company.
As of December 31, 2001, the Company's estimate of the total insurance
losses related to the tragedies is $208 million, net of income tax of $117
million. This estimate is subject to revision in subsequent periods as claims
are received from insureds and claims to reinsurers are identified and
processed. Any revision to the estimate of gross losses and reinsurance
recoveries in subsequent periods will affect net income in such periods.
Reinsurance recoveries are dependent on the continued creditworthiness of the
reinsurers, which may be adversely affected by their other reinsured losses in
connection with the tragedies.
The long-term effects of the tragedies on the Company's businesses cannot
be assessed at this time. The tragedies have had significant adverse effects on
the general economic, market and political conditions, increasing many of the
Company's business risks. In particular, the declines in share prices
experienced after the reopening of the United States equity markets following
the tragedies have contributed, and may continue to contribute, to a decline in
separate account assets, which in turn could have an adverse effect on fees
earned in the Company's businesses. In addition, the Institutional segment may
receive disability claims from individuals suffering from mental and nervous
disorders resulting from the tragedies. This may lead to a revision in the
Company's estimated insurance losses related to the tragedies. The majority of
the Company's disability policies include the provision that such claims be
submitted within two years of the traumatic event.
The Company's general account investment portfolios include investments,
primarily comprised of fixed income securities, in industries that were affected
by the tragedies, including airline, insurance, other travel and lodging and
insurance. Exposures to these industries also exist through mortgage loans and
investments in real estate. The market value of the Company's investment
portfolio exposed to industries affected by the tragedies was approximately $3.0
billion at December 31, 2001.
F-19
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturities and equity securities at December 31, 2001 were as
follows:
COST OR GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ------- ------- ----------
(DOLLARS IN MILLIONS)
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 8,230 $1,026 $ 43 $ 9,213
States and political subdivisions......... 1,492 49 10 1,531
Foreign governments....................... 4,512 419 41 4,890
Corporate................................. 47,217 1,703 1,031 47,889
Mortgage- and asset-backed securities..... 33,834 906 266 34,474
Other..................................... 16,220 956 537 16,639
-------- ------ ------ --------
Total bonds.......................... 111,505 5,059 1,928 114,636
Redeemable preferred stocks.................. 783 12 33 762
-------- ------ ------ --------
Total fixed maturities............... $112,288 $5,071 $1,961 $115,398
======== ====== ====== ========
Equity Securities:
Common stocks................................ $ 1,968 $ 657 $ 78 $ 2,547
Nonredeemable preferred stocks............... 491 28 3 516
-------- ------ ------ --------
Total equity securities.............. $ 2,459 $ 685 $ 81 $ 3,063
======== ====== ====== ========
Fixed maturities and equity securities at December 31, 2000 were as
follows:
COST OR GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ------- ------- ----------
(DOLLARS IN MILLIONS)
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 8,461 $1,189 $ 16 $ 9,634
States and political subdivisions......... 1,563 79 3 1,639
Foreign governments....................... 5,153 341 153 5,341
Corporate................................. 47,791 1,129 1,478 47,442
Mortgage- and asset-backed securities..... 33,039 699 165 33,573
Other..................................... 14,974 436 381 15,029
-------- ------ ------ --------
Total bonds.......................... 110,981 3,873 2,196 112,658
Redeemable preferred stocks.................. 321 -- -- 321
-------- ------ ------ --------
Total fixed maturities............... $111,302 $3,873 $2,196 $112,979
======== ====== ====== ========
Equity Securities:
Common stocks................................ $ 872 $ 785 $ 55 $ 1,602
Nonredeemable preferred stocks............... 577 19 5 591
-------- ------ ------ --------
Total equity securities.............. $ 1,449 $ 804 $ 60 $ 2,193
======== ====== ====== ========
F-20
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company held foreign currency derivatives with notional amounts of
$1,925 million and $1,469 million to hedge the exchange rate risk associated
with foreign bonds at December 31, 2001 and 2000, respectively.
The Company held fixed maturities at estimated fair values that were below
investment grade or not rated by an independent rating agency that totaled
$9,790 million and $9,864 million at December 31, 2001 and 2000, respectively.
Non-income producing fixed maturities were insignificant.
The cost or amortized cost and estimated fair value of bonds at December
31, 2001, by contractual maturity date, are shown below:
COST OR
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(DOLLARS IN MILLIONS)
Due in one year or less..................................... $ 4,001 $ 4,049
Due after one year through five years....................... 20,168 20,841
Due after five years through ten years...................... 22,937 23,255
Due after ten years......................................... 30,565 32,017
-------- --------
Total.................................................. 77,671 80,162
Mortgage- and asset-backed securities....................... 33,834 34,474
-------- --------
Total bonds............................................ $111,505 $114,636
======== ========
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of securities classified as available-for-sale were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Proceeds................................................ $28,105 $46,205 $59,852
Gross investment gains.................................. $ 646 $ 599 $ 605
Gross investment losses................................. $ 948 $ 1,520 $ 911
Gross investment losses above exclude writedowns recorded during 2001, 2000
and 1999 for other than temporarily impaired available-for-sale securities of
$278 million, $324 million and $133 million, respectively.
Excluding investments in U.S. Treasury securities and obligations of U.S.
government corporations and agencies, the Company is not exposed to any
significant concentration of credit risk in its fixed maturities portfolio.
SECURITIES LENDING PROGRAM
The Company participates in securities lending programs whereby blocks of
securities, which are included in investments, are loaned to third parties,
primarily major brokerage firms. The Company requires a minimum of 102% of the
fair value of the loaned securities to be separately maintained as collateral
for the loans. Securities with a cost or amortized cost of $13,471 million and
$11,746 million and an estimated fair value of $14,404 million and $12,289
million were on loan under the program at December 31, 2001 and 2000,
respectively. The Company was liable for cash collateral under its control of
$12,661 million and $12,301 million at December 31, 2001 and 2000, respectively.
Security collateral on deposit from customers may not be sold or repledged and
is not reflected in the consolidated financial statements.
F-21
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STRUCTURED INVESTMENT TRANSACTIONS
The Company securitizes high yield debt securities, investment grade bonds
and structured finance securities. The Company has sponsored four
securitizations with a total of approximately $1.5 billion in financial assets
as of December 31, 2001. Two of these transactions included the transfer of
assets totaling approximately $289 million from which investment gains,
recognized by the Company, were insignificant. The Company's beneficial
interests in these SPEs and the related investment income were insignificant as
of and for the year ended December 31, 2001.
The Company invests in structured notes and similar type instruments which
generally provide equity-based returns on debt securities. The carrying value of
such investments was approximately $1.6 billion and $1.3 billion at December 31,
2001 and 2000, respectively. The related income recognized was $44 million and
$62 million for the years ended December 31, 2001 and 2000, respectively.
ASSETS ON DEPOSIT AND HELD IN TRUST
The Company had investment assets on deposit with regulatory agencies with
a fair market value of $845 million and $932 million at December 31, 2001 and
2000, respectively. Company securities held in trust to satisfy collateral
requirements had an amortized cost of $1,218 million and $1,234 million at
December 31, 2001 and 2000, respectively.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate were categorized as follows:
DECEMBER 31,
-------------------------------------
2001 2000
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN MILLIONS)
Commercial mortgage loans........................ $18,093 76% $16,944 77%
Agricultural mortgage loans...................... 5,277 22% 4,980 22%
Residential mortgage loans....................... 395 2% 110 1%
------- --- ------- ---
Total....................................... 23,765 100% 22,034 100%
=== ===
Less: Valuation allowances....................... 144 83
------- -------
Mortgage loans.............................. $23,621 $21,951
======= =======
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 2001, approximately 17%,
8% and 8% of the properties were located in California, New York and Florida,
respectively. Generally, the Company (as the lender) requires that a minimum of
one-fourth of the purchase price of the underlying real estate be paid by the
borrower.
Certain of the Company's real estate joint ventures have mortgage loans
with the Company. The carrying values of such mortgages were $644 million and
$540 million at December 31, 2001 and 2000, respectively.
F-22
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in mortgage loan valuation allowances were as follows:
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
----- ----- ------
(DOLLARS IN MILLIONS)
Balance at January 1........................................ $ 83 $ 90 $ 173
Additions................................................... 106 38 40
Deductions for writedowns and dispositions.................. (45) (74) (123)
Acquisitions of affiliates.................................. -- 29 --
---- ---- -----
Balance at December 31...................................... $144 $ 83 $ 90
==== ==== =====
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
DECEMBER 31,
---------------------
2001 2000
--------- -------
(DOLLARS IN MILLIONS)
Impaired mortgage loans with valuation allowances........... $ 816 $592
Impaired mortgage loans without valuation allowances........ 324 330
------ ----
Total.................................................. 1,140 922
Less: Valuation allowances................................. 140 77
------ ----
Impaired mortgage loans................................ $1,000 $845
====== ====
The average investment in impaired mortgage loans on real estate was $947
million, $912 million and $1,134 million for the years ended December 31, 2001,
2000 and 1999, respectively. Interest income on impaired mortgage loans was $92
million, $76 million and $101 million for the years ended December 31, 2001,
2000 and 1999, respectively.
The investment in restructured mortgage loans on real estate was $685
million and $784 million at December 31, 2001 and 2000, respectively. Interest
income of $52 million, $62 million and $80 million was recognized on
restructured loans for the years ended December 31, 2001, 2000 and 1999,
respectively. Gross interest income that would have been recorded in accordance
with the original terms of such loans amounted to $60 million, $74 million and
$92 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Mortgage loans on real estate with scheduled payments of 60 days (90 days
for agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $53 million and $40 million at December 31, 2001 and 2000, respectively.
F-23
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE AND REAL ESTATE JOINT VENTURES
Real estate and real estate joint ventures consisted of the following:
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
Real estate and real estate joint ventures
held-for-investment....................................... $5,877 $5,495
Impairments................................................. (244) (272)
------ ------
Total.................................................. 5,633 5,223
------ ------
Real estate and real estate joint ventures held-for-sale.... 220 417
Impairments................................................. (88) (97)
Valuation allowance......................................... (35) (39)
------ ------
Total.................................................. 97 281
------ ------
Real estate and real estate joint ventures........ $5,730 $5,504
====== ======
Accumulated depreciation on real estate was $2,504 million and $2,337
million at December 31, 2001 and 2000, respectively. Related depreciation
expense was $220 million, $224 million and $247 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
Real estate and real estate joint ventures were categorized as follows:
DECEMBER 31,
-----------------------------------
2001 2000
---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN MILLIONS)
Office............................................. $3,637 63% $3,635 66%
Retail............................................. 780 14% 586 10%
Apartments......................................... 740 13% 558 10%
Land............................................... 184 3% 202 4%
Agriculture........................................ 14 0% 84 2%
Other.............................................. 375 7% 439 8%
------ --- ------ ---
Total......................................... $5,730 100% $5,504 100%
====== === ====== ===
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 2001, approximately 27%, 23% and 12% of the
Company's real estate holdings were located in New York, California and Texas,
respectively.
Changes in real estate and real estate joint ventures held-for-sale
valuation allowance were as follows:
YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN MILLIONS)
Balance at January 1........................................ $ 39 $ 34 $ 33
Additions charged to operations............................. 16 17 36
Deductions for writedowns and dispositions.................. (20) (12) (35)
---- ---- ----
Balance at December 31...................................... $ 35 $ 39 $ 34
==== ==== ====
F-24
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment income related to impaired real estate and real estate joint
ventures held-for-investment was $57 million, $45 million and $61 million for
the years ended December 31, 2001, 2000 and 1999, respectively. Investment
(expense) income related to impaired real estate and real estate joint ventures
held-for-sale was $(4) million, $18 million and $14 million for the years ended
December 31, 2001, 2000 and 1999, respectively. The carrying value of non-income
producing real estate and real estate joint ventures was $14 million and $15
million at December 31, 2001 and 2000, respectively.
The Company owned real estate acquired in satisfaction of debt of $49
million and $66 million at December 31, 2001 and 2000, respectively.
LEVERAGED LEASES
Leveraged leases, included in other invested assets, consisted of the
following:
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
Investment.................................................. $1,070 $1,002
Estimated residual values................................... 505 546
------ ------
Total.................................................. 1,575 1,548
Unearned income............................................. (404) (384)
------ ------
Leveraged leases....................................... $1,171 $1,164
====== ======
The investment amounts set forth above are generally due in monthly
installments. The payment periods generally range from two to 15 years, but in
certain circumstances are as long as 30 years. These receivables are generally
collateralized by the related property. The Company's deferred tax provision
related to leveraged leases is $1,077 million and $1,040 million at December 31,
2001 and 2000, respectively.
NET INVESTMENT INCOME
The components of net investment income were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Fixed maturities........................................ $ 8,574 $ 8,538 $ 7,171
Equity securities....................................... 49 41 40
Mortgage loans on real estate........................... 1,848 1,693 1,484
Real estate and real estate joint ventures.............. 1,353 1,407 1,426
Policy loans............................................ 536 515 340
Other limited partnership interests..................... 48 142 199
Cash, cash equivalents and short-term investments....... 279 288 173
Other................................................... 249 162 91
------- ------- -------
Total.............................................. 12,936 12,786 10,924
Less: Investment expenses.............................. 1,013 1,018 1,108
------- ------- -------
Net investment income.............................. $11,923 $11,768 $ 9,816
======= ======= =======
F-25
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET INVESTMENT GAINS (LOSSES)
Net investment gains (losses), including changes in valuation allowances,
were as follows:
YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------ -------- ------
(DOLLARS IN MILLIONS)
Fixed maturities............................................ $(645) $(1,437) $(538)
Equity securities........................................... 65 192 99
Mortgage loans on real estate............................... (91) (18) 28
Real estate and real estate joint ventures.................. (4) 101 265
Other limited partnership interests......................... (161) (7) 33
Sales of businesses......................................... 25 660 --
Other....................................................... 74 65 (24)
----- ------- -----
Total.................................................. (737) (444) (137)
Amounts allocable to:
Deferred policy acquisition costs......................... (25) 95 46
Participating contracts................................... -- (126) 21
Policyholder dividend obligation.......................... 159 85 --
----- ------- -----
Net realized investment losses.................... $(603) $ (390) $ (70)
===== ======= =====
Investment gains and losses have been reduced by (i) deferred policy
acquisition amortization to the extent that such amortization results from
investment gains and losses, (ii) additions to participating contractholder
accounts when amounts equal to such investment gains and losses are credited to
the contractholder's accounts, and (iii) adjustments to the policyholder
dividend obligation resulting from investment gains and losses. This
presentation may not be comparable to presentations made by other insurers.
NET UNREALIZED INVESTMENT GAINS (LOSSES)
The components of net unrealized investment gains (losses), included in
accumulated other comprehensive income (loss), were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Fixed maturities......................................... $ 3,110 $ 1,677 $(1,828)
Equity securities........................................ 604 744 875
Derivatives.............................................. 71 -- --
Other invested assets.................................... 58 58 153
------- ------- -------
Total............................................... 3,843 2,479 (800)
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition................. (30) (284) (249)
Deferred policy acquisition costs...................... (21) 119 709
Participating contracts................................ (127) (133) (118)
Policyholder dividend obligation....................... (707) (385) --
Deferred income taxes.................................... (1,079) (621) 161
------- ------- -------
Total............................................... (1,964) (1,304) 503
------- ------- -------
Net unrealized investment gains (losses)....... $ 1,879 $ 1,175 $ (297)
======= ======= =======
F-26
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The changes in net unrealized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31,
-------------------------
2001 2000 1999
------ ------ -------
(DOLLARS IN MILLIONS)
Balance at January 1....................................... $1,175 $ (297) $ 1,540
Unrealized investment gains (losses) during the year....... 1,364 3,279 (6,583)
Unrealized investment gains (losses) relating to:
Future policy benefit (loss) gain recognition............ 254 (35) 1,999
Deferred policy acquisition costs........................ (140) (590) 1,628
Participating contracts.................................. 6 (15) 94
Policyholder dividend obligation......................... (322) (385) --
Deferred income taxes...................................... (458) (782) 1,025
------ ------ -------
Balance at December 31..................................... $1,879 $1,175 $ (297)
====== ====== =======
Net change in unrealized investment gains (losses)......... $ 704 $1,472 $(1,837)
====== ====== =======
4. DERIVATIVE INSTRUMENTS
The table below provides a summary of the carrying value, notional amount
and current market or fair value of derivative financial instruments held at
December 31, 2001 and 2000:
2001 2000
------------------------------------------ ------------------------------------------
CURRENT MARKET CURRENT MARKET
OR FAIR VALUE OR FAIR VALUE
CARRYING NOTIONAL -------------------- CARRYING NOTIONAL --------------------
VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES
-------- -------- ------ ----------- -------- -------- ------ -----------
(DOLLARS IN MILLIONS)
Financial futures............ $ -- $ -- $ -- $ -- $ 23 $ 254 $ 23 $ --
Interest rate swaps.......... 70 1,849 79 9 41 1,450 41 1
Floors....................... 11 325 11 -- -- 325 3 --
Caps......................... 5 7,890 5 -- -- 9,950 -- --
Foreign currency swaps....... 162 1,925 188 26 (1) 1,449 114 44
Exchange traded options...... (12) 1,857 -- 12 1 9 1 --
Forward exchange contracts... 4 67 4 -- -- -- -- --
Written covered call
options.................... -- 40 -- -- -- 40 -- --
Credit default swaps......... -- 270 -- -- -- -- -- --
---- ------- ---- ---- ---- ------- ---- ----
Total contractual
commitments................ $240 $14,223 $287 $ 47 $ 64 $13,477 $182 $ 45
==== ======= ==== ==== ==== ======= ==== ====
F-27
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the notional amounts by derivative
type and strategy at December 31, 2001 and 2000:
DECEMBER 31, 2000 TERMINATIONS/ DECEMBER 31, 2001
NOTIONAL AMOUNT ADDITIONS MATURITIES NOTIONAL AMOUNT
----------------- --------- ------------- -----------------
(DOLLARS IN MILLIONS)
BY DERIVATIVE TYPE
Financial futures............. $ 254 $ 507 $ 761 $ --
Financial forwards............ -- 529 462 67
Interest rate swaps........... 1,450 1,165 766 1,849
Floors........................ 325 -- -- 325
Caps.......................... 9,950 150 2,210 7,890
Foreign currency swaps........ 1,449 660 184 1,925
Exchange traded options....... 9 1,861 13 1,857
Written covered call
options..................... 40 1,097 1,097 40
Credit default swaps.......... -- 270 -- 270
------- ------ ------ -------
Total contractual
commitments................. $13,477 $6,239 $5,493 $14,223
======= ====== ====== =======
BY STRATEGY
Liability hedging............. $11,616 $ 269 $2,972 $ 8,913
Invested asset hedging........ 1,607 5,081 1,378 5,310
Portfolio hedging............. 254 507 761 --
Anticipated transaction
hedging..................... -- 382 382 --
------- ------ ------ -------
Total contractual
commitments................. $13,477 $6,239 $5,493 $14,223
======= ====== ====== =======
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 2001:
REMAINING LIFE
-------------------------------------------------------------------
ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL
-------- ------------------ ----------------- --------------- -------
(DOLLARS IN MILLIONS)
Forward exchange
contracts........... $ 67 $ -- $ -- $ -- $ 67
Interest rate swaps... 95 627 955 172 1,849
Floors................ -- -- 325 -- 325
Caps.................. 3,720 4,150 20 -- 7,890
Foreign currency
swaps............... 81 863 707 274 1,925
Exchange traded
options............. 1,857 -- -- -- 1,857
Written covered call
options............. 40 -- -- -- 40
Credit default
swaps............... 15 255 -- -- 270
------ ------ ------ ---- -------
Total contractual
commitments......... $5,875 $5,895 $2,007 $446 $14,223
====== ====== ====== ==== =======
F-28
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the notional amounts and fair values of
derivatives by type of hedge designation at December 31, 2001 and 2000:
2001 2000
------------------------------- -------------------------------
CURRENT MARKET OR CURRENT MARKET OR
FAIR VALUE FAIR VALUE
NOTIONAL -------------------- NOTIONAL --------------------
AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES
-------- ------ ----------- -------- ------ -----------
(DOLLARS IN MILLIONS)
BY TYPE OF HEDGE
Fair Value..................... $ 228 $ 23 $-- $ 212 $ 14 $ 8
Cash Flow...................... 585 62 21 442 32 27
Not designated................. 13,410 202 26 12,823 136 10
------- ---- --- ------- ---- ---
Total..................... $14,223 $287 $47 $13,477 $182 $45
======= ==== === ======= ==== ===
For the year ended December 31, 2001, the amount related to fair value and
cash flow hedge ineffectiveness was insignificant and there were no discontinued
fair value or cash flow hedges.
For the years ended December 31, 2001, 2000 and 1999, the Company
recognized net investment income of $32 million, $13 million and $0.3 million,
respectively, from the periodic settlement of interest rate and foreign currency
swaps.
For the year ended December 31, 2001, the Company recognized other
comprehensive income of $39 million relating to the effective portion of cash
flow hedges. At December 31, 2001, the accumulated amount in other comprehensive
income relating to cash flow hedges was $71 million. During the year ended
December 31, 2001, $19 million of other comprehensive income was reclassified
into net investment income primarily due to the SFAS No. 133 transition
adjustment. During the next year, other comprehensive income of $17 million
related to cash flow hedges is expected to be reclassified into net investment
income. The reclassifications are recognized over the life of the hedged item.
For the year ended December 31, 2001, the Company recognized net investment
income of $24 million and net investment gains of $100 million from derivatives
not designated as accounting hedges. The use of these non-speculative
derivatives is permitted by the Department.
5. FAIR VALUE INFORMATION
The estimated fair values of financial instruments have been determined by
using available market information and the valuation methodologies described
below. Considerable judgment is often required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein may
not necessarily be indicative of amounts that could be realized in a current
market exchange. The use of different assumptions or valuation methodologies may
have a material effect on the estimated fair value amounts.
F-29
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts related to the Company's financial instruments were as follows:
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 2001 AMOUNT VALUE FAIR VALUE
----------------- -------- -------- ----------
(DOLLARS IN MILLIONS)
Assets:
Fixed maturities..................................... $115,398 $115,398
Equity securities.................................... 3,063 3,063
Mortgage loans on real estate........................ 23,621 24,844
Policy loans......................................... 8,272 8,272
Short-term investments............................... 1,203 1,203
Cash and cash equivalents............................ 7,473 7,473
Mortgage loan commitments............................ $423 -- (4)
Liabilities:
Policyholder account balances........................ 47,977 48,318
Short-term debt...................................... 355 355
Long-term debt....................................... 3,628 3,685
Payable under securities loaned transactions......... 12,661 12,661
Other:
Company-obligated mandatorily redeemable securities
of subsidiary trusts.............................. 1,256 1,311
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 2000 AMOUNT VALUE FAIR VALUE
----------------- -------- -------- ----------
(DOLLARS IN MILLIONS)
Assets:
Fixed maturities..................................... $112,979 $112,979
Equity securities.................................... 2,193 2,193
Mortgage loans on real estate........................ 21,951 22,847
Policy loans......................................... 8,158 8,158
Short-term investments............................... 1,269 1,269
Cash and cash equivalents............................ 3,434 3,434
Mortgage loan commitments............................ $534 -- 17
Liabilities:
Policyholder account balances........................ 43,196 42,958
Short-term debt...................................... 1,085 1,085
Long-term debt....................................... 2,400 2,237
Payable under securities loaned transactions......... 12,301 12,301
Other:
Company-obligated mandatorily redeemable securities
of subsidiary trusts.............................. 1,090 1,153
F-30
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
FIXED MATURITIES AND EQUITY SECURITIES
The fair value of fixed maturities and equity securities are based upon
quotations published by applicable stock exchanges or received from other
reliable sources. For securities in which the market values were not readily
available, fair values were estimated using quoted market prices of comparable
investments.
MORTGAGE LOANS ON REAL ESTATE AND MORTGAGE LOAN COMMITMENTS
Fair values for mortgage loans on real estate are estimated by discounting
expected future cash flows, using current interest rates for similar loans with
similar credit risk. For mortgage loan commitments, the estimated fair value is
the net premium or discount of the commitments.
POLICY LOANS
The carrying values for policy loans approximate fair value.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying values for cash and cash equivalents and short-term
investments approximated fair values due to the short-term maturities of these
instruments.
POLICYHOLDER ACCOUNT BALANCES
The fair value of policyholder account balances are estimated by
discounting expected future cash flows, based upon interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the agreements being valued.
SHORT-TERM AND LONG-TERM DEBT, PAYABLES UNDER SECURITIES LOANED TRANSACTIONS
AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS
The fair values of short-term and long-term debt, payables under securities
loaned transactions and Company-obligated mandatorily redeemable securities of
subsidiary trusts are determined by discounting expected future cash flows,
using risk rates currently available for debt with similar terms and remaining
maturities.
DERIVATIVE INSTRUMENTS
The fair value of derivative instruments, including financial futures,
financial forwards, interest rate, credit default and foreign currency swaps,
floors, foreign exchange contracts, caps, exchange-traded options and written
covered call options are based upon quotations obtained from dealers or other
reliable sources. See Note 4 for derivative fair value disclosures.
6. EMPLOYEE BENEFIT PLANS
PENSION BENEFIT AND OTHER BENEFIT PLANS
The Company is both the sponsor and administrator of defined benefit
pension plans covering all eligible employees and sales representatives of
Metropolitan Life and certain of its subsidiaries. Retirement benefits are based
upon years of credited service and final average earnings history.
F-31
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also provides certain postemployment benefits and certain
postretirement health care and life insurance benefits for retired employees
through insurance contracts. Substantially all of the Company's employees may,
in accordance with the plans applicable to the postretirement benefits, become
eligible for these benefits if they attain retirement age, with sufficient
service, while working for the Company.
DECEMBER 31,
-----------------------------------
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
2001 2000 2001 2000
------- ------- ------ ------
(DOLLARS IN MILLIONS)
Change in projected benefit obligation:
Projected benefit obligation at beginning of
year............................................. $4,145 $3,737 $1,542 $1,483
Service cost..................................... 104 98 34 29
Interest cost.................................... 308 291 115 113
Acquisitions and divestitures.................... (12) 107 -- 37
Actuarial losses................................. 169 176 66 59
Curtailments and terminations.................... (49) (3) 9 2
Change in benefits............................... 29 (2) -- (86)
Benefits paid.................................... (268) (259) (97) (95)
------ ------ ------ ------
Projected benefit obligation at end of year........ 4,426 4,145 1,669 1,542
------ ------ ------ ------
Change in plan assets:
Contract value of plan assets at beginning of
year............................................. 4,619 4,726 1,318 1,199
Actual return on plan assets..................... (201) 54 (49) 179
Acquisitions and divestitures.................... (12) 79 -- --
Employer and participant contributions........... 23 19 1 3
Benefits paid.................................... (268) (259) (101) (63)
------ ------ ------ ------
Contract value of plan assets at end of year....... 4,161 4,619 1,169 1,318
------ ------ ------ ------
(Under) over funded................................ (265) 474 (500) (224)
Unrecognized net asset at transition............... -- (31) -- --
Unrecognized net actuarial losses (gains).......... 693 2 (258) (478)
Unrecognized prior service cost.................... 116 109 (49) (89)
------ ------ ------ ------
Prepaid (accrued) benefit cost..................... $ 544 $ 554 $ (807) $ (791)
====== ====== ====== ======
Qualified plan prepaid pension cost................ $ 805 $ 775
Non-qualified plan accrued pension cost............ (323) (263)
Unamortized prior service cost..................... 16 14
Accumulated other comprehensive income............. 46 28
------ ------
Prepaid benefit cost............................... $ 544 $ 554
====== ======
F-32
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
NON-QUALIFIED
QUALIFIED PLANS PLANS TOTAL
----------------- ------------- -----------------
2001 2000 2001 2000 2001 2000
------- ------- ----- ----- ------- -------
(DOLLARS IN MILLIONS)
Aggregate projected benefit
obligation..................... $(4,006) $(3,775) $(420) $(370) $(4,426) $(4,145)
Aggregate contract value of plan
assets (principally Company
contracts)..................... 4,161 4,619 -- -- 4,161 4,619
------- ------- ----- ----- ------- -------
Over (under) funded.............. $ 155 $ 844 $(420) $(370) $ (265) $ 474
======= ======= ===== ===== ======= =======
The assumptions used in determining the aggregate projected benefit
obligation and aggregate contract value for the pension and other benefits were
as follows:
PENSION BENEFITS OTHER BENEFITS
-------------------------- ---------------------
2001 2000 2001 2000
----------- ------------ --------- ---------
Weighted average assumptions at
December 31:
Discount rate......................... 6.9% - 7.4% 6.9% - 7.75% 6% - 7.4% 6% - 7.5%
Expected rate of return on plan
assets.............................. 8% - 9% 8% - 9% 6% - 9% 6% - 9%
Rate of compensation increase......... 4% - 6% 4% - 6% N/A N/A
The assumed health care cost trend rates used in measuring the accumulated
nonpension postretirement benefit obligation were as follows:
DECEMBER 31,
-------------------------------------
2001 2000
------------------------------ ----
Pre-Medicare eligible benefits.................. 9.5% down to 5% over 10 years 6.5%
Medicare eligible benefits...................... 11.5% down to 5% over 10 years 6%
Assumed health care cost trend rates may have a significant effect on the
amounts reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
ONE PERCENT ONE PERCENT
INCREASE DECREASE
----------- -----------
(DOLLARS IN MILLIONS)
Effect on total of service and interest cost components..... $ 15 $ 12
Effect on accumulated postretirement benefit obligation..... $137 $114
The components of net periodic benefit cost were as follows:
PENSION BENEFITS OTHER BENEFITS
--------------------- -------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ----- ---- ----
(DOLLARS IN MILLIONS)
Service cost............................ $ 104 $ 98 $ 100 $ 34 $ 29 $ 28
Interest cost........................... 308 291 271 115 113 107
Expected return on plan assets.......... (402) (420) (363) (108) (97) (89)
Amortization of prior actuarial gains... (2) (19) (6) (27) (22) (11)
Curtailment (credit) cost............... 21 (3) (17) 6 2 10
----- ----- ----- ----- ---- ----
Net periodic benefit (credit) cost...... $ 29 $ (53) $ (15) $ 20 $ 25 $ 45
===== ===== ===== ===== ==== ====
F-33
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $64 million, $65 million and $45 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
7. CLOSED BLOCK
On the date of demutualization, Metropolitan Life established a closed
block for the benefit of holders of certain individual life insurance policies
of Metropolitan Life. 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. 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.
The Company uses the same accounting principles to account for the
participating policies included in the closed block as it used prior to the date
of demutualization. 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 effective date of the demutualization (adjusted to eliminate
the impact of related amounts in accumulated other comprehensive income)
represents the estimated maximum future earnings from the closed block expected
to result from operations attributed to the closed block after income taxes.
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 is greater than the expected
cumulative earnings of the closed block, the Company will pay the excess of the
actual cumulative earnings of the closed block over the expected cumulative
earnings 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 is 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.
Amounts reported for the period after demutualization are as of April 1, 2000
and for the period beginning on April 1, 2000 (the effect of transaction from
April 1, 2000 through April 6, 2000 are not considered material).
F-34
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Closed block liabilities and assets designated to the closed block are as
follows:
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
CLOSED BLOCK LIABILITIES
Future policy benefits...................................... $40,325 $39,415
Other policyholder funds.................................... 321 278
Policyholder dividends payable.............................. 757 740
Policyholder dividend obligation............................ 708 385
Payables under securities loaned transactions............... 3,350 3,268
Other....................................................... 90 78
------- -------
Total closed block liabilities.................... 45,551 44,164
------- -------
ASSETS DESIGNATED TO THE CLOSED BLOCK
Investments:
Fixed maturities available-for-sale, at fair value
(amortized cost: $25,761 and $25,657, respectively).... 26,331 25,634
Equity securities, at fair value (amortized cost: $240 and
$52, respectively)..................................... 282 54
Mortgage loans on real estate............................. 6,358 5,801
Policy loans.............................................. 3,898 3,826
Short-term investments.................................... 170 223
Other invested assets (amortized cost: $137 and $250,
respectively).......................................... 159 248
------- -------
Total investments................................. 37,198 35,786
Cash and cash equivalents................................... 1,119 661
Accrued investment income................................... 550 557
Deferred income tax receivable.............................. 1,060 1,234
Premiums and other receivables.............................. 244 158
------- -------
Total assets designated to the closed block....... 40,171 38,396
------- -------
Excess of closed block liabilities over assets designated to
the closed block.......................................... 5,380 5,768
------- -------
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains (losses), net of deferred
income tax expense (benefit) of $219 and $(9),
respectively........................................... 389 (14)
Unrealized derivative gains, net of deferred income tax
expense of $9.......................................... 17 --
Allocated to policyholder dividend obligation, net of
deferred income tax benefit of $255 and $143,
respectively........................................... (453) (242)
------- -------
(47) (256)
------- -------
Maximum future earnings to be recognized from closed block
assets and liabilities.................................... $ 5,333 $ 5,512
======= =======
F-35
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the policyholder dividend obligation is as follows:
FOR THE PERIOD
FOR THE APRIL 7, 2000
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2001 2000
------------ --------------
(DOLLARS IN MILLIONS)
Balance at beginning of period (1)......................... $ 385 $ --
Change in policyholder dividend obligation before allocable
net investment losses.................................... 159 85
Net investment losses...................................... (159) (85)
Change in unrealized investment and derivative gains....... 323 385
------ ------
Balance at end of period................................... $ 708 $ 385
====== ======
---------------
(1) For the period ended at December 31, 2000, the beginning of the period is
April 7, 2000. See Note 1 "Summary of Significant Accounting
Policies -- Demutualization and Initial Public Offering."
Closed block revenues and expenses were as follows:
FOR THE PERIOD
FOR THE APRIL 7, 2000
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2001 2000
------------ --------------
(DOLLARS IN MILLIONS)
REVENUES
Premiums................................................... $3,658 $2,900
Net investment income...................................... 2,711 1,949
Net investment losses (net of amounts allocable to the
policyholder dividend obligation of $(159) and $(85),
respectively)............................................ (20) (150)
------ ------
Total revenues........................................ 6,349 4,699
------ ------
EXPENSES
Policyholder benefits and claims........................... 3,862 2,874
Policyholder dividends..................................... 1,544 1,132
Change in policyholder dividend obligation (excludes
amounts directly related to net investment losses of
$(159) and $(85), respectively).......................... 159 85
Other expenses............................................. 508 425
------ ------
Total expenses........................................ 6,073 4,516
------ ------
Revenues net of expenses before income taxes............... 276 183
Income taxes............................................... 97 67
------ ------
Revenues net of expenses and income taxes.................. $ 179 $ 116
====== ======
F-36
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in maximum future earnings of the closed block was as follows:
FOR THE PERIOD
FOR THE APRIL 7, 2000
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2001 2000
------------ --------------
(DOLLARS IN MILLIONS)
Beginning of period........................................ $5,512 $5,628
End of period.............................................. 5,333 5,512
------ ------
Change during the period................................... $ (179) $ (116)
====== ======
Metropolitan Life charges the closed block with federal income taxes, state
and local premium taxes, and other additive state or local taxes, as well as
investment management expenses relating to the closed block as provided in the
plan of reorganization. Metropolitan Life also charges the closed block for
expenses of maintaining the policies included in the closed block.
Many of the derivative instrument strategies used by the Company are also
used for the closed block. The cumulative effect of the adoption of SFAS 133 and
SFAS 138, as of January 1, 2001, resulted in $11 million of other comprehensive
income, net of income taxes of $6 million. For the year ended December 31, 2001,
the closed block recognized net investment gains of $5 million primarily
relating to non-speculative derivative uses that are permitted by the Department
but that have not met the requirements of SFAS 133 to qualify for hedge
accounting. Excluding the adoption adjustment, the changes in other
comprehensive income were $6 million, net of taxes of $3 million, for the year
ended December 31, 2001.
8. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $48,912 million and $53,656 million at December 31,
2001 and 2000, respectively, for which the policyholder assumes the investment
risk, and guaranteed separate accounts totaling $13,802 million and $16,594
million at December 31, 2001 and 2000, respectively, for which the Company
contractually guarantees either a minimum return or account value to the
policyholder.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in the
Company's revenues as universal life and investment-type product policy fees and
totaled $564 million, $667 million and $485 million for the years ended December
31, 2001, 2000 and 1999, respectively. Guaranteed separate accounts consisted
primarily of Met Managed Guaranteed Interest Contracts and participating close
out contracts. The average interest rates credited on these contracts were 7.0%
and 6.9% at December 31, 2001 and 2000, respectively. The assets that support
these liabilities were comprised of $11,888 million and $15,708 million in fixed
maturities at December 31, 2001 and 2000, respectively. The portfolios are
segregated from other investments and are managed to minimize liquidity and
interest rate risk. In order to minimize the risk of disintermediation
associated with early withdrawals, these investment products carry a graded
surrender charge as well as a market value adjustment.
F-37
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DEBT
Debt consisted of the following:
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(DOLLARS IN MILLIONS)
Surplus notes, interest rates ranging from 6.30% to 7.80%,
maturity dates ranging from 2003 to 2025.................. $1,630 $1,630
Investment-related exchangeable debt, interest rate of 4.90%
due 2002.................................................. 195 271
Fixed rate notes, interest rates ranging from 3.47% to
12.00%, maturity dates ranging from 2002 to 2019.......... 87 316
Senior notes, interest rates ranging from 5.25% to 7.25%,
maturity dates ranging from 2006 to 2011.................. 1,546 98
Capital lease obligations................................... 23 42
Other notes with varying interest rates..................... 147 43
------ ------
Total long-term debt........................................ 3,628 2,400
Total short-term debt....................................... 355 1,085
------ ------
Total.................................................. $3,983 $3,485
====== ======
Metropolitan Life and certain of its subsidiaries maintain committed and
unsecured credit facilities aggregating $2,250 million (five-year facility of
$1,000 million expiring in April 2003 and a 364-day facility of $1,250 million
expiring in April of 2002). If these facilities are drawn upon, they would bear
interest at rates stated in the agreements. The facilities can be used for
general corporate purposes and also provide backup for the Company's commercial
paper program. At December 31, 2001, there were no outstanding borrowings under
either of the facilities. At December 31, 2001, $97 million in letters of credit
from various banks were outstanding between Metropolitan Life and certain of its
subsidiaries.
Reinsurance Group of America, Incorporated ("RGA"), a subsidiary of the
Company, maintains committed and unsecured credit facilities aggregating $180
million (one facility of $140 million, one facility of $18 million and one
facility of $22 million all expiring in 2005). At December 31, 2001 RGA had
drawn approximately $24 million under these facilities at interest rates ranging
from 4.40% to 4.97%. At December 31, 2001, $376 million in letters of credit
from various banks were outstanding between the subsidiaries of RGA.
Payments of interest and principal on the surplus notes, subordinated to
all other indebtedness, may be made only with the prior approval of the
insurance department of the state of domicile. Subject to the prior approval of
the Superintendent, the $300 million 7.45% surplus notes due 2023 may be
redeemed, in whole or in part, at the election of Metropolitan Life at any time
on or after November 1, 2003.
The issue of investment-related exchangeable debt is payable in cash or by
delivery of an underlying security owned by the Company. The amount of the debt
payable at maturity is greater than the principal of the debt if the market
value of the underlying security appreciates above certain levels at the date of
debt repayment as compared to the market value of the underlying security at the
date of debt issuance. At December 31, 2001, the underlying security pledged as
collateral had a market value of $240 million.
The aggregate maturities of long-term debt for the Company are $207 million
in 2002, $439 million in 2003, $27 million in 2004, $272 million in 2005, $609
million in 2006 and $2,074 million thereafter.
Short-term debt of the Company consisted of commercial paper with a
weighted average interest rate of 2.1% and 6.6% and a weighted average maturity
of 87 days and 44 days at December 31, 2001 and 2000,
F-38
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The Company also has other secured borrowings with a weighted
average coupon rate of 7.25% and a weighted average maturity of 30 days at
December 31, 2001.
Interest expense related to the Company's indebtedness included in other
expenses was $252 million, $377 million and $384 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
10. COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS
METLIFE CAPITAL TRUST I. In April 2000, MetLife Capital Trust I, a
Delaware statutory business trust wholly-owned by the Holding Company, issued
20,125,000 8.00% equity security units ("units"). Each unit consists of (i) a
purchase contract under which the holder agrees to purchase, for $50.00, shares
of common stock of the Holding Company on May 15, 2003 (59,771,250 shares at
December 31, 2001 and 2000 based on the average market price at December 31,
2001 and 2000) and (ii) a capital security, with a stated liquidation amount of
$50.00 and mandatorily redeemable on May 15, 2005. The number of shares to be
purchased at such date will be determined based on the average trading price of
the Holding Company's common stock. The proceeds from the sale of the units were
used to acquire $1,006 million 8.00% debentures of the Holding Company ("MetLife
debentures"). The capital securities represent undivided beneficial ownership
interests in MetLife Capital Trust I's assets, which consist solely of the
MetLife debentures. These securities are pledged to collateralize the
obligations of the unit holder under the related purchase contracts. Holders of
the capital securities are entitled to receive cumulative cash distributions
accruing from April 2000 and payable quarterly in arrears commencing August 15,
2000 at an annual rate of 8.00%. The Holding Company irrevocably guarantees, on
a senior and unsecured basis, the payment in full of distributions on the
capital securities and the stated liquidation amount of the capital securities,
in each case to the extent of available trust funds. Holders of the capital
securities generally have no voting rights. Capital securities outstanding were
$980 million and $972 million, net of unamortized discounts of $26 million and
$34 million, at December 31, 2001 and 2000, respectively.
The MetLife debentures bear interest at an annual rate of 8.00% of the
principal amount, payable quarterly in arrears commencing August 15, 2000 and
mature on May 15, 2005. These debentures are unsecured. The Holding Company's
right to participate in the distribution of assets of any subsidiary upon the
subsidiary's liquidation, reorganization or otherwise, is subject to the prior
claims of creditors of the subsidiary, except to the extent the Holding Company
may be recognized as a creditor of that subsidiary. Accordingly, the Holding
Company's obligations under the debentures are effectively subordinated to all
existing and future liabilities of its subsidiaries. Interest expense on these
instruments is included in other expenses and was $81 million and $59 million
for the years ended December 31, 2001 and 2000, respectively.
GENAMERICA CAPITAL I. In June 1997, GenAmerica Corporation ("GenAmerica")
issued $125 million of 8.525% capital securities through a wholly-owned
subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally
guaranteed, on a subordinated basis, the obligation of the trust under the
capital securities and is obligated to mandatorily redeem the securities on June
30, 2027. GenAmerica may prepay the securities any time after June 30, 2007.
Capital securities outstanding were $118 million, net of unamortized discount of
$7 million at December 31, 2001 and 2000. Interest expense on these instruments
is included in other expenses and was $11 million and $6 million for the years
ended December 31, 2001 and 2000, respectively.
RGA CAPITAL TRUST I. In December 2001, a subsidiary of the Company, RGA,
through its wholly-owned trust RGA Capital Trust I (the "Trust") issued
4,500,000 Preferred Income Equity Redeemable Securities ("PIERS") Units. Each
PIERS unit consists of (i) a preferred security issued by the Trust, having a
stated liquidation amount of $50 per unit, representing an undivided beneficial
ownership interest in the assets of the Trust, which consist solely of junior
subordinated debentures issued by RGA which have a principal amount at maturity
of $50 and a stated maturity of March 18, 2051, and (ii) a warrant to purchase,
at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an
exercise price of $50. The fair market value of the warrant on the issuance date
was $14.87 and is detachable from the preferred security. RGA fully and
unconditionally guarantees, on a subordinated basis, the obligations of the
Trust under the preferred securities. The preferred
F-39
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities and subordinated debentures were issued at a discount (original issue
discount) to the face or liquidation value of $14.87 per security. The
securities will accrete to their $50 face/liquidation value over the life of the
security on a level yield basis. The weighted average effective interest rate on
the preferred securities and the subordinated debentures is 8.25% per annum.
Capital securities outstanding at December 31, 2001 were $158 million, net of
unamortized discount of $67 million.
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
Sales Practices Claims
Over the past several years, Metropolitan Life, New England Mutual Life
Insurance Company ("New England Mutual") and General American Life Insurance
Company ("General American") have faced numerous claims, including class action
lawsuits, alleging improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
practices claims."
In December 1999, the United States District Court for the Western District
of Pennsylvania approved a class action settlement resolving litigation against
Metropolitan Life involving certain alleged sales practices claims. The
settlement class includes most of the owners of permanent life insurance
policies and annuity contracts or certificates issued pursuant to individual
sales in the United States by Metropolitan Life, Metropolitan Insurance and
Annuity Company or Metropolitan Tower Life Insurance Company between January 1,
1982 and December 31, 1997. The class includes owners of approximately six
million in-force or terminated insurance policies and approximately one million
in-force or terminated annuity contracts or certificates. Implementation of the
settlement is substantially completed.
Similar sales practices class actions against New England Mutual, with
which Metropolitan Life merged in 1996, and General American, which was acquired
in 2000, have been settled. The New England Mutual case, approved by the United
States District Court for the District of Massachusetts in October 2000,
involves approximately 600,000 life insurance policies sold during the period
January 1, 1983 through August 31, 1996. Implementation of the New England
Mutual class action settlement is substantially completed. The General American
case, approved by the United States District Court for the Eastern District of
Missouri, and affirmed by the appellate court in October 2001, involves
approximately 250,000 life insurance policies sold during the period January 1,
1982 through December 31, 1996. A petition for writ of certiorari to the United
States Supreme Court has been filed by objectors to the settlement.
Implementation of the General American class action settlement is proceeding.
Metropolitan Life expects that the total cost of its class action
settlement will be approximately $957 million. It is expected that the total
cost of the New England Mutual class action settlement will be approximately
$160 million. General American expects that the total cost of its class action
settlement will be approximately $68 million.
Certain class members have opted out of the class action settlements noted
above and have brought or continued non-class action sales practices lawsuits.
As of December 31, 2001, there are approximately 420 sales practices lawsuits
pending against Metropolitan Life, approximately 40 sales practices lawsuits
pending against New England Mutual and approximately 40 sales practices lawsuits
pending against General American. Metropolitan Life, New England Mutual and
General American continue to vigorously defend themselves against these
lawsuits. Some individual sales practices claims have been resolved through
settlement, won by dispositive motions, or, in a few instances, have gone to
trial. Most of the current cases seek substantial damages, including in some
cases punitive and treble damages and attorneys' fees. Additional litigation
relating to the Company's marketing and sales of individual life insurance may
be commenced in the future.
The Metropolitan Life class action settlement did not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
in Canada, and these actions remain pending. In October 2001,
F-40
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the United States District Court for the Southern District of New York approved
the settlement of a class action alleging improper sales abroad that was brought
against Metropolitan Life, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants. No
appeal was filed and the settlement is being implemented.
The Company believes adequate provision has been made in its consolidated
financial statements for all reasonably probable and estimable losses for sales
practices claims against Metropolitan Life, New England Mutual and General
American.
During 1998, Metropolitan Life purchased excess of loss reinsurance
agreements to provide reinsurance with respect to sales practices claims made on
or prior to December 31, 1999 and for certain mortality losses in 1999. The
premium for the excess of loss reinsurance agreements was $529 million. These
reinsurance agreements had a maximum aggregate limit of $650 million, with a
maximum sublimit of $550 million for losses for sales practices claims. The
coverage was in excess of an aggregate self-insured retention of $385 million
with respect to sales practices claims and $506 million, plus the Company's
statutory policy reserves released upon the death of insureds, with respect to
life mortality losses. The excess of loss reinsurance agreements were amended in
2000 to transfer mortality risks under the Metropolitan Life class action
settlement agreement. Recoveries have been made under the reinsurance agreements
for the sales practices claims. Although there is no assurance that other
reinsurance claim submissions will be paid, the Company believes payment is
likely to occur. The Company accounts for the aggregate excess of loss
reinsurance agreements as reinsurance; however, if deposit accounting were
applied, the effect on the Company's consolidated financial statements in 2001,
2000 and 1999 would not be significant.
Regulatory authorities in a small number of states have had investigations
or inquiries relating to Metropolitan Life's, New England Mutual's or General
American's sales of individual life insurance policies or annuities. Over the
past several years, these and a number of investigations by other regulatory
authorities were resolved for monetary payments and certain other relief. The
Company may continue to resolve investigations in a similar manner.
Asbestos-Related Claims
Metropolitan Life is also a defendant in thousands of lawsuits seeking
compensatory and punitive damages for personal injuries allegedly caused by
exposure to asbestos or asbestos-containing products. Metropolitan Life has
never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products. Rather, these lawsuits,
currently numbering in the thousands, have principally been based upon
allegations relating to certain research, publication and other activities of
one or more of Metropolitan Life's employees during the period from the 1920's
through approximately the 1950's and alleging that Metropolitan Life 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. Legal
theories asserted against Metropolitan Life have included negligence,
intentional tort claims and conspiracy claims concerning the health risks
associated with asbestos. While Metropolitan Life believes it has meritorious
defenses to these claims, and has not suffered any adverse judgments in respect
of these claims, most of the cases have been resolved by settlements.
Metropolitan Life intends to continue to exercise its best judgment regarding
settlement or defense of such cases, including when trials of these cases are
appropriate. The number of such cases that may be brought or the aggregate
amount of any liability that Metropolitan Life may ultimately incur is
uncertain.
F-41
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the total number of asbestos personal injury
claims pending against Metropolitan Life as of the dates indicated, the number
of new claims during the years ended on those dates and the total settlement
payments made to resolve asbestos personal injury claims during those years:
AT OR FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
2001 2000 1999
------- ------- -------
Asbestos personal injury claims at year end
(approximate)....................................... 89,000 73,000 60,000
Number of new claims during year (approximate)........ 59,500 54,500 35,500
Settlement payments during year (dollars in
millions)(1)........................................ $ 90.7 $ 71.1 $ 113.3
---------------
(1) Settlement payments represent payments made during the year in connection
with settlements made in that year and in prior years. Amounts do not
include Metropolitan Life's attorneys' fees and expenses and do not reflect
amounts received from insurance carriers.
Prior to the fourth quarter of 1998, Metropolitan Life established a
liability for asbestos-related claims based on settlement costs for claims that
Metropolitan Life had settled, estimates of settlement costs for claims pending
against Metropolitan Life and an estimate of settlement costs for unasserted
claims. The amount for unasserted claims was based on management's estimate of
unasserted claims that would be probable of assertion. A liability is not
established for claims which management believes are only reasonably possible of
assertion. Based on this process, the accrual for asbestos-related claims at
December 31, 1997 was $386 million. Potential liabilities for asbestos-related
claims are not easily quantified, due to the nature of the allegations against
Metropolitan Life, which are not related to the business of manufacturing,
producing, distributing or selling asbestos or asbestos-containing products,
adding to the uncertainty as to the number of claims that may be brought against
Metropolitan Life.
During 1998, Metropolitan Life decided to pursue the purchase of excess
insurance to limit its exposure to asbestos-related claims noted above. In
connection with the negotiations with the casualty insurers to obtain this
insurance, Metropolitan Life obtained information that caused management to
reassess the accruals for asbestos-related claims. This information included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against Metropolitan Life in the future
was significantly greater than it had assumed in its accruals. The number
of claims brought against Metropolitan Life is generally a reflection of
the number of asbestos-related claims brought against asbestos defendants
generally and the percentage of those claims in which Metropolitan Life
is included as a defendant. The information provided to Metropolitan Life
relating to other insureds indicated that Metropolitan Life had been
included as a defendant for a significant percentage of total
asbestos-related claims and that it may be included in a larger
percentage of claims in the future, because of greater awareness of
asbestos litigation generally by potential plaintiffs and plaintiffs'
lawyers and because of the bankruptcy and reorganization or the
exhaustion of insurance coverage of other asbestos defendants; and that,
although volatile, there was an upward trend in the number of total
claims brought against asbestos defendants.
- Information derived from actuarial calculations Metropolitan Life made in
the fourth quarter of 1998 in connection with these negotiations, which
helped to frame, define and quantify this liability. These calculations
were made using, among other things, current information regarding
Metropolitan Life's claims and settlement experience (which reflected
Metropolitan Life's decision to resolve an increased number of these
claims by settlement), recent and historic claims and settlement
experience of selected other companies and information obtained from the
insurers.
F-42
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on this information, Metropolitan Life concluded that certain claims
that previously were considered as only reasonably possible of assertion were
probable of assertion, increasing the number of assumed claims to approximately
three times the number assumed in prior periods. As a result of this
reassessment, Metropolitan Life increased its liability for asbestos-related
claims to $1,278 million at December 31, 1998.
During 1998, Metropolitan Life paid $878 million in premiums for excess
insurance policies for asbestos-related claims. The excess insurance policies
for asbestos-related claims provide for recovery of losses up to $1,500 million,
which is in excess of a $400 million self-insured retention. The
asbestos-related policies are also subject to annual and per-claim sublimits.
Amounts are recoverable under the policies annually with respect to claims paid
during the prior calendar year. As a result of the excess insurance policies,
$878 million was recorded as a recoverable at December 31, 2001, 2000 and 1999.
Although amounts paid in any given year that are recoverable under the policies
will be reflected as a reduction in the Company's operating cash flows for that
year, management believes that the payments will not have a material adverse
effect on the Company's liquidity. Each asbestos-related policy contains an
experience fund and a reference fund that provides for payments to the Company
at the commutation date if experience under the policy to such date has been
favorable, or pro rata reductions from time to time in the loss reimbursements
to the Company if the cumulative return on the reference fund is less than the
return specified in the experience fund. It is likely that a claim will be made
under the excess insurance policies in 2003 for a portion of the amounts paid
with respect to asbestos litigation in 2002. If at some point in the future, the
Company believes the liability for probable and estimable losses for
asbestos-related claims should be increased, an expense would be recorded and
the insurance recoverable would be adjusted subject to the terms, conditions and
limits of the excess insurance policies. Portions of the change in the insurance
recoverable would be deferred and amortized into income over the estimated
remaining settlement period of the insurance policies.
The Company believes adequate provision has been made in its consolidated
financial statements for all reasonably probable and estimable losses for
asbestos-related claims. Estimates of the Company's asbestos exposure are very
difficult to predict due to the limitations of available data and the
substantial difficulty of predicting with any certainty numerous variables that
can affect liability estimates, including the number of future claims, the cost
to resolve claims and the impact of any possible future adverse verdicts and
their amounts. Recent bankruptcies of other companies involved in asbestos
litigation, as well as advertising by plaintiffs' asbestos lawyers, may be
resulting in an increase in the number of claims and the cost of resolving
claims, as well as the number of trials and possible verdicts Metropolitan Life
may experience. Plaintiffs are seeking additional funds from defendants,
including Metropolitan Life, in light of such recent bankruptcies by certain
other defendants. Metropolitan Life is studying its recent claims experience,
published literature regarding asbestos claims experience in the United States
and numerous variables that can affect its asbestos liability exposure,
including the recent bankruptcies of other companies involved in asbestos
litigation and legislative and judicial developments, to identify trends and to
assess their impact on the previously recorded asbestos liability. It is
reasonably possible that the Company's total exposure to asbestos claims may be
greater than the liability recorded by the Company in its consolidated financial
statements and that future charges to income may be necessary. While the
potential future charges could be material in particular quarterly or annual
periods in which they are recorded, based on information currently known by
management, it does not believe any such charges are likely to have a material
adverse effect on the Company's consolidated financial position.
Property and Casualty Actions
A purported class action suit involving policyholders in four states was
filed in a Rhode Island state court against a Metropolitan Life subsidiary,
Metropolitan Property and Casualty Insurance Company, with respect to claims by
policyholders for the alleged diminished value of automobiles after
accident-related repairs. After the court denied plaintiffs' motion for class
certification, the plaintiffs dismissed the lawsuit with prejudice. Similar
"diminished value" purported class action suits have been filed in Texas and
Tennessee against Metropolitan Property and Casualty Insurance Company; a Texas
trial court recently denied plaintiffs' motion for class
F-43
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certification and a hearing on plaintiffs' motion in Tennessee for class
certification is to be scheduled. A purported class action has been filed
against Metropolitan Property and Casualty Insurance Company's subsidiary,
Metropolitan Casualty Insurance Company, in Florida. The complaint alleges
breach of contract and unfair trade practices with respect to allowing the use
of parts not made by the original manufacturer to repair damaged automobiles.
Discovery is ongoing and a motion for class certification is pending. A
two-plaintiff individual lawsuit brought in Alabama alleges that Metropolitan
Property and Casualty Insurance Company and CCC, a valuation company, violated
state law by failing to pay the proper valuation amount for a total loss. Total
loss valuation methods also are the subject of national class actions involving
other insurance companies. A Pennsylvania state court purported class action
lawsuit filed in August 2001 alleges that Metropolitan Property and Casualty
Insurance Company improperly took depreciation on partial homeowner losses where
the insured replaced the covered item. In addition, in Florida, Metropolitan
Property and Casualty Insurance Company has been named in a class action
alleging that it improperly established preferred provider organizations
(hereinafter "PPO"). Other insurers have been named in both the Pennsylvania and
the PPO cases. Metropolitan Property and Casualty Insurance Company and
Metropolitan Casualty Insurance Company are vigorously defending themselves
against these lawsuits.
Demutualization Actions
Several lawsuits were brought in 2000 challenging the fairness of
Metropolitan Life's plan of reorganization and the adequacy and accuracy of
Metropolitan Life's disclosure to policyholders regarding the plan. These
actions name as defendants some or all of Metropolitan Life, the Holding
Company, the individual directors, the New York Superintendent of Insurance and
the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs &
Company and Credit Suisse First Boston. Five purported class actions pending in
the Supreme Court of the State of New York for New York County have been
consolidated within the commercial part. Metropolitan Life has moved to dismiss
these consolidated cases on a variety of grounds. In addition, there remains a
separate purported class action in New York state court in New York County that
Metropolitan Life also has moved to dismiss. Another purported class action in
New York state court in Kings County has been voluntarily held in abeyance by
plaintiffs. The plaintiffs in the state court class actions seek injunctive,
declaratory and compensatory relief, as well as an accounting and, in some
instances, punitive damages. Some of the plaintiffs in the above described
actions also have brought a proceeding under Article 78 of New York's Civil
Practice Law and Rules challenging the Opinion and Decision of the New York
Superintendent of Insurance that approved the plan. In this proceeding,
petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin
him from granting final approval of the plan. This case also is being held in
abeyance by plaintiffs. Another purported class action is pending in the Supreme
Court of the State of New York for New York County and has been brought on
behalf of a purported class of beneficiaries of Metropolitan Life annuities
purchased to fund structured settlements claiming that the class members should
have received common stock or cash in connection with the demutualization.
Metropolitan Life has moved to dismiss this case on a variety of grounds. Three
purported class actions were filed in the United States District Court for the
Eastern District of New York claiming violation of the Securities Act of 1933.
The plaintiffs in these actions, which have been consolidated, claim that the
Policyholder Information Booklets relating to the plan failed to disclose
certain material facts and seek rescission and compensatory damages.
Metropolitan Life's motion to dismiss these three cases was denied on July 23,
2001. A purported class action also was filed in the United States District
Court for the Southern District of New York seeking damages from Metropolitan
Life and the Holding Company for alleged violations of various provisions of the
Constitution of the United States in connection with the plan of reorganization.
On July 9, 2001, pursuant to a motion to dismiss filed by Metropolitan Life,
this case was dismissed by the District Court. Plaintiffs have appealed to the
United States Court of Appeals for the Second Circuit. Metropolitan Life, the
Holding Company and the individual defendants believe they have meritorious
defenses to the plaintiffs' claims and are contesting vigorously all of the
plaintiffs' claims in these actions.
F-44
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario,
Canada on behalf of a proposed class of certain former Canadian policyholders
against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance
Company of Canada. Plaintiffs' allegations concern the way that their policies
were treated in connection with the demutualization of Metropolitan Life; they
seek damages, declarations, and other non-pecuniary relief. The defendants
believe they have meritorious defenses to the plaintiffs' claims and will
contest vigorously all of plaintiffs' claims in this matter.
Race-Conscious Underwriting Claims
Insurance Departments in a number of states initiated inquiries in 2000
about possible race-conscious underwriting of life insurance. These inquiries
generally have been directed to all life insurers licensed in their respective
states, including Metropolitan Life and certain of its subsidiaries. The New
York Insurance Department has commenced examinations of certain domestic life
insurance companies, including Metropolitan Life, concerning possible past
race-conscious underwriting practices. Metropolitan Life is cooperating fully
with that inquiry, which is ongoing. Four purported class action lawsuits filed
against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the
marketing, sale, and administration of life insurance policies have been
consolidated in the United States District Court for the Southern District of
New York. The plaintiffs seek unspecified monetary damages, punitive damages,
reformation, imposition of a constructive trust, a declaration that the alleged
practices are discriminatory and illegal, injunctive relief requiring
Metropolitan Life to discontinue the alleged discriminatory practices and adjust
policy values, and other relief. At the outset of discovery, Metropolitan Life
moved for summary judgment on statute of limitations grounds. On June 27, 2001,
the District Court denied that motion, citing, among other things, ongoing
discovery on relevant subjects. The ruling does not prevent Metropolitan Life
from continuing to pursue a statute of limitations defense. Plaintiffs have
moved for certification of a class consisting of all non-Caucasian policyholders
purportedly harmed by the practices alleged in the complaint. Metropolitan Life
has opposed the class certification motion. Metropolitan Life has been involved
in settlement discussions to resolve the regulatory examinations and the actions
pending in the United States District Court for the Southern District of New
York. In that connection, Metropolitan Life has recorded a $250 million pre-tax
charge in the fourth quarter of 2001 as probable and estimable costs associated
with the anticipated resolution of these matters.
In the fall of 2001, 12 lawsuits were filed against Metropolitan Life on
behalf of approximately 109 non-Caucasian plaintiffs in their individual
capacities in state court in Tennessee. The complaints allege under state common
law theories that Metropolitan Life discriminated against non-Caucasians in the
sale, formation and administration of life insurance policies. The plaintiffs
have stipulated that they do not seek and will not accept more than $74,000 per
person if they prevail on their claims. Early in 2002, two individual actions
were filed against Metropolitan Life in federal court in Alabama alleging both
federal and state law claims of racial discrimination in connection with the
sale of life insurance policies issued. Metropolitan Life is contesting
vigorously plaintiffs' claims in the Tennessee and Alabama actions.
Other
In March 2001, a putative class action was filed against Metropolitan Life
in the United States District Court for the Southern District of New York
alleging gender discrimination and retaliation in the MetLife Financial Services
unit of the Individual segment. The plaintiffs seek unspecified compensatory
damages, punitive damages, a declaration that the alleged practices are
discriminatory and illegal, injunctive relief requiring Metropolitan Life to
discontinue the alleged discriminatory practices, an order restoring class
members to their rightful positions (or appropriate compensation in lieu
thereof), and other relief. Metropolitan Life is vigorously defending itself
against these allegations.
A lawsuit has been filed against Metropolitan Life in Ontario, Canada by
Clarica Life Insurance Company regarding the sale of the majority of
Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges
F-45
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that Metropolitan Life breached certain representations and warranties contained
in the sale agreement, that Metropolitan Life made misrepresentations upon which
Clarica relied during the negotiations and that Metropolitan Life was negligent
in the performance of certain of its obligations and duties under the sale
agreement. Metropolitan Life is vigorously defending itself against this
lawsuit.
General American has received and responded to subpoenas for documents and
other information from the office of the U.S. Attorney for the Eastern District
of Missouri with respect to certain administrative services provided by its
former Medicare Unit during the period January 1, 1988 through December 31,
1998, which services ended and which unit was disbanded prior to MetLife's
acquisition of General American. The subpoenas were issued as part of the
Government's criminal investigation alleging that General American's former
Medicare Unit engaged in improper billing and claims payment practices. The
Government is also conducting a civil investigation under the federal False
Claims Act. General American is cooperating fully with the Government's
investigations.
Various litigation, claims and assessments against the Company, in addition
to those discussed above 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, employer, investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other federal and state authorities
regularly make inquiries and conduct investigations concerning the Company's
compliance with applicable insurance and other laws and regulations.
The Company has recorded, in other expenses, charges of $250 million, $15
million and $499 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The charge in 2001 relates to race-conscious underwriting and the
charges in 2000 and 1999 relate to sales practice claims. The charge in 1999 was
principally related to the settlement of the multi-district litigation
proceeding involving alleged improper sales practices, accruals for sales
practices claims not covered by the settlement and other legal costs.
Summary
It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, except as noted above in connection with specific matters. In
some of the matters referred to above, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. Although in light of these
considerations it is possible that an adverse outcome in certain cases could
have a material adverse effect upon the Company's consolidated financial
position, based on information currently known by the Company's management, in
its opinion, the outcomes of such pending investigations and legal proceedings
are not likely to have such an effect. However, 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 the
Company's operating results or cash flows in particular quarterly or annual
periods.
F-46
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenues. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sublease income, and minimum gross
rental payments relating to these lease agreements were as follows:
GROSS
RENTAL SUBLEASE RENTAL
INCOME INCOME PAYMENTS
------ -------- --------
(DOLLARS IN MILLIONS)
2002...................................................... $1,023 $11 $132
2003...................................................... 761 11 113
2004...................................................... 699 10 92
2005...................................................... 609 10 76
2006...................................................... 512 10 60
Thereafter................................................ 2,219 16 134
COMMITMENTS TO FUND PARTNERSHIP INVESTMENTS
The Company makes commitments to fund partnership investments in the normal
course of business. The amounts of these unfunded commitments were $1,898
million and $1,311 million at December 31, 2001 and 2000, respectively. The
Company anticipates that these amounts will be invested in the partnerships over
the next three to five years.
12. ACQUISITIONS AND DISPOSITIONS
DISPOSITIONS
On July 2, 2001, the Company completed its sale of Conning Corporation
("Conning"), an affiliate acquired in the acquisition of GenAmerica Financial
Corporation ("GenAmerica"). Conning specializes in asset management for
insurance company investment portfolios and investment research. The Company
received $108 million in the transaction and reported a gain of approximately
$16 million, net of income taxes of $9 million, in the third quarter of 2001.
During the fourth quarter of 2000, the Company completed the sale of its
48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P.
This transaction resulted in an investment gain of $663 million.
ACQUISITIONS
On January 6, 2000, Metropolitan Life completed its acquisition of
GenAmerica for $1.2 billion. As part of the GenAmerica acquisition, General
American Life Insurance Company paid Metropolitan Life a fee of $120 million in
connection with the assumption of certain funding agreements. The fee was
considered part of the purchase price of GenAmerica. GenAmerica is a holding
company which included General American Life Insurance Company, approximately
49% of the outstanding shares of RGA common stock, and 61.0% of the outstanding
shares of Conning common stock. Metropolitan Life owned 9% of the outstanding
shares of RGA common stock prior to the completion of the GenAmerica
acquisition. At December 31, 2001 Metropolitan Life's ownership percentage of
the outstanding shares of RGA common stock was approximately 58%. On January 30,
2002, MetLife, Inc. and its affiliated companies announced their intention to
purchase up to an additional $125 million of RGA's outstanding common stock,
over an unspecified period of time. These purchases are intended to offset
potential future dilution of the Company's holding of RGA's common stock arising
from the
F-47
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance by RGA of company-obligated mandatorily redeemable securities of a
subsidiary trust on December 10, 2001.
In April 2000, Metropolitan Life acquired the outstanding shares of Conning
common stock not already owned by Metropolitan Life for $73 million. The shares
of Conning were subsequently sold in their entirety in July 2001.
The Company's total revenues and net income for the year ended December 31,
1999 on both a historical and pro forma basis as if the acquisition of
GenAmerica had occurred on January 1, 1999 were as follows:
TOTAL REVENUES NET INCOME
-------------- ----------
(DOLLARS IN MILLIONS)
Historical.................................................. $25,128 $617
Pro forma (unaudited)....................................... $28,973 $403
The pro forma results include adjustments to give effect to the
amortization of discounts on fixed maturities, goodwill and value of business
acquired, adjustments to liabilities for future policy benefits, and certain
other adjustments, together with related income tax effects. The pro forma
information is not necessarily indicative of the results that would have
occurred had the purchase been made on January 1, 1999 or the future results of
the combined operations.
13. BUSINESS REALIGNMENT INITIATIVES
During the fourth quarter of 2001, the Company implemented several business
realignment initiatives, which resulted from a strategic review of operations
and an ongoing commitment to reduce expenses. The impact of these actions on a
segment basis are as follows:
FOR THE YEAR ENDED
DECEMBER 31, 2001
---------------------
NET OF
AMOUNT INCOME TAX
------- -----------
(DOLLARS IN MILLIONS)
Institutional............................................... $399 $267
Individual.................................................. 97 61
Auto & Home................................................. 3 2
---- ----
Total.................................................. $499 $330
==== ====
The charges, net of income tax, reduced earnings per share for the year
ended December 31, 2001 by $0.43, on a diluted basis.
Institutional The charges to this segment include costs associated with
exiting a business, including the write-off of goodwill, severance,
severance-related expenses, and facility consolidation costs. These expenses are
the result of the discontinuance of certain 401(k) recordkeeping services and
externally-managed guaranteed index separate accounts. These initiatives will
result in the elimination of approximately 450 positions. These actions resulted
in charges to policyholder benefits and claims and other expenses of $215
million and $184 million, respectively.
Individual The charges to this segment include facility consolidation
costs, severance and severance-related expenses, which predominately stem from
the elimination of approximately 560 non-sales positions and 190 operations and
technology positions supporting this segment. The costs were recorded in other
expenses.
Auto & Home The charges to this segment include severance and
severance-related costs associated with the elimination of approximately 200
positions. The costs were recorded in other expenses.
F-48
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although many of the underlying business initiatives were completed in
2001, a portion of the activity will continue into 2002. The liability as of
December 31, 2001 was $295 million.
14. INCOME TAXES
The provision for income taxes was as follows:
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
----- ------ -----
(DOLLARS IN MILLIONS)
Current:
Federal................................................... $(44) $(153) $608
State and local........................................... (4) 34 24
Foreign................................................... 15 5 4
---- ----- ----
(33) (114) 636
---- ----- ----
Deferred:
Federal................................................... 286 563 (78)
State and local........................................... 12 8 2
Foreign................................................... 1 6 (2)
---- ----- ----
299 577 (78)
---- ----- ----
Provision for income taxes.................................. $266 $ 463 $558
==== ===== ====
Reconciliations of the income tax provision at the U.S. statutory rate to
the provision for income taxes as reported were as follows:
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
----- ------ -----
(DOLLARS IN MILLIONS)
Tax provision at U.S. statutory rate........................ $259 $ 496 $411
Tax effect of:
Tax exempt investment income.............................. (82) (52) (39)
Surplus tax............................................... -- (145) 125
State and local income taxes.............................. 9 30 18
Prior year taxes.......................................... 38 (37) (31)
Demutualization costs..................................... -- 21 56
Payment to former Canadian policyholders.................. -- 114 --
Sales of businesses....................................... 5 31 --
Other, net................................................ 37 5 18
---- ----- ----
Provision for income taxes.................................. $266 $ 463 $558
==== ===== ====
F-49
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent 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:
DECEMBER 31,
----------------------
2001 2000
---------- ---------
(DOLLARS IN MILLIONS)
Deferred income tax assets:
Policyholder liabilities and receivables.................. $ 3,727 $3,057
Net operating losses...................................... 336 262
Employee benefits......................................... 123 167
Litigation related........................................ 279 232
Other..................................................... 438 348
------- ------
4,903 4,066
Less: Valuation allowance................................. 114 78
------- ------
4,789 3,988
------- ------
Deferred income tax liabilities:
Investments............................................... 2,157 1,330
Deferred policy acquisition costs......................... 2,950 2,752
Net unrealized investment gains........................... 1,079 621
Other..................................................... 129 37
------- ------
6,315 4,740
------- ------
Net deferred income tax liability........................... $(1,526) $ (752)
======= ======
Domestic net operating loss carryforwards amount to $533 million at
December 31, 2001 and expire in 2021. Foreign net operating loss carryforwards
amount to $401 million at December 31, 2001 and were generated in various
foreign countries with expiration periods of five years to infinity.
The Company has recorded a valuation allowance related to tax benefits of
certain foreign net operating loss carryforwards. The valuation allowance
reflects management's assessment, based on available information, that it is
more likely than not that the deferred income tax asset for certain foreign net
operating loss carryforwards will not be realized. The tax benefit will be
recognized when management believes that it is more likely than not that these
deferred income tax assets are realizable.
The Internal Revenue Service has audited the Company for the years through
and including 1996. The Company is being audited for the years 1997, 1998, 1999
and 2000. The Company believes that any adjustments that might be required for
open years will not have a material effect on the Company's consolidated
financial statements.
15. REINSURANCE
The Company's life insurance operations participate in reinsurance in order
to limit losses, minimize exposure to large risks, and to provide additional
capacity for future growth. Risks in excess of $25 million on single
survivorship policies and $30 million on joint survivorship policies are 100
percent coinsured. Life reinsurance is accomplished through various plans of
reinsurance, primarily yearly renewable term and coinsurance. In addition, the
Company has exposure to catastrophes, which are an inherent risk of the property
and casualty insurance business and could contribute to significant fluctuations
in the Company's results of operations. The Company uses excess of loss and
quota share reinsurance arrangements to limit its maximum loss, provide greater
diversification of risk and minimize exposure to larger risks. The Company is
contingently
F-50
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liable with respect to ceded reinsurance should any reinsurer be unable to meet
its obligations under these agreements.
The Company is engaged in life reinsurance whereby it indemnifies other
insurance companies for all or a portion of the insurance risk underwritten by
the ceding companies.
See Note 11 for information regarding certain excess of loss reinsurance
agreements providing coverage for risks associated primarily with sales
practices claims.
The amounts in the consolidated statements of income are presented net of
reinsurance ceded. The effects of reinsurance were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Direct premiums......................................... $16,332 $15,661 $13,249
Reinsurance assumed..................................... 2,907 2,918 484
Reinsurance ceded....................................... (2,027) (2,262) (1,645)
------- ------- -------
Net premiums............................................ $17,212 $16,317 $12,088
======= ======= =======
Reinsurance recoveries netted against policyholder
benefits.............................................. $ 2,002 $ 1,942 $ 1,626
======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were
$3,358 million and $3,410 million at December 31, 2001 and 2000, respectively,
including $1,356 million and $1,359 million, respectively, relating to
reinsurance of long-term guaranteed interest contracts and structured settlement
lump sum contracts accounted for as a financing transaction. Reinsurance and
ceded commissions payables, included in other liabilities, were $295 million and
$225 million at December 31, 2001 and 2000, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to property and casualty and group accident and non-medical
health policies and contracts:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Balance at January 1..................................... $ 4,185 $ 3,789 $ 3,320
Reinsurance recoverables............................... (413) (415) (382)
------- ------- -------
Net balance at January 1................................. 3,772 3,374 2,938
------- ------- -------
Acquisition of business.................................. -- 2 204
------- ------- -------
Incurred related to:
Current year........................................... 4,213 3,766 3,129
Prior years............................................ (34) (111) (16)
------- ------- -------
4,179 3,655 3,113
------- ------- -------
Paid related to:
Current year........................................... (2,567) (2,237) (2,012)
Prior years............................................ (1,239) (1,022) (869)
------- ------- -------
(3,806) (3,259) (2,881)
------- ------- -------
Net Balance at December 31............................... 4,145 3,772 3,374
Add: Reinsurance recoverables.......................... 423 413 415
------- ------- -------
Balance at December 31................................... $ 4,568 $ 4,185 $ 3,789
======= ======= =======
F-51
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. OTHER EXPENSES
Other expenses were comprised of the following:
YEARS ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN MILLIONS)
Compensation............................................. $ 2,459 $ 2,712 $ 2,590
Commissions.............................................. 1,651 1,696 872
Interest and debt issue costs............................ 332 436 405
Amortization of policy acquisition costs (excludes
amortization of $25, $(95), and $(46), respectively,
related to realized investment losses)................. 1,413 1,478 930
Capitalization of policy acquisition costs............... (2,039) (1,863) (1,160)
Rent, net of sublease income............................. 282 230 172
Minority interest........................................ 57 115 55
Other.................................................... 3,410 3,220 2,598
------- ------- -------
Total other expenses................................ $ 7,565 $ 8,024 $ 6,462
======= ======= =======
17. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On September 29, 1999, the Holding Company adopted a stockholder rights
plan (the "rights plan") under which each outstanding share of common stock
issued between April 4, 2000 and the distribution date (as defined in the rights
plan) will be coupled with a stockholder right. Each right will entitle the
holder to purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock. Each one one-hundredth of a share of Series A Junior
Participating Preferred Stock will have economic and voting terms equivalent to
one share of common stock. Until it is exercised, the right itself will not
entitle the holder thereof to any rights as a stockholder, including the right
to receive dividends or to vote at stockholder meetings.
Stockholder rights are not exercisable until the distribution date, and
will expire at the close of business on April 4, 2010, unless earlier redeemed
or exchanged by the Holding Company. The rights plan is designed to protect
stockholders in the event of unsolicited offers to acquire the Holding Company
and other coercive takeover tactics.
COMMON STOCK
On the date of demutualization, the Holding Company conducted an initial
public offering of 202,000,000 shares of its common stock and concurrent private
placements of an aggregate of 60,000,000 shares of its common stock at an
initial public offering price of $14.25 per share. The shares of common stock
issued in the offerings were in addition to 494,466,664 shares of common stock
of the Holding Company distributed to the MetLife Policyholder Trust for the
benefit of policyholders of Metropolitan Life in connection with the
demutualization. On April 10, 2000, the Holding Company issued 30,300,000
additional shares of common stock as a result of the exercise of over-allotment
options granted to underwriters in the initial public offering.
On March 28, 2001, the Holding Company's Board of Directors authorized a $1
billion common stock repurchase program. This program began after the completion
of an earlier $1 billion repurchase program that was announced on June 27, 2000.
Under these authorizations, the Holding Company may purchase common stock from
the MetLife Policyholder Trust, in the open market and in privately negotiated
transactions. On August 7, 2001, the Company purchased 10 million shares of its
common stock as part of the sale of 25 million
F-52
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of MetLife common stock by Santusa Holdings, S.L., an affiliate of Banco
Santander Central Hispano, S.A. The sale by Santusa Holdings, S.L. was made
pursuant to a shelf registration statement, effective June 29, 2001. The Company
acquired 45,242,966 and 26,108,315 shares of common stock for $1,322 million and
$613 million during the years ended December 31, 2001 and 2000, respectively.
During the years ended December 31, 2001 and 2000, 67,578 and 23,564 of these
shares have been reissued for $1 million and $0.4 million, respectively.
On February 19, 2002, the Holding Company's Board of Directors authorized
an additional $1 billion common stock repurchase program. This program will
begin after the completion of the March 28, 2001 repurchase program.
DIVIDEND RESTRICTIONS
Under the New York Insurance Law, Metropolitan Life is permitted without
prior insurance regulatory clearance to pay a stockholder dividend to the
Holding Company as long as the aggregate amount of all such dividends in any
calendar year does not exceed the lesser of (i) 10% of its surplus to
policyholders as of the immediately preceding calendar year and (ii) its
statutory net gain from operations for the immediately preceding calendar year
(excluding realized capital gains). Metropolitan Life will be permitted to pay a
stockholder dividend to the Holding Company in excess of the lesser of such two
amounts only if it files notice of its intention to declare such a dividend and
the amount thereof with the Superintendent and the Superintendent does not
disapprove the distribution. Under the New York 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 stockholders. The Department has established informal
guidelines for such determinations. The guidelines, among other things, focus on
the insurer's overall financial condition and profitability under statutory
accounting practices. For the year ended December 31, 2001, Metropolitan Life
paid to MetLife, Inc. $721 million in dividends for which prior insurance
regulatory clearance was not required and $3,064 million in special dividends,
as approved by the Superintendent. For the year ended December 31, 2000,
Metropolitan Life paid to MetLife, Inc. $763 million in dividends for which
prior insurance regulatory clearance was not required. At December 31, 2001,
Metropolitan Life could pay the Holding Company a dividend of $546 million
without prior approval of the Superintendent.
MIAC is subject to similar restrictions based on the regulations of its
domicile, and at December 31, 2001, could pay the Holding Company dividends of
$104 million without prior approval.
STOCK COMPENSATION PLANS
Under the MetLife, Inc. 2000 Stock Incentive Plan (the "Stock Incentive
Plan"), awards granted may be in the form of non-qualified or incentive stock
options qualifying under Section 422A of the Internal Revenue Code. Under the
MetLife, Inc. 2000 Directors Stock Plan, (the "Directors Stock Plan") awards
granted may be in the form of stock awards or non-qualified stock options or a
combination of the foregoing to outside Directors of the Company. The aggregate
number of shares of stock that may be awarded under the Stock Incentive Plan is
subject to a maximum limit of 37,823,333 shares for the duration of the plan.
The Directors Stock Plan has a maximum limit of 500,000 share awards.
All options granted have an exercise price equal to the fair market value
price of the Company's common stock on the date of grant, and an option's
maximum term is ten years. Certain options under the Stock Incentive Plan become
exercisable over a three-year period commencing with date of grant, while other
options become exercisable three years after the date of grant. Options issued
under the Directors Stock Plan are exercisable at any time after April 7, 2002.
The Company applies APB 25 and related interpretations in accounting for
its stock-based compensation plans. Accordingly, in the measurement of
compensation expense, the Company utilizes the excess of market
F-53
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price over exercise price on the first date that both the number of shares and
award price are known. For the year ended December 31, 2001, compensation
expense for non-employees related to the Company's Stock Incentive Plan and
Directors Stock Plan was $1 million.
Had compensation cost for the Company's Stock Incentive Plan and Directors
Stock Plan been determined based on fair value at the grant date for awards
under those plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share for the year ended December 31, 2001 would have
been reduced to the pro forma amounts below:
AS REPORTED PRO FORMA(1)(2)
----------- ---------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
Net income................................................. $ 473 $ 454
Basic earnings per share................................... $0.64 $0.61
Diluted earnings per share................................. $0.62 $0.59
---------------
(1) The pro forma earnings disclosures are not necessarily representative of the
effects on net income and earnings per share in future years.
(2) Includes the Company's ownership share of compensation costs related to
RGA's incentive stock plan determined in accordance with SFAS 123.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions used for grants in 2001: dividend yield of 0.68%, expected
price variability of 31.60%, risk-free interest rate of 5.72% and expected
duration ranging from 4 to 6 years.
A summary of the status of options included in the Company's Stock
Incentive Plan and Directors Stock Plan as of December 31, 2001 and changes
during the year ended is presented below:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------- --------------
Granted.................................................... 12,263,550 $29.93
Canceled................................................... (1,158,025) 29.95
----------- ------
Outstanding at end of year................................. 11,105,525 $29.93
=========== ======
Exercisable at end of year................................. -- --
=========== ======
Weighted average fair value of options granted during
2001..................................................... $ 10.29
===========
The following table summarizes information about stock options outstanding
at December 31, 2001:
NUMBER WEIGHTED AVERAGE WEIGHTED
OUTSTANDING AT REMAINING CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 2001 LIFE (YEARS) EXERCISE PRICE
------------------------ ----------------- --------------------- --------------
$27.30 - $28.30 77,600 9.84 $27.30
28.31 - 29.30 21,216 9.75 29.00
29.31 - 30.30 10,964,925 8.78 29.95
30.31 - 30.95 41,784 9.55 30.94
---------- ---- ------
11,105,525 8.79 $29.93
========== ==== ======
F-54
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATUTORY EQUITY AND INCOME
Applicable insurance department regulations require that the insurance
subsidiaries prepare statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by the insurance department of the
state of domicile. Statutory accounting practices primarily differ from GAAP 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, New York State Statutory Accounting Practices do not provide
for deferred income taxes. Statutory net income of Metropolitan Life, as filed
with the Department, was $2,782 million, $1,027 million and $789 million for the
years ended 2001, 2000 and 1999, respectively; statutory capital and surplus, as
filed, was $5,358 million and $7,213 million at December 31, 2001 and 2000,
respectively.
The National Association of Insurance Commissioners ("NAIC") adopted the
Codification of Statutory Accounting Principles (the "Codification"), which is
intended to standardize regulatory accounting and reporting to state insurance
departments, and became effective January 1, 2001. However, statutory accounting
principles continue to be established by individual state laws and permitted
practices. The Department required adoption of the Codification, with certain
modifications, for the preparation of statutory financial statements effective
January 1, 2001. The adoption of the Codification in accordance with NAIC
guidance would have increased Metropolitan Life's statutory capital and surplus
by approximately $1.5 billion. The adoption of the Codification, as modified by
the Department, increased Metropolitan Life's statutory capital and surplus by
approximately $84 million, as of January 1, 2001. Further modifications by state
insurance departments may impact the effect of the Codification on Metropolitan
Life's statutory surplus and capital.
18. OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the reclassification adjustments required
for the years ended December 31, 2001, 2000 and 1999 to avoid double-counting in
other comprehensive income (loss) items that are included as part of net income
for the current year that have been reported as a part of other comprehensive
income (loss) in the current or prior year:
DECEMBER 31,
-------------------------
2001 2000 1999
------ ------ -------
(DOLLARS IN MILLIONS)
Holding gains (losses) on investments arising during the
year..................................................... $1,318 $2,789 $(6,314)
Income tax effect of holding gains or losses............... (520) (969) 2,262
Reclassification adjustments:
Recognized holding losses included in current year
income................................................ 534 989 38
Amortization of premium and discount on investments...... (488) (499) (307)
Recognized holding losses allocated to other policyholder
amounts............................................... (134) (54) (67)
Income tax effect........................................ 35 (151) 120
Allocation of holding (gains) losses on investments
relating to other policyholder amounts................... (68) (971) 3,788
Income tax effect of allocation of holding gains or losses
to other policyholder amounts............................ 27 338 (1,357)
------ ------ -------
Net unrealized investment gains (losses)................... 704 1,472 (1,837)
Foreign currency translation adjustment.................... (60) (6) 50
Minimum pension liability adjustment....................... (18) (9) (7)
------ ------ -------
Other comprehensive income (loss).......................... $ 626 $1,457 $(1,794)
====== ====== =======
F-55
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. EARNINGS PER SHARE AND EARNINGS AFTER DATE OF DEMUTUALIZATION
Net income after the date of demutualization is based on the results of
operations after March 31, 2000, adjusted for the payments to the former
Canadian policyholders and costs of demutualization recorded in April 2000 which
are applicable to the period prior to April 7, 2000.
The following presents a reconciliation of the weighted average shares used
in calculating basic earnings per share to those used in calculating diluted
earnings per share:
NET PER SHARE
INCOME SHARES AMOUNT
---------- --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, 2001
Amounts for basic earnings per share............... $ 473 741,041,654 $0.64
====== =====
Incremental shares from assumed:
Conversion of forward purchase contracts......... 25,974,114
Exercise of stock options........................ 1,133
-----------
Amounts for diluted earnings per share............. $ 473 767,016,901 $0.62
====== =========== =====
FOR THE PERIOD APRIL 7, 2000 THROUGH DECEMBER 31,
2000
Amounts for basic earnings per share............... $1,173 772,027,666 $1.52
====== =====
Incremental shares from assumed conversion of
forward purchase contracts....................... 16,480,028
-----------
Amounts for diluted earnings per share............. $1,173 788,507,694 $1.49
====== =========== =====
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended December
31, 2001 and 2000 are summarized in the table below:
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2001
Total revenues............................ $7,971 $7,811 $7,970 $8,176
Total expenses............................ 7,544 7,318 7,731 8,596
Net income (loss)......................... 287 320 162 (296)
Basic earnings (loss) per share........... 0.38 0.43 0.22 (0.41)
Diluted earnings (loss) per share......... 0.37 0.41 0.21 (0.41)
2000
Total revenues............................ $7,607 $8,009 $7,672 $8,456
Total expenses............................ 7,187 7,992 7,360 7,789
Net income (loss)......................... 236 (115)* 241 591
Basic earnings per share.................. N/A 0.44 0.31 0.77
Diluted earnings per share................ N/A 0.44 0.31 0.74
---------------
N/A -- Not applicable
* Net income after date of demutualization is $341 million.
F-56
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to changes in the number of average shares outstanding, quarterly
earnings per share of common stock do not add to the totals for the years.
Earnings per share data is presented only for periods after the date of
demutualization.
The unaudited pre-tax results of operations for the third quarter of 2001
include charges of $325 million related to the September 11, 2001 tragedies. The
unaudited pre-tax results of operations for the fourth quarter of 2001 include
charges of $250 million related to the anticipated resolution of proceedings
alleging race-conscious underwriting, $499 million related to business
realignment initiatives and $118 million related to the establishment of a
policyholder liability for certain group annuity policies. The unaudited pre-tax
results of operations for the fourth quarter of 2000 include an investment gain
of $663 million from the sale of the Company's interest in Nvest, L.P. and Nvest
Companies L.P. and a surplus tax credit of $175 million.
21. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe, South Africa,
Asia and Australia. The Company's business is divided into six major segments:
Individual, Institutional, Reinsurance, Auto & Home, Asset Management and
International. These segments are managed separately because they either provide
different products and services, require different strategies or have different
technology requirements.
Individual offers a wide variety of individual insurance and investment
products, including life insurance, annuities and mutual funds. Institutional
offers a broad range of group insurance and retirement and savings products and
services, including group life insurance, non-medical health insurance such as
short and long-term disability, long-term care, and dental insurance, and other
insurance products and services. Reinsurance provides life reinsurance and
international life and disability on a direct and reinsurance basis. Auto & Home
provides insurance coverages, including private passenger automobile, homeowners
and personal excess liability insurance. Asset Management provides a broad
variety of asset management products and services to individuals and
institutions. International provides life insurance, accident and health
insurance, annuities and retirement and savings products to both individuals and
groups, and auto and homeowners coverage to individuals.
Set forth in the tables below is certain financial information with respect
to the Company's operating segments as of or for the years ended December 31,
2001, 2000 and 1999. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies, except for
the method of capital allocation and the accounting for gains and losses from
inter-company sales which are eliminated in consolidation. The Company allocates
capital to each segment based upon an internal capital allocation system that
allows the Company to more effectively manage its capital. The Company evaluates
the performance of each operating segment based upon income or loss from
operations before provision for income taxes and non-recurring items (e.g. items
of unusual or infrequent nature). The Company allocates non-recurring items
(primarily consisting of expenses associated with the anticipated resolution of
proceedings alleging race-conscious underwriting practices, sales practices
claims and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products and demutualization costs) to Corporate & Other.
F-57
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AT OR FOR THE YEAR ENDED AUTO & ASSET
DECEMBER 31, 2001 INDIVIDUAL INSTITUTIONAL REINSURANCE HOME MANAGEMENT INTERNATIONAL
------------------------ ---------- ------------- ----------- ------ ---------- -------------
(DOLLARS IN MILLIONS)
Premiums....................... $ 4,563 $ 7,288 $1,762 $2,755 $ -- $ 846
Universal life and
investment-type product
policy fees.................. 1,260 592 -- -- -- 38
Net investment income.......... 6,512 4,161 390 200 71 267
Other revenues................. 495 649 42 22 198 16
Net investment gains
(losses)..................... 827 (15) (6) (17) 25 (16)
Policyholder benefits and
claims....................... 5,233 8,924 1,484 2,121 -- 689
Interest credited to
policyholder account
balances..................... 1,898 1,013 122 -- -- 51
Policyholder dividends......... 1,767 259 24 -- -- 36
Other expenses................. 3,012 1,907 491 800 252 329
Income (loss) before provision
for income taxes............. 1,747 572 67 39 42 46
Net income (loss).............. 1,095 382 40 41 27 14
Total assets................... 131,314 89,661 7,911 4,581 256 5,308
Deferred policy acquisition
costs........................ 8,757 509 1,196 179 -- 525
Separate account assets........ 31,261 31,177 13 -- -- 277
Policyholder liabilities....... 88,287 52,075 5,355 2,610 -- 3,419
Separate account liabilities... 31,261 31,177 13 -- -- 277
AT OR FOR THE YEAR ENDED CORPORATE &
DECEMBER 31, 2001 OTHER TOTAL
------------------------ ----------- --------
(DOLLARS IN MILLIONS)
Premiums....................... $ (2) $ 17,212
Universal life and
investment-type product
policy fees.................. (1) 1,889
Net investment income.......... 322 11,923
Other revenues................. 85 1,507
Net investment gains
(losses)..................... (1,401) (603)
Policyholder benefits and
claims....................... 3 18,454
Interest credited to
policyholder account
balances..................... -- 3,084
Policyholder dividends......... -- 2,086
Other expenses................. 774 7,565
Income (loss) before provision
for income taxes............. (1,774) 739
Net income (loss).............. (1,126) 473
Total assets................... 17,867 256,898
Deferred policy acquisition
costs........................ 1 11,167
Separate account assets........ (14) 62,714
Policyholder liabilities....... (813) 150,933
Separate account liabilities... (14) 62,714
AT OR FOR THE YEAR ENDED AUTO & ASSET
DECEMBER 31, 2000 INDIVIDUAL INSTITUTIONAL REINSURANCE HOME MANAGEMENT INTERNATIONAL
------------------------ ---------- ------------- ----------- ------ ---------- -------------
(DOLLARS IN MILLIONS)
Premiums....................... $ 4,673 $ 6,900 $1,450 $2,636 $ -- $ 660
Universal life and
investment-type product
policy fees.................. 1,221 547 -- -- -- 53
Net investment income.......... 6,475 3,959 379 194 90 254
Other revenues................. 650 650 29 40 760 9
Net investment gains
(losses)..................... 227 (475) (2) (20) -- 18
Policyholder benefits and
claims....................... 5,054 8,178 1,096 2,005 -- 562
Interest credited to
policyholder account
balances..................... 1,680 1,090 109 -- -- 56
Policyholder dividends......... 1,742 124 21 -- -- 32
Payments to former Canadian
policyholders................ -- -- -- -- -- 327
Demutualization costs.......... -- -- -- -- -- --
Other expenses................. 3,323 1,730 513 827 784 292
Income (loss) before provision
for income taxes............. 1,447 459 117 18 66 (275)
Net income (loss).............. 920 307 69 30 34 (285)
Total assets................... 132,433 89,725 7,163 4,511 418 5,119
Deferred policy acquisition
costs........................ 8,610 446 1,030 176 -- 354
Separate account assets........ 34,860 33,918 28 -- -- 1,491
Policyholder liabilities....... 84,049 49,669 5,028 2,559 -- 2,435
Separate account liabilities... 34,860 33,918 28 -- -- 1,491
AT OR FOR THE YEAR ENDED CORPORATE &
DECEMBER 31, 2000 OTHER TOTAL
------------------------ ----------- --------
(DOLLARS IN MILLIONS)
Premiums....................... $ (2) $ 16,317
Universal life and
investment-type product
policy fees.................. (1) 1,820
Net investment income.......... 417 11,768
Other revenues................. 91 2,229
Net investment gains
(losses)..................... (138) (390)
Policyholder benefits and
claims....................... (2) 16,893
Interest credited to
policyholder account
balances..................... -- 2,935
Policyholder dividends......... -- 1,919
Payments to former Canadian
policyholders................ -- 327
Demutualization costs.......... 230 230
Other expenses................. 555 8,024
Income (loss) before provision
for income taxes............. (416) 1,416
Net income (loss).............. (122) 953
Total assets................... 14,765 254,134
Deferred policy acquisition
costs........................ 2 10,618
Separate account assets........ (47) 70,250
Policyholder liabilities....... (1,169) 142,571
Separate account liabilities... (47) 70,250
F-58
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AT OR FOR THE YEAR ENDED AUTO & ASSET
DECEMBER 31, 1999 INDIVIDUAL INSTITUTIONAL REINSURANCE HOME MANAGEMENT INTERNATIONAL
------------------------ ---------- ------------- ----------- ------ ---------- -------------
(DOLLARS IN MILLIONS)
Premiums....................... $ 4,289 $ 5,525 $-- $1,751 $ -- $ 523
Universal life and
investment-type product
policy fees.................. 888 502 -- -- -- 43
Net investment income.......... 5,346 3,755 -- 103 80 206
Other revenues................. 381 609 -- 21 803 12
Net investment (losses)
gains........................ (14) (31) -- 1 -- 1
Policyholder benefits and
claims....................... 4,625 6,712 -- 1,301 -- 458
Interest credited to
policyholder account
balances..................... 1,359 1,030 -- -- -- 52
Policyholder dividends......... 1,509 159 -- -- -- 22
Demutualization costs.......... -- -- -- -- -- --
Other expenses................. 2,542 1,569 -- 514 795 248
Income (loss) before provision
for income taxes............. 855 890 -- 61 88 5
Net income (loss).............. 555 567 -- 56 51 21
AT OR FOR THE YEAR ENDED CORPORATE &
DECEMBER 31, 1999 OTHER TOTAL
------------------------ ----------- --------
(DOLLARS IN MILLIONS)
Premiums....................... $ -- $ 12,088
Universal life and
investment-type product
policy fees.................. -- 1,433
Net investment income.......... 326 9,816
Other revenues................. 35 1,861
Net investment (losses)
gains........................ (27) (70)
Policyholder benefits and
claims....................... 4 13,100
Interest credited to
policyholder account
balances..................... -- 2,441
Policyholder dividends......... -- 1,690
Demutualization costs.......... 260 260
Other expenses................. 794 6,462
Income (loss) before provision
for income taxes............. (724) 1,175
Net income (loss).............. (633) 617
For the year ended December 31, 2001 the Institutional, Individual,
Reinsurance and Auto & Home segments include $287 million, $24 million, $9
million and $5 million, respectively, of pre-tax losses associated with the
September 11, 2001 tragedies. See Note 2.
The Institutional, Individual and Auto & Home segments include $399
million, $97 million and $3 million, respectively, in pre-tax charges associated
with business realignment initiatives for the year ended December 31, 2001. See
Note 13.
For the year ended December 31, 2001, the Individual segment includes $118
million of pre-tax expenses associated with the establishment of a policyholder
liability for certain group annuity policies.
For the year ended December 31, 2001, pre-tax gross investment gains and
(losses) of $1,027 million, $142 million and $(1,172) million (comprised of a
$354 million gain and an intercompany elimination of $(1,526) million),
resulting from the sale of certain real estate properties from Metropolitan Life
to Metropolitan Insurance and Annuity Company, a subsidiary of MetLife, Inc.,
are included in the Individual segment, Institutional segment and Corporate &
Other, respectively.
The Individual segment included an equity ownership interest in Nvest under
the equity method of accounting. Nvest was included within the Asset Management
segment due to the types of products and strategies employed by the entity. The
Individual segment's equity in earnings of Nvest, which is included in net
investment income, was $30 million and $48 million for the years ended December
31, 2000 and 1999, respectively. The Individual segment includes $538 million
(after allocating $118 million to participating contracts) of the pre-tax gross
investment gain on the sale of Nvest in 2000. As part of the GenAmerica
acquisition in 2000, the Company acquired General American Life Insurance
Company, the results of which are included primarily in the Individual segment.
The Reinsurance segment includes the life reinsurance business of RGA,
acquired in 2000, combined with Exeter, an ancillary life reinsurance business
of the Company. Exeter has been reported as a component of the Individual
segment rather than as a separate segment for periods prior to January 1, 2000
due to its immateriality.
The Auto & Home segment includes the standard personal lines property and
casualty insurance operations of The St. Paul Companies which were acquired in
September 1999.
F-59
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of the GenAmerica acquisition in 2000, the Company acquired
Conning, the results of which are included in the Asset Management segment due
to the types of products and strategies employed by the entity from its
acquisition date to July 2001, the date of its disposition. The Company sold
Conning, receiving $108 million in the transaction and reported a gain of
approximately $16 million, net of income taxes of $9 million, in the third
quarter of 2001.
The Corporate & Other segment consists of various start-up entities,
including Grand Bank, N.A. ("Grand Bank"), and run-off entities, as well as the
elimination of all intersegment amounts. In addition, the elimination of the
Individual segment's ownership interest in Nvest is included for the years ended
December 31, 2000 and 1999. The principal component of the intersegment amounts
relates to intersegment loans, which bear interest rates commensurate with
related borrowings.
Net investment income and net investment gains and losses are based upon
the actual results of each segment's specifically identifiable asset portfolio.
Other costs and operating costs were 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.
Revenues derived from any customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $30,777 million, $30,750 million
and $24,343 million for the years ended December 31, 2001, 2000 and 1999,
respectively, which represented 96%, 97% and 97%, respectively, of consolidated
revenues.
F-60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item pertaining to Directors is
incorporated herein by reference to the sections entitled "Proposal
One -- Election of Directors" and "Stock Ownership of Directors and Executive
Officers -- Section 16(a) Beneficial Ownership Reporting Compliance" in the
registrant's definitive proxy statement for the Annual Meeting of Shareholders
to be held on April 23, 2002, to be filed by the registrant with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days after the
year ended December 31, 2001.
The information called for by this Item pertaining to Executive Officers
appears in "Part I -- Item 1. Business -- Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by reference
to the section entitled "Executive Compensation" in the registrant's definitive
proxy statement for the Annual Meeting of Shareholders to be held on April 23,
2002, to be filed by the registrant with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the year ended December 31,
2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by reference
to the sections entitled "Stock Ownership of Directors and Executive Officers"
and "Ownership of MetLife Common Stock" in the registrant's definitive proxy
statement for the Annual Meeting of Shareholders to be held on April 23, 2002,
to be filed by the registrant with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the year ended December 31,
2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by reference
to the section entitled "Corporate Governance -- Certain Relationships and
Related Transactions" in the registrant's definitive proxy statement for the
Annual Meeting of Shareholders to be held on April 23, 2002, to be filed by the
registrant with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the year ended December 31, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 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 and Schedules on page 93.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to
Consolidated Financial Statements and Schedules on page 93.
95
3. Exhibits
The exhibits are listed in the Exhibit Index which begins on page
E-1.
(B) Reports on Form 8-K
The following Reports on Form 8-K were filed during the fourth quarter
of 2001:
1. Form 8-K filed October 22, 2001 (dated October 22, 2001) regarding
management initiatives.
2. Form 8-K filed October 23, 2001 (dated October 23, 2001) regarding
the declaration of the annual dividend on common stock.
3. Form 8-K filed November 6, 2001 (dated November 6, 2001) regarding
third quarter 2001 results.
4. Form 8-K filed November 20, 2001 (dated November 19, 2001) regarding
(i) inaugural $1.25 billion debt offering, and (ii) entry into the
Chilean insurance market.
5. Form 8-K filed November 28, 2001 (dated November 28, 2001) regarding
the issuance of the senior notes.
6. Form 8-K filed December 12, 2001 (dated December 12, 2001) regarding
the grant of approval to operate a joint venture in China.
7. Form 8-K filed December 18, 2001 (dated December 18, 2001) regarding
(i) the appointment of Catherine Kinney to the Board of Directors,
and (ii) the declaration of the date for the annual shareholders
meeting.
96
METLIFE, INC.
SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN AFFILIATES
DECEMBER 31, 2001
(DOLLARS IN MILLIONS)
AMOUNT AT
COST OR ESTIMATED WHICH SHOWN ON
AMORTIZED COST(1) FAIR VALUE BALANCE SHEET
----------------- ---------- --------------
TYPE OF INVESTMENT
Fixed Maturities:
Bonds:
United States Government and government
agencies and authorities.................... $ 8,230 $ 9,213 $ 9,213
States, municipalities and political
subdivisions................................ 1,492 1,531 1,531
Foreign governments........................... 4,512 4,890 4,890
Public utilities.............................. 6,478 6,850 6,850
Convertibles and bonds with warrants
attached.................................... 133 127 127
All other corporate bonds..................... 40,606 40,912 40,912
Mortgage- and asset-backed securities............ 33,834 34,474 34,474
Other............................................ 16,220 16,639 16,639
Redeemable preferred stock....................... 783 762 762
-------- -------- --------
Total fixed maturities................... 112,288 115,398 115,398
Equity securities:
Common stocks:
Public utilities.............................. 2 3 3
Banks, trust and insurance companies.......... 19 24 24
Industrial, miscellaneous and all other....... 1,947 2,520 2,520
Non-Redeemable preferred stocks.................. 491 516 516
-------- -------- --------
Total equity securities.................. 2,459 3,063 3,063
Mortgage loans on real estate...................... 23,621 24,844 23,621
Policy loans....................................... 8,272 8,282 8,272
Real estate and real estate joint ventures......... 5,681 -- 5,681
Real estate acquired in satisfaction of debt....... 49 -- 49
Other limited partnership interests................ 1,637 -- 1,637
Short-term investments............................. 1,203 1,203 1,203
Other invested assets.............................. 3,298 -- 3,298
-------- --------
TOTAL INVESTMENTS........................ $158,508 $162,222
======== ========
---------------
(1) Cost for fixed maturities and mortgage loans on real estate represents
original cost reduced by repayments, net valuation allowances and writedowns
from other than temporary declines in value and adjusted for amortization of
premiums or accretion of discount; for equity securities, cost represents
original cost reduced by writedowns from other than temporary declines in
value; for real estate, cost represents original cost reduced by writedowns
and adjusted for depreciation; for real estate joint ventures and limited
partnership interests, cost represents original cost adjusted for equity in
earnings and distributions and reduced for writedowns.
97
METLIFE, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF METLIFE, INC. (REGISTRANT)
(DOLLARS IN MILLIONS)
AT DECEMBER 31,
-----------------
2001 2000
------- -------
BALANCE SHEET
ASSETS
Cash and cash equivalents................................... $ 2,981 $ 11
Short-term investments...................................... -- 339
Mandatory convertible note -- affiliated.................... -- 1,006
Investment in subsidiaries.................................. 15,689 16,137
Other assets................................................ 6 11
------- -------
Total assets........................................... $18,676 $17,504
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Long-term debt -- unaffiliated.............................. $ 1,248 $ --
Long-term debt -- affiliated................................ 1,037 1,037
Other liabilities........................................... 329 78
------- -------
Total liabilities...................................... 2,614 1,115
Total stockholders' equity............................. 16,062 16,389
------- -------
Total liabilities and stockholders' equity............. $18,676 $17,504
======= =======
FOR THE PERIOD
APRIL 7, 2000
(DATE OF DEMUTUALIZATION)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, 2001 DECEMBER 31, 2000(1)
------------------ -------------------------
STATEMENT OF INCOME
Interest income........................................ $ 91 $ 78
Interest expense....................................... 104 74
Other expenses......................................... 40 38
---- ------
Loss before income tax benefit....................... (53) (34)
Income tax benefit..................................... (18) (12)
Equity in earnings of subsidiaries..................... 508 1,195
---- ------
Net income........................................... $473 $1,173
==== ======
---------------
(1) MetLife, Inc. was incorporated August 10, 1999 as a wholly-owned subsidiary
of Metropolitan Life. On April 7, 2000, Metropolitan Life converted from a
mutual life insurance company to a stock life insurance company and became a
wholly-owned subsidiary of MetLife, Inc. MetLife, Inc. commenced operations
as a holding company on April 7, 2000.
98
METLIFE, INC.
SCHEDULE II -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION OF METLIFE, INC. (REGISTRANT)
(DOLLARS IN MILLIONS)
FOR THE PERIOD
APRIL 7, 2000
(DATE OF DEMUTUALIZATION)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ -------------------------
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income........................................... $ 473 $ 1,173
Equity in earnings of subsidiaries................... (508) (1,195)
Dividends from subsidiaries.......................... 3,785 763
Other, net........................................... 256 67
------- -------
Net cash provided by operating activities......... 4,006 808
------- -------
Cash flows from investing activities:
Net change in short-term investments................. 339 (339)
Purchase of mandatorily convertible note............. -- (1,006)
Repayment of mandatorily convertible note............ 1,006 --
Purchase of subsidiaries............................. (1,293) (33)
Capital contribution to subsidiaries................. (870) (3,700)
------- -------
Net cash used in investing activities............. (818) (5,078)
------- -------
Cash flows from financing activities:
Common stock issued.................................. -- 4,009
Treasury stock acquired.............................. (1,321) (613)
Dividends paid....................................... (145) (152)
Long-term debt, issued............................... 1,248 1,037
------- -------
Net cash (used in) provided by financing
activities...................................... (218) 4,281
------- -------
Change in cash and cash equivalents.................... 2,970 11
Cash and cash equivalents, beginning of period......... 11 --
------- -------
Cash and cash equivalents, end of period............... $ 2,981 $ 11
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................... $ 107 $ 63
======= =======
Income taxes...................................... $ (9) $ --
======= =======
99
METLIFE, INC.
SCHEDULE III
CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(DOLLARS IN MILLIONS)
FUTURE POLICY
DEFERRED POLICY BENEFITS AND OTHER POLICYHOLDER POLICYHOLDER
ACQUISITION POLICYHOLDER ACCOUNT DIVIDENDS UNEARNED PREMIUM REVENUE
SEGMENT COSTS FUNDS BALANCES PAYABLE REVENUE AND POLICY CHARGES
------- --------------- ------------------ ------------ ------------ -------- ------------------
2001
Individual........... $ 8,757 $52,468 $34,945 $ 874 $855 $ 5,823
Institutional........ 509 30,944 20,964 167 2 7,880
Reinsurance.......... 1,196 3,057 2,298 -- -- 1,762
Auto & Home.......... 179 2,610 -- -- -- 2,755
Asset Management..... -- -- -- -- -- --
International........ 525 2,696 718 5 20 884
Corporate & Other.... 1 (811) (2) -- -- (3)
------- ------- ------- ------ ---- -------
$11,167 $90,964 $58,923 $1,046 $877 $19,101
======= ======= ======= ====== ==== =======
2000
Individual........... $ 8,610 $50,940 $32,242 $ 867 $796 $ 5,894
Institutional........ 446 30,739 18,719 211 4 7,447
Reinsurance.......... 1,030 2,899 2,129 -- -- 1,450
Auto & Home.......... 176 2,559 -- -- -- 2,636
Asset Management..... -- -- -- -- -- --
International........ 354 1,423 1,008 4 25 713
Corporate & Other.... 2 (1,166) (3) -- -- (3)
------- ------- ------- ------ ---- -------
$10,618 $87,394 $54,095 $1,082 $825 $18,137
======= ======= ======= ====== ==== =======
1999
Individual........... $ 8,228 $44,962 $27,280 $ 714 $799 $ 5,177
Institutional........ 364 29,895 17,627 259 6 6,027
Auto & Home.......... 167 2,318 -- -- -- 1,751
Asset Management..... -- -- -- -- -- --
International........ 311 1,192 994 1 15 566
Corporate & Other.... -- (287) -- -- -- --
------- ------- ------- ------ ---- -------
$ 9,070 $78,080 $45,901 $ 974 $820 $13,521
======= ======= ======= ====== ==== =======
100
METLIFE, INC.
SCHEDULE III -- (CONTINUED)
CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(DOLLARS IN MILLIONS)
AMORTIZATION OF
AMORTIZATION OF DEFERRED POLICY
DEFERRED POLICY ACQUISITION COSTS PREMIUMS
INVESTMENT POLICYHOLDER ACQUISITION COSTS CHARGED AGAINST NET OTHER WRITTEN
INCOME, BENEFITS AND CHARGED TO REALIZED INVESTMENT OPERATING EXCLUDING
SEGMENT NET INTEREST CREDITED OTHER EXPENSES GAINS (LOSSES) EXPENSES LIFE
------- ---------- ----------------- ----------------- ------------------- --------- ---------
(DOLLARS IN MILLIONS)
2001
Individual........... $ 6,512 $ 7,131 $ 633 $ 21 $4,146 $ --
Institutional........ 4,161 9,937 64 -- 2,102 --
Reinsurance.......... 390 1,606 220 4 295 --
Auto & Home.......... 200 2,121 432 -- 368 2,779
Asset Management..... 71 -- -- -- 252 --
International........ 267 740 64 -- 301 102
Corporate & Other.... 322 3 -- -- 774 --
------- ------- ------ ---- ------ ------
$11,923 $21,538 $1,413 $ 25 $8,238 $2,881
======= ======= ====== ==== ====== ======
2000
Individual........... $ 6,475 $ 6,734 $ 723 $(95) $4,342 $ --
Institutional........ 3,959 9,268 76 -- 1,778 --
Reinsurance.......... 379 1,205 207 -- 327 --
Auto & Home.......... 194 2,005 422 -- 405 2,686
Asset Management..... 90 -- -- -- 784 --
International........ 254 618 50 -- 601 268
Corporate & Other.... 417 (2) -- -- 785 --
------- ------- ------ ---- ------ ------
$11,768 $19,828 $1,478 $(95) $9,022(1) $2,954
======= ======= ====== ==== ====== ======
1999
Individual........... $ 5,346 $ 5,984 $ 625 $(46) $3,426 $ --
Institutional........ 3,755 7,742 48 -- 1,680 --
Auto & Home.......... 103 1,301 237 -- 277 2,109
Asset Management..... 80 -- -- -- 795 --
International........ 206 510 20 -- 250 64
Corporate & Other.... 326 4 -- -- 1,054 --
------- ------- ------ ---- ------ ------
$ 9,816 $15,541 $ 930 $(46) $7,482(1) $2,173
======= ======= ====== ==== ====== ======
(1) Includes demutualization costs of $230 million and $260 million in 2000 and
1999, respectively, and payments to Canadian policyholders of $327 million
in 2000.
101
METLIFE, INC.
SCHEDULE IV
CONSOLIDATED REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN MILLIONS)
% AMOUNT
ASSUMED
GROSS AMOUNT CEDED ASSUMED NET AMOUNT TO NET
------------ -------- -------- ---------- --------
2001
Life insurance in force................. $2,110,254 $360,830 $669,917 $2,419,341 27.7%
========== ======== ======== ========== ====
INSURANCE PREMIUM
Life insurance.......................... $ 11,057 $ 1,641 $ 2,195 $ 11,611 18.9%
Accident and health..................... 2,906 317 155 2,744 5.6%
Property and casualty insurance......... 2,369 69 557 2,857 19.5%
---------- -------- -------- ----------
TOTAL INSURANCE PREMIUM............ $ 16,332 $ 2,027 $ 2,907 $ 17,212 16.9%
========== ======== ======== ==========
% AMOUNT
ASSUMED
GROSS AMOUNT CEDED ASSUMED NET AMOUNT TO NET
------------ -------- -------- ---------- --------
2000
Life insurance in force................. $1,967,481 $363,038 $604,780 $2,209,223 27.4%
========== ======== ======== ========== ====
INSURANCE PREMIUM
Life insurance.......................... $ 11,049 $ 1,894 $ 2,069 $ 11,224 18.4%
Accident and health..................... 2,542 318 153 2,377 6.4%
Property and casualty insurance......... 2,070 50 696 2,716 25.6%
---------- -------- -------- ----------
TOTAL INSURANCE PREMIUM............ $ 15,661 $ 2,262 $ 2,918 $ 16,317 17.9%
========== ======== ======== ==========
% AMOUNT
ASSUMED
GROSS AMOUNT CEDED ASSUMED NET AMOUNT TO NET
------------ -------- ------- ---------- --------
1999
Life insurance in force.................. $1,743,945 $217,358 $12,168 $1,538,755 0.8%
========== ======== ======= ========== ====
INSURANCE PREMIUM
Life insurance........................... $ 9,503 $ 1,269 $ 217 $ 8,451 2.6%
Accident and health...................... 2,102 323 48 1,827 2.6%
Property and casualty insurance.......... 1,644 53 219 1,810 12.1%
---------- -------- ------- ----------
TOTAL INSURANCE PREMIUM............. $ 13,249 $ 1,645 $ 484 $ 12,088 4.0%
========== ======== ======= ==========
102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York on the 15th day of March, 2002.
METLIFE, INC.
By: /s/ ROBERT H. BENMOSCHE
------------------------------------
Name: Robert H. Benmosche
Title: Chairman of the Board,
President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT H. BENMOSCHE Chairman of the Board, President, March 15, 2002
------------------------------------- Chief Executive Officer and Director
Robert H. Benmosche
/s/ CURTIS H. BARNETTE Director March 15, 2002
-------------------------------------
Curtis H. Barnette
/s/ GERALD CLARK Vice-Chairman of the Board, Chief March 15, 2002
------------------------------------- Investment Officer and Director
Gerald Clark
/s/ JOAN GANZ COONEY Director March 15, 2002
-------------------------------------
Joan Ganz Cooney
/s/ JOHN C. DANFORTH Director March 15, 2002
-------------------------------------
John C. Danforth
/s/ BURTON A. DOLE, JR. Director March 15, 2002
-------------------------------------
Burton A. Dole, Jr.
/s/ JAMES R. HOUGHTON Director March 15, 2002
-------------------------------------
James R. Houghton
/s/ HARRY P. KAMEN Director March 15, 2002
-------------------------------------
Harry P. Kamen
/s/ HELENE L. KAPLAN Director March 15, 2002
-------------------------------------
Helene L. Kaplan
/s/ CATHERINE R. KINNEY Director March 15, 2002
-------------------------------------
Catherine R. Kinney
/s/ CHARLES M. LEIGHTON Director March 15, 2002
-------------------------------------
Charles M. Leighton
103
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ALLEN E. MURRAY Director March 15, 2002
-------------------------------------
Allen E. Murray
/s/ STEWART G. NAGLER Vice-Chairman of the Board, Chief March 15, 2002
------------------------------------- Financial Officer and Director
Stewart G. Nagler
/s/ JOHN J. PHELAN, JR. Director March 15, 2002
-------------------------------------
John J. Phelan, Jr.
/s/ HUGH B. PRICE Director March 15, 2002
-------------------------------------
Hugh B. Price
/s/ WILLIAM C. STEERE, JR. Director March 15, 2002
-------------------------------------
William C. Steere, Jr.
/s/ VIRGINIA M. WILSON Senior Vice President and Controller March 15, 2002
-------------------------------------
Virginia M. Wilson
104
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
2.1 -- Plan of Reorganization (Incorporated by reference to Exhibit
2.1 to MetLife, Inc.'s Registration Statement on Form S-1
(No. 333-91517) (the "S-1 Registration Statement")).........
2.2 -- Amendment to Plan of Reorganization dated as of March 9,
2000 (Incorporated by reference to Exhibit 2.2 to the S-1
Registration Statement).....................................
3.1 -- Amended and Restated Certificate of Incorporation of
MetLife, Inc. (Incorporated by reference to Exhibit 3.1 to
MetLife, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (the "2000 Annual Report"))....
3.2 -- Amended and Restated By-Laws of MetLife, Inc. (Incorporated
by reference to Exhibit 3.2 to the 2000 Annual Report)......
4.1 -- Indenture dated as of November 9, 2001 between MetLife, Inc.
and Bank One Trust Company, N.A. relating to Senior Debt
Securities (Incorporated by reference to Exhibit 4.1 to
MetLife, Inc.'s Current Report on Form 8-K dated November
28, 2001 (the "Form 8-K"))..................................
4.2 -- First Supplemental Indenture dated as of November 27, 2001
between MetLife, Inc. and Bank One Trust Company, N.A.
relating to the 5.25% Senior Notes due December 1, 2006
(Incorporated by reference to Exhibit 4.2 to the Form
8-K)........................................................
4.3 -- Second Supplemental Indenture dated as of November 27, 2001
between MetLife, Inc. and Bank One Trust Company, N.A.
relating to the 6.125% Senior Notes due December 1, 2011
(Incorporated by reference to Exhibit 4.3 to the Form
8-K)........................................................
4.4 -- Form of Subordinated Indenture (Incorporated by reference to
Exhibit 4.2 to MetLife, Inc.'s, MetLife Capital Trust II's
and MetLife Capital Trust III's Registration Statement on
Form S-3 (Nos. 333-61282, 333-61282-01 and 333-61282-02)
(the "S-3 Registration Statement")..........................
4.5 -- Form of 5.25% Senior Note due December 1, 2006 (Included in
Exhibit 4.2 incorporated by reference to Exhibit 4.2 to the
Form 8-K)...................................................
4.6 -- Form of 6.125% Senior Note due December 1, 2011 (Included in
Exhibit 4.3 incorporated by reference to Exhibit 4.3 to the
Form 8-K)...................................................
4.7 -- Certificate of Trust of MetLife Capital Trust II
(Incorporated by reference to Exhibit 4.6 to the S-3
Registration Statement).....................................
4.8 -- Certificate of Trust of MetLife Capital Trust III
(Incorporated by reference to Exhibit 4.7 to the S-3
Registration Statement).....................................
4.9 -- Declaration of Trust of MetLife Capital Trust II
(Incorporated by reference to Exhibit 4.8 to the S-3
Registration Statement).....................................
4.10 -- Declaration of Trust of MetLife Capital Trust III
(Incorporated by reference to Exhibit 4.9 to the S-3
Registration Statement).....................................
4.11 -- Form of Amended and Restated Declaration of Trust of MetLife
Capital Trust II (Incorporated by reference to Exhibit 4.10
to the S-3 Registration Statement)..........................
4.12 -- Form of Amended and Restated Declaration of Trust of MetLife
Capital Trust III (Incorporated by reference to Exhibit 4.11
to the S-3 Registration Statement)..........................
4.13 -- Form of Trust Preferred Security Certificate of MetLife
Capital Trust II (Included in Exhibit 4.11 incorporated by
reference to Exhibit 4.10 to the S-3 Registration
Statement)..................................................
4.14 -- Form of Trust Preferred Security Certificate of MetLife
Capital Trust III (Included in Exhibit 4.12 incorporated by
reference to Exhibit 4.11 to the S-3 Registration
Statement)..................................................
4.15 -- Form of Trust Preferred Securities Guarantee Agreement for
MetLife Capital Trust II (Incorporated by reference to
Exhibit 4.14 to the S-3 Registration Statement).............
4.16 -- Form of Trust Preferred Securities Guarantee Agreement for
MetLife Capital Trust III (Incorporated by reference to
Exhibit 4.15 to the S-3 Registration Statement).............
4.17 -- Form of Common Securities Guarantee Agreement for MetLife
Capital Trust II (Incorporated by reference to Exhibit 4.16
to the S-3 Registration Statement)..........................
E-1
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
4.18 -- Form of Common Securities Guarantee Agreement for MetLife
Capital Trust III (Incorporated by reference to Exhibit 4.17
to the S-3 Registration Statement)..........................
4.19 -- Form of Certificate for Common Stock, par value $0.01 per
share (Incorporated by reference to Exhibit 4.1 to the S-1
Registration Statement).....................................
4.20 -- Indenture between MetLife, Inc. and The Bank of New York, as
trustee, relating to the debt securities (Incorporated by
reference to Exhibit 4.2 to the 2000 Annual Report).........
4.21 -- First Supplemental Indenture between MetLife, Inc. and The
Bank of New York, as trustee, relating to the Debentures
(Incorporated by reference to Exhibit 4.3 to the 2000 Annual
Report).....................................................
4.22 -- Certificate of Trust of MetLife Capital Trust I
(Incorporated by reference to Exhibit 4.3 to MetLife, Inc.'s
and MetLife Capital Trust I's Registration Statement on Form
S-1 (Nos. 333-32074 and 333-32074-01) (the "Trust
Registration Statement")....................................
4.23 -- Declaration of Trust of MetLife Capital Trust I
(Incorporated by reference to Exhibit 4.4 to the Trust
Registration Statement).....................................
4.24 -- Amended and Restated Declaration of Trust of MetLife Capital
Trust I (Incorporated by reference to Exhibit 4.6 to the
2000 Annual Report).........................................
4.25 -- Capital Securities Guarantee Agreement for MetLife Capital
Trust I (Incorporated by reference to Exhibit 4.7 to the
2000 Annual Report).........................................
4.26 -- Capital Security Certificate of MetLife Capital Trust I
(Included in Exhibit 4.24 incorporated by reference to
Exhibit 4.6 to the 2000 Annual Report)......................
4.27 -- Purchase Contract Agreement (Incorporated by reference to
Exhibit 4.9 to the 2000 Annual Report)......................
4.28 -- Pledge Agreement (Incorporated by reference to Exhibit 4.10
to the 2000 Annual Report)..................................
4.29 -- Form of Debenture (Included in Exhibit 4.21 incorporated by
reference to Exhibit 4.3 to the 2000 Annual Report).........
4.30 -- Form of Normal Unit (Included in Exhibit 4.27 incorporated
by reference to Exhibit 4.9 to the 2000 Annual Report)......
4.31 -- Form of Stripped Unit (Included in Exhibit 4.27 incorporated
by reference to Exhibit 4.9 to the 2000 Annual Report)......
4.32 -- Common Securities Guarantee Agreement (Incorporated by
reference to Exhibit 4.14 to the 2000 Annual Report)........
10.1 -- Form of Stock Purchase Agreement among MetLife, Inc.,
Metropolitan Life Insurance Company, Credit Suisse Group or
its affiliates and Banco Santander Central Hispano S.A. or
its affiliates (Incorporated by reference to Exhibit 10.51
to the S-1 Registration Statement)..........................
10.2 -- Stock Purchase Agreement, dated April 3, 2000, among
MetLife, Inc., Metropolitan Life Insurance Company and Banco
Santander Central Hispano, S.A. (Incorporated by reference
to Exhibit 10.2 to MetLife, Inc.'s Registration Statement on
Form S-3 (No. 333-62782) (the "Selling Shareholder
Registration Statement")....................................
10.3 -- Stock Purchase Agreement, dated April 3, 2000, among
MetLife, Inc., Metropolitan Life Insurance Company and
Credit Suisse First Boston (through its Guernsey Branch) and
Winterthur Life (Incorporated by reference to Exhibit 10.3
to the Selling Shareholder Registration Statement)..........
10.4 -- Standstill Agreement, dated April 3, 2000, between MetLife,
Inc. and Banco Santander Central Hispano, S.A. (Incorporated
by reference to Exhibit 10.4 to the Selling Shareholder
Registration Statement).....................................
10.5 -- Transferee Standstill Agreement, dated December 22, 2000,
between MetLife, Inc. and Santusa Holding, S.L.
(Incorporated by reference to Exhibit 10.5 to the Selling
Shareholder Registration Statement).........................
E-2
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
10.6 -- Standstill Agreement, dated April 3, 2000, between MetLife,
Inc. and Credit Suisse First Boston (through its Guernsey
Branch) and Winterthur Life (Incorporated by reference to
Exhibit 10.6 to the Selling Shareholder Registration
Statement)..................................................
10.7 -- Standstill Agreement, dated April 7, 2000, between MetLife,
Inc. and Credit Suisse Group, Guernsey Branch (Incorporated
by reference to Exhibit 10.7 to the Selling Shareholder
Registration Statement).....................................
10.8 -- Form of Amended and Restated Employment Continuation
Agreement with Messrs. Benmosche, Nagler and Clark*......... 171
10.9 -- Form of Amended and Restated Employment Continuation
Agreement with Messrs. Beller, Henrikson and Toppeta*....... 188
10.10 -- Amended and Restated Employment Continuation Agreement with
Mr. Benson*................................................. 205
10.11 -- Rights Agreement (Incorporated by reference to Exhibit 10.6
to the 2000 Annual Report)..................................
10.12 -- MetLife, Inc. 2000 Stock Incentive Plan, as amended and
restated March 28, 2000 (Incorporated by reference to
Exhibit 10.7 to the S-1 Registration Statement)*............
10.13 -- MetLife, Inc. 2000 Stock Incentive Plan, as amended
effective February 8, 2002*................................. 222
10.14 -- Form of Management Stock Option Agreement*.................. 235
10.15 -- MetLife, Inc. 2000 Directors Stock Plan, as amended and
restated March 28, 2000 (Incorporated by reference to
Exhibit 10.8 to the S-1 Registration Statement)*............
10.16 -- MetLife, Inc. 2000 Directors Stock Plan, as amended
effective February 8, 2002*................................. 240
10.17 -- Amended and Restated Employment Continuation Agreement with
Ms. Rein*................................................... 250
10.18 -- Employment Continuation Agreement between Ms. Rein and
Metropolitan Property and Casualty Insurance Company, dated
March 3, 2000 (Incorporated by reference to Exhibit 10.10 to
the S-1 Registration Statement)*............................
10.19 -- Employment Agreement between New England Life Insurance
Company and James M. Benson, dated June 16, 1997
(Incorporated by reference to Exhibit 10.11 to the S-1
Registration Statement)*....................................
10.20 -- Policyholder Trust Agreement (Incorporated by reference to
Exhibit 10.12 to the S-1 Registration Statement)............
10.21 -- Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between Stockwood
Reinsurance Company, Ltd. and Metropolitan Life Insurance
Company (Incorporated by reference to Exhibit 10.13 to the
S-1 Registration Statement).................................
10.22 -- Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between European
Reinsurance Corporation of America and Metropolitan Life
Insurance Company (Incorporated by reference to Exhibit
10.14 to the S-1 Registration Statement)....................
10.23 -- Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between Granite State
Insurance Company and Metropolitan Life Insurance Company
(Incorporated by reference to Exhibit 10.16 to the S-1
Registration Statement).....................................
10.24 -- Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000 between American
International Life Assurance Company of New York and
Metropolitan Life Insurance Company (Incorporated by
reference to Exhibit 10.1 to the MetLife, Inc. Report on
Form 10-Q for the quarter ended March 31, 2000 (the "First
Quarter 2000 10-Q"))........................................
10.25 -- Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000, between Stockwood
Reinsurance Company, Ltd. and Metropolitan Life Insurance
Company (Incorporated by reference to Exhibit 10.2 to the
First Quarter 2000 10-Q)....................................
E-3
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
10.26 -- Five-Year Credit Agreement, dated as of April 27, 1998, and
as amended as of April 26, 1999, among Metropolitan Life
Insurance Company, MetLife Funding, Inc. and the other
parties signatory thereto (Incorporated by reference to
Exhibit 10.18 to the S-1 Registration Statement)............
10.27 -- Amendment No. 2, dated as of June 30, 2000, to the Five Year
Credit Agreement, among Metropolitan Life Insurance Company,
MetLife Funding, Inc. and the other parties signatory
thereto (Incorporated by reference to Exhibit 10.20 to the
2000 Annual Report).........................................
10.28 -- 364-Day Credit Agreement, dated as of April 25, 2001, among
MetLife, Inc., Metropolitan Life Insurance Company, MetLife
Funding, Inc. and other parties signatory thereto
(Incorporated by reference to Exhibit 10.21 to the S-3
Registration Statement).....................................
10.29 -- Stipulation of Settlement, as amended, relating to
Metropolitan Life Insurance Company Sales Practices
Litigation (Incorporated by reference to Exhibit 10.21 to
the S-1 Registration Statement).............................
10.30 -- Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after April 1, 2001) (Incorporated by reference to Exhibit
10.24 to the S-3 Registration Statement)*...................
10.31 -- Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 2000) (Incorporated by reference to Exhibit
10.24 to the S-1 Registration Statement)*...................
10.32 -- Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 1999) (Incorporated by reference to Exhibit
10.25 to the S-1 Registration Statement)*...................
10.33 -- Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 1998) (Incorporated by reference to Exhibit
10.26 to the S-1 Registration Statement)*...................
10.34 -- Metropolitan Life Insurance Company Annual Variable
Incentive Plan (for performance periods starting on or after
January 1, 2000) (Incorporated by reference to Exhibit 10.28
to the S-1 Registration Statement)*.........................
10.35 -- The New Metropolitan Life Auxiliary Retirement Benefits
Plan, as amended and restated, effective January 1, 1996
(Incorporated by reference to Exhibit 10.29 to the S-1
Registration Statement)*....................................
10.36 -- The New Metropolitan Life Supplemental Auxiliary Retirement
Benefits Plan, effective January 1, 1996, and Amendment
thereto (Incorporated by reference to Exhibit 10.30 to the
S-1 Registration Statement)*................................
10.37 -- Metropolitan Life Auxiliary Savings and Investment Plan,
restated effective through August 15, 1998 (Incorporated by
reference to Exhibit 10.31 to the S-1 Registration
Statement)*.................................................
10.38 -- Amendment to the Metropolitan Life Auxiliary Savings and
Investment Plan, effective September 11, 2001*.............. 267
10.39 -- Metropolitan Life Supplemental Auxiliary Savings and
Investment Plan (as amended and restated as of September 1,
1998) and Amendment thereto (Incorporated by reference to
Exhibit 10.32 to the S-1 Registration Statement)*...........
10.40 -- Amendment to the Metropolitan Life Supplemental Auxiliary
Savings and Investment Plan, effective September 11,
2001*....................................................... 276
10.41 -- Supplemental Auxiliary Savings and Investment Plan of
Participating Metropolitan Affiliates, effective January 1,
1996 (Incorporated by reference to Exhibit 10.33 to the S-1
Registration Statement)*....................................
10.42 -- Metropolitan Life Supplemental Retirement Benefits Plan and
Amendment thereto, effective January 1, 1995 (Incorporated
by reference to Exhibit 10.34 to the S-1 Registration
Statement)*.................................................
E-4
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
10.43 -- New England Financial Annual Variable Incentive Plan (for
performance periods starting on or after January 1, 2000)
(Incorporated by reference to Exhibit 10.35 to the S-1
Registration Statement)*....................................
10.44 -- New England Financial Long Term Performance Compensation
Plan (for performance periods starting on or after January
1, 2000) (Incorporated by reference to Exhibit 10.36 to the
S-1 Registration Statement)*................................
10.45 -- New England Life Insurance Company Select Employees
Supplemental 401(k) Plan, as amended and restated effective
January 1, 2000 (Incorporated by reference to Exhibit 10.37
to the S-1 Registration Statement)*.........................
10.46 -- Excerpt from Amendments to the New England Financial
Qualified Retirement Plans, effective as of August 1, 2001,
relating to the New England Life Insurance Company Select
Employees Supplemental 401(k) Plan*......................... 285
10.47 -- New England Life Insurance Company Supplemental Retirement
Plan, as amended and restated effective January 1, 2000
(Incorporated by reference to Exhibit 10.38 to the S-1
Registration Statement)*....................................
10.48 -- The New England Life Insurance Company Select Employees
Supplemental Retirement Plan, as amended and restated
effective January 1, 2000 (Incorporated by reference to
Exhibit 10.39 to the S-1 Registration Statement)*...........
10.49 -- The New England Life Insurance Company Senior Executive
Nonqualified Elective Deferral Plan, effective January 1,
1998 (Incorporated by reference to Exhibit 10.40 to the S-1
Registration Statement)*....................................
10.50 -- Amendment (excerpt) to The New England Life Insurance
Company Senior Executive Nonqualified Elective Deferral
Plan, effective January 1, 1999*............................ 286
10.51 -- New England Financial Long Term Performance Compensation
Plan (for each of the three-year performance periods
commencing on January 1, 1997, 1998 and 1999, respectively)
(Incorporated by reference to Exhibit 10.41 to the S-1
Registration Statement)*....................................
10.52 -- Form of Capital Note (Incorporated by reference to Exhibit
10.44 to the S-1 Registration Statement)....................
10.53 -- 1993 Fiscal Agency Agreement between Metropolitan Life
Insurance Company and The Chase Manhattan Bank, N.A., dated
as of November 1, 1993 (Incorporated by reference to Exhibit
10.45 to the S-1 Registration Statement)....................
10.54 -- 1995 Fiscal Agency Agreement between Metropolitan Life
Insurance Company and The Chase Manhattan Bank, N.A., dated
as of November 13, 1995 (Incorporated by reference to
Exhibit 10.46 to the S-1 Registration Statement)............
10.55 -- Fiscal Agency Agreement between New England Mutual Life
Insurance Company and The First National Bank of Boston,
dated as of February 10, 1994 (Incorporated by reference to
Exhibit 10.47 to the S-1 Registration Statement)............
10.56 -- Fiscal Agency Agreement between General American Life
Insurance Company and The Bank of New York, dated as of
January 24, 1994 (Incorporated by reference to Exhibit 10.48
to the S-1 Registration Statement)..........................
10.57 -- Amended and Restated Trust Agreement among GenAmerica
Corporation and Wilmington Trust Company, David L. Herzog,
John W. Hayden and Christopher A. Martin dated as of June 6,
1997 (Incorporated by reference to Exhibit 10.49 to the S-1
Registration Statement).....................................
10.58 -- Amended and Restated Employment Continuation Agreement with
Ms. Weber*.................................................. 287
10.59 -- MetLife Deferred Compensation Plan 2000 for Senior Officers
(Incorporated by reference to Exhibit 10.1 to the S-1
Registration Statement)*....................................
10.60 -- MetLife Deferred Compensation Plan 2000 for Officers
(Incorporated by reference to Exhibit 10.2 to the S-1
Registration Statement)*....................................
10.61 -- MetLife Deferred Compensation Plan 2001 for Officers
(Incorporated by reference to Exhibit 10.55 to the 2000
Annual Report)*.............................................
E-5
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
10.62 -- MetLife Deferred Compensation Plan 2002 for Officers*....... 304
10.63 -- MetLife Deferred Compensation Plan 2002 for Outside
Directors*.................................................. 324
10.64 -- MetLife Individual Business Deferred Compensation Plan
2002*....................................................... 340
10.65 -- MetLife Individual Business Special Deferred Compensation
Plan 2001 (Incorporated by reference to Exhibit 10.56 to the
2000 Annual Report)*........................................
10.66 -- MetLife Individual Business Special Deferred Compensation
Plan 2002*.................................................. 357
10.67 -- General American Life Insurance Company Directors' Deferred
Savings Plan for Non-Employee Directors 2002*............... 377
10.68 -- Amendment to the New Metropolitan Life Auxiliary Retirement
Benefits Plan (Incorporated by reference to Exhibit 10.57 to
the 2000 Annual Report)*....................................
10.69 -- Amendment to the New Metropolitan Life Supplemental
Auxiliary Retirement Benefits Plan (Incorporated by
reference to Exhibit 10.58 to the 2000 Annual Report)*......
10.70 -- Amendment to the Metropolitan Life Supplemental Retirement
Benefits Plan (Incorporated by reference to Exhibit 10.59 to
the 2000 Annual Report)*....................................
10.71 -- Amendment to the Metropolitan Life Supplemental Auxiliary
Savings and Investment Plan (Incorporated by reference to
Exhibit 10.60 to the 2000 Annual Report)*...................
21.1 -- Subsidiaries of the Registrant.............................. 386
23.1 -- Consent of Deloitte & Touche LLP............................ 393
---------------
* Indicates management contracts or compensatory plans or arrangements.
E-6