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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
Form 10-K
(Mark One)
| | | | | |
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20222023
or
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| ☐ | 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 000-55029
Metropolitan Life Insurance Company
(Exact name of registrant as specified in its charter)
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| New York | | 13-5581829 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
| 200 Park Avenue, | New York, | NY | | 10166-0188 |
| (Address of principal executive offices) | | (Zip Code) |
(212) 578-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | þ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
At March 8, 2023,6, 2024, 494,466,664 shares of the registrant’s common stock were outstanding, all of which were owned directly by MetLife, Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Table of Contents
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| Part I |
| Item 1. | | | | |
| Item 1A. | | | | |
| Item 1B. | | | | |
| Item 1C. | | | | |
| Item 2. | | | | |
| Item 3. | | | | |
| Item 4. | | | | |
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| Part II |
| Item 5. | | | | |
| Item 6. | | | | |
| Item 7. | | | | |
| Item 7A. | | | | |
| Item 8. | | | | |
| Item 9. | | | | |
| Item 9A. | | | | |
| Item 9B. | | | | |
| Item 9C. | | | | |
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| Part III |
| Item 10. | | | | |
| Item 11. | | | | |
| Item 12. | | | | |
| Item 13. | | | | |
| Item 14. | | | | |
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| Part IV |
| Item 15. | | | | |
| Item 16. | | | | |
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As used in this Form 10-K, “MLIC,” the “Company,” “we,” “our” and “us” refer to Metropolitan Life Insurance Company, a New York corporation incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”).
Note Regarding Forward-Looking Statements
This Annual Report on Form 10‑K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events and do not relate strictly to historical or current facts. They use words and terms such as “anticipate,” “are confident,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “if,” “intend,” “likely,” “may,” “plan,” “potential,” “project,” “should,” “will,” “would” and other words and terms of similar meaning or that are otherwise tied to future periods or future performance, in each case in all derivative forms. They include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, future sales efforts, future expenses, the outcome of contingencies such as legal proceedings, and future trends in operations and financial results.
Many factors determine Company results, and they involve unpredictable risks and uncertainties. Our forward-looking statements depend on our assumptions, our expectations, and our understanding of the economic environment, but they may be inaccurate and may change. We do not guarantee any future performance. Our results could differ materially from those we express or imply in forward-looking statements. The risks, uncertainties and other factors including those relating to the COVID-19 pandemic, identified in Metropolitan Life Insurance Company’s filings with the U.S. Securities and Exchange Commission, and others, may cause such differences. These factors include:
(1) economic condition difficulties, including risks relating to public health, interest rates, credit spreads, declining equity or debt markets, real estate, obligors and counterparties, government default, derivatives, climate change and climate change;public health;
(2) global capital and credit market adversity;
(3) credit facility inaccessibility;
(4) financial strength or credit ratings downgrades;
(5) unavailability, unaffordability, or inadequate reinsurance;reinsurance, including reinsurance risks that arise from reinsurers’ credit risk, and the potential shortfall or failure of risk mitigants to protect against such risks;
(6) statutory life insurance reserve financing costs or limited market capacity;
(7) legal, regulatory, and supervisory and enforcement policy changes;
(8) changes in tax rates, tax laws or interpretations;
(9) litigation and regulatory investigations;
(10) London Interbank Offered Rate discontinuation and transition to alternative reference rates;
(11) unsuccessful efforts to meet all environmental, social, and governance standards or to enhance our sustainability;
(12)(11) investment defaults, downgrades, or volatility;
(13)(12) investment sales or lending difficulties;
(14)(13) collateral or derivative-related payments;
(15)(14) investment valuations, allowances, or impairments changes;
(16)(15) claims or other results that differ from our estimates, assumptions, or models;
(17)(16) business competition;
(18)(17) catastrophes;
(19)(18) climate changes or responses to it;
(20)(19) deficiencies in our closed block;
(21)(20) impairment of value of business acquired, value of distribution agreements acquired or value of customer relationships acquired;
(22)(21) product guarantee volatility, costs, and counterparty risks;
(23)(22) risk management failures;
(24)(23) insufficient protection from operational risks;
(25)(24) failure to protect confidentiality and integrity of data or other cybersecurity or disaster recovery failures;
(26)(25) accounting standards changes;
(27)(26) excessive risk-taking; and
(28)(27) marketing and distribution difficulties.
Metropolitan Life Insurance Company does not undertake any obligation to publicly correct or update any forward-looking statement if Metropolitan Life Insurance Company later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures Metropolitan Life Insurance Company makes on related subjects in subsequent reports to the U.S. Securities and Exchange Commission.
Note Regarding Reliance on Statements in Our Contracts
See “Exhibit Index — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Annual Report on Form 10-K.
Part I
Item 1. Business
Business Overview & Strategy
As used in this Form 10-K, “MLIC,” the “Company,” “we,” “our” and “us” refer to Metropolitan Life Insurance Company, a New York corporation incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”).
The Company is a provider of insurance, annuities, employee benefits and asset management. We are also one of the largest institutional investors in the United States (“U.S.”) with a general account portfolio invested primarily in fixed income securities (corporate, structured products, municipals, and government and agency) and mortgage loans, as well as real estate, real estate joint ventures and other limited partnerships and equity securities.partnerships. See Note 2 of the Notes to the Consolidated Financial Statements for further information about the Company’s business.
Our well-recognized brand, market-leading businesses, competitive and innovative product offerings and financial strength and expertise should help drive future growth. MetLife will continue to execute on its Next Horizon strategy, creating value focusing on the following three pillars: (i) Focus; (ii) Simplify; and (iii) Differentiate.
Regulation
Overview
U.S. state regulators primarily regulate Metropolitan Life Insurance Company,MLIC, with additional federal regulation of some of our products and services. New York’s insurance holding company laws apply to MetLife, Inc. and its U.S. insurance subsidiaries licensed in New York, including Metropolitan Life Insurance Company. Furthermore, consumer protection laws, privacy, anti-money laundering, securities, commodities, broker-dealer and investment adviser regulations, environmental and unclaimed property laws and regulations, and the Employee Retirement Income Security Act of 1974 (“ERISA”) also apply to some of our operations, products and services.
We expect the scope and extent of regulation and regulatory oversight generally to continue to increase. The regulatory environment and changes in laws in the jurisdictions in which we operate could materially harm our results of operations.
Insurance Regulation
Insurance regulation generally aims to protect policyholders and ensure insurance company solvency. Insurance regulators increasingly seek information about the potential impact of activities on holding company systems asSet forth below is a whole.
MLIC has all material licenses to transact its business in each jurisdiction where it conducts insurance business. The extent of insurance regulation in such jurisdictions varies, but most jurisdictions regulate the financial aspects and business conduct of insurers through broad administrative powers with respect to, among other things:
•licensing companies and agents to transact business;
•calculating the value of assets to determine compliance with statutory requirements;
•mandating certain insurance benefits;
•regulating certain premium rates;
•reviewing and approving certain policy forms, including required policyholder disclosures;
•regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements, and identifying and paying to the states or local authorities benefits and other property that is not claimed by the owners;
•regulating advertising;
•protecting and safeguarding personal information and other sensitive data, including through cybersecurity standards;
•establishing statutory capital and reserve requirements and solvency standards;
•specifying the conditions under which a ceding company can take credit for reinsurance in its statutory financial statements (i.e., reduce its reserves by the amount of reserves ceded to a reinsurer);
•fixing maximum interest rates on insurance policy loans and minimum guaranteed crediting rates on life insurance policies and annuity contracts;
•adopting and enforcing standards with respect to the sale of annuities and other insurance products;
•approving changes in control of insurance companies;
•restricting the payment of dividends and other transactions between affiliates; and
•regulating the types and amounts of investments.
We must file reports, generally including detailed annual financial statements, with insurance regulatory authorities in eachsummary of the jurisdictions in which we do business. Such authorities also periodically examine our operations and accounts. We must also file, and in many jurisdictions and in some lines of insurance obtainmaterial regulatory approval of, rates and policy forms relatingframeworks applicable to the insurance written in the jurisdictions in which we operate.
Insurance, securities, and other regulatory authorities, other law enforcement agencies, and attorneys general, review our compliance with laws and regulations regarding the conduct of our insurance and securities businesses. We cooperate with such inquiries and take corrective action when warranted. See Note 16 of the Notes to the Consolidated Financial Statements.us.
U.S. Federal Initiatives
U.S. federal initiatives can affect our business in a variety of ways, including regulation of financial services, securities, derivatives, pensions, health care, money laundering, foreign sanctions and corrupt practices, and taxation. For instance, legislators and policymakers have proposed various forms of direct and indirect federal regulation of insurance from time to time, such as proposals for the establishment of an optional federal charter for insurance companies. See “Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
The Inflation Reduction Act, signed into law by President Biden on August 16, 2022, included a number of tax-related provisions including a fifteen percent alternative minimum tax rate on adjusted financial statement income. This provision became effective on January 1, 2023 and is not expected to have a material impact on our results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) increased the potential federal role in regulating businesses such as ours. Dodd-Frank created theThe Financial Stability Oversight Council which(“FSOC”) may designate certain financial companies that pose a threat to U.S. financial stability as non-bank systemically important financial institutions (“non-bank SIFI”) subject to supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and the Federal Reserve Bank of New York (collectively with the Federal Reserve Board, the “Federal Reserve”). Dodd-Frank provisions may also affect our investment activities.
Dodd-FrankIn 2023, the FSOC adopted final guidance that establishes a new process for designating certain financial companies as non-bank SIFIs. The revised approach is based on risk factors contained in a new analytic framework, including leverage, liquidity risk and its implementing regulationsmaturity mismatch, interconnections, operational risks, complexity, or opacity, inadequate risk management, concentration, and destabilizing activities, regardless of whether those risks arise from activities, firms, or otherwise. Under the guidance, the FSOC is no longer required to conduct a cost-benefit analysis and an assessment of the likelihood of a non-bank financial company’s material financial distress before considering the designation of the company. The revised process could have changed since the law was adopted. As a resulteffect of simplifying and shortening FSOC’s procedures for designating certain financial companies as non-bank SIFIs, thereby subjecting such companies to additional supervision, examination, and regulation. Any such designation would create uncertainties for the non-bank financial company regarding the likelihood, frequency or impact of any formal or informal regulatory or supervisory actions or inquiries; the scope of applicable regulatory or supervisory requirements or restrictions and the related compliance measures and internal controls; and the permissibility of certain activities or transactions. It is difficult to predict the potential impact of these changes, and potential changes, we cannot identify all the risks posed and opportunities presented, if any, to our businesses. See “Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”changes.
Until January 2021, the McCarran–Ferguson Act largely exempted insurance from U.S. antitrust laws. However, theThe Competitive Health Insurance Reform Act amended the McCarran-Ferguson Act such that U.S. antitrust laws now apply to the “business of health insurance” and U.S. regulatory authority expanded accordingly. We expect regulatory oversight and litigation risk for some products, including dental and vision, to increase. See “Risk Factors — Regulatory and Legal Risks — Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us.”
Guaranty Associations and Similar Arrangements
Many jurisdictions in which we transact business require life and health insurers to participate in guaranty or similar associations. These arrangements pay certain insurance benefits owed by impaired, insolvent or failed insurers. Guaranty associations levy assessments, up to prescribed limits, on all member insurers in a particular jurisdiction on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. In addition, certain jurisdictions have government owned or controlled organizations providing life and health insurance to their citizens, whose activities could place additional stress on the adequacy of guaranty fund assessments. Many of these organizations have the power to levy assessments similar to those of the guaranty associations. Some jurisdictions permit member insurers to recover assessments paid through full or partial premium tax offsets. We have established liabilities for guaranty fund assessments that we consider adequate.
U.S. Insurance Regulatory Examinations and Other Activities
U.S. state insurance departments periodically examine the books, records, accounts, and business practices of their domiciled insurers. State insurance departments may also conduct examinations of non-domiciliary insurers licensed in their states.
In 2019, MetLife entered into a consent order with the New York State Department of Financial Services (“NYDFS”) relating to unclaimed property following an open market conduct quinquennial exam, under which it paid a fine and customer restitution, and submitted remediation plans for approval. See Note 16 of the Notes to the Consolidated Financial Statements regarding any reportable contingencies related to findings resulting from our state insurance department examinations.
Regulatory authorities in a small number of states, the Financial Industry Regulatory Authority (“FINRA”) and, occasionally, the U.S. Securities and Exchange Commission (the “SEC”) have conducted examinations and/or investigations or made inquiries relating to sales of our individual life insurance policies, annuities or other products. These examinations, investigations and/or inquiries often focus on the conduct and/or supervision of particular financial services representatives, the sale of unregistered or unsuitable products, the misuse of client assets, or sales and replacements of annuities and certain riders on such annuities. Over the past several years, we resolved these (and a number of investigations by other regulators) for monetary payments and certain other relief, including restitution payments. We may continue to receive notice of, and may resolve, further investigations and actions on these matters in a similar manner.
Insurance standard-setting and regulatory support organizations, including the National Association of Insurance Commissioners (“NAIC”), encourage insurance supervisors to establish Supervisory Colleges. These organizations facilitate cooperation and coordination among insurance supervisors to enhance their understanding of the risk profile of U.S.-based insurance groups with international operations. Our lead state regulator, the NYDFS, annually chairs Supervisory College meetings that MetLife’s key U.S. and non-U.S. regulators attend.
In addition, regulators have scrutinized insurers’ claims payment practices. See Note 16 of the Notes to the Consolidated Financial Statements for further information regarding group annuity benefits and unclaimed property inquiries.
Policy and Contract Reserve Adequacy AnalysisHolding Company Regulation
We and our captive reinsurance subsidiary must annually analyze our statutory reserves adequacy. In each case, a qualified actuary must submit an opinion that states that the statutory reserves make adequate provision, accordingare subject to accepted actuarial standards of practice, for the anticipated cash flows required by the insurer’s contractual obligations and related expenses. The actuary considers the adequacy of the statutory reserves in light of the assets held by the insurer with respect to such reserves and related actuarial items, such as the investment earnings on such assets and the consideration the insurer anticipates receiving and retaining under the related policies and contracts. We may increase reserves in order to submit such an opinion without qualification. We and our captive reinsurance subsidiary have provided the opinions, as required, without qualifications since this requirement began.
National Association of Insurance Commissioners
The NAIC assistsU.S. state insurance regulatory authorities to serve the public interest and achieve their regulatory goals. State insurance regulators may act independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC regularly re-examine existing insurance laws and regulations. State insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight through the NAIC. The NAIC also provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”), which states have largely adopted by regulation. However, individual states establish statutory accounting principles, which may differ from the Manual. Changes to the Manual or modifications by the various state insurance departments may affect our statutory capital and surplus.
State insurance holding company laws and regulations that are generally based on the NAIC’sNational Association of Insurance Commissioners’ (“NAIC”) Insurance Holding Company System Regulatory Act and Regulation (“Model Holding Company Act and Regulation”). These vary from jurisdiction toby jurisdiction, but generally require a controlled insurance company (i.e., insurers that are subsidiaries of insurance holding companies) to register and file reports with state regulatory authorities on its capital structure, ownership, financial condition, intercompany transactions and general business operations. State holding company laws require the ultimate controlling person of a U.S. insurer to file an annual enterprise risk report with the lead state of the insurance holding company system. This report identifies risks likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. New York has enacted laws to implement these requirements. The holding company laws also authorize state insurance commissioners to act as global group-wide supervisors.supervisors for internationally active insurance groups. All states have adopted laws and regulations enhancing group-wide supervision.
State Insurance Regulation
We are licensed and regulated in each jurisdiction where we conduct insurance business. The extent of insurance regulation in such jurisdictions varies, but most jurisdictions regulate the financial aspects and business conduct of insurers through broad administrative powers, including with respect to: (i) licensing companies and agents to transact business; (ii) regulating certain premium rates; (iii) reviewing and approving certain policy forms, including required policyholder disclosures; (iv) establishing statutory capital and reserve requirements and solvency standards; and (v) restricting the payment of dividends and other transactions between affiliates.
We are required to file reports, generally including detailed annual financial statements, with insurance regulators in each of the jurisdictions in which we do business. Such authorities will periodically examine our books, records, accounts, and business practices. In 2020, the NYDFS amended its laws to permit2019, MetLife entered into a consent order with the New York SuperintendentState Department of Financial Services (“Superintendent”NYDFS”) relating to act asunclaimed property following an open market conduct quinquennial exam, under which it paid a group-wide supervisor.
In furtherancefine and customer restitution, and submitted remediation plans for approval. See Note 19 of the NAIC’s “Solvency Modernization Initiative,”Notes to the Consolidated Financial Statements regarding any reportable contingencies related to findings resulting from our state insurance department examinations.
Insurance standard-setting and regulatory support organizations, including the NAIC, has updated model actsencourage insurance supervisors to establish Supervisory Colleges. These organizations facilitate cooperation and regulationscoordination among insurance supervisors to address insurance company financial regulation, as discussed below, and, in particular, capital requirements; corporate governance and risk management practices; group supervision; liquidity stress testing, statutory accounting and financial reporting; and reinsurance.
The NAIC’s Corporate Governance Annual Disclosure Model Act, which all states have adopted, requires insurers to annually file detailed information regardingenhance their corporate governance policies.
All states have also adopted the NAIC’s Risk Management and Own Risk and Solvency Assessment Model Act, which requires insurers to maintain a risk management framework and to document an internal own risk and solvency assessment (“ORSA”) of its material risks in normal and stressed environments. MetLife, Inc. has submitted on behalfunderstanding of the enterprise an ORSA summary report torisk profile of U.S.-based insurance groups with international operations. Our lead state regulator, the NYDFS, annually since this requirement became effective.
The NAIC has also approved a valuation manual containing a principle-based approach to the calculation of life insurance reserves (the “Valuation Manual”). Principle-based reserving is designed to better address reserving for life insurancechairs Supervisory College meetings that MetLife’s key U.S. and annuity products. The NYDFS promulgated a regulation in 2019 that affirms the Superintendent’s authority to deviate from the Valuation Manual to adjust the reserves of a New York domestic life insurance company, such as MLIC, if the NYDFS determines that an alternative requirement would be in the best interest of New York policyholders.non-U.S. regulators attend.
The NAIC has been focused on a macro-prudential initiative since 2017, which is intended to enhance risk identification efforts by building on the state-based regulation system. In furtherance of this initiative, the NAIC adopted changes to its Statutory Annual Statement reporting, effective for year-end 2019, to improve liquidity risk monitoring. The NAIC also adopted amendments to the Model Holding Company Act and Regulation that implement requirements related to a liquidity stress-testing framework for certain large U.S. life insurers and insurance groups. The applicability of the framework is based on amounts of certain types of business written or material exposure to certain investment transactions, such as derivatives and securities lending. The framework is consistent with MetLife’s liquidity risks policies and procedures, and is expected to have no impact on MetLife. A bill is pending in the New York state legislature to adopt the holding company amendments.
We use capital markets solutions to finance a portion of our statutory reserve requirements for several products. These include level premium term life products subject to the NAIC’s Valuation of Life Insurance Policies Model Regulation (commonly referred to as Regulation XXX), universal and variable life policies with secondary guarantees subject to NAIC Actuarial Guideline 38 (commonly referred to as Guideline AXXX), and our closed block. In order to address the use of captives for policies covered by Regulation XXX and Guideline AXXX, the NAIC adopted Actuarial Guideline 48 (“AG 48”). This guideline has enhanced the statutory financial statement disclosure of an insurer's use of captives and has narrowed the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations.
AG 48 also requires the actuary of a ceding insurer to opine on the assuming insurer’s collateral associated with the treaty and to issue a qualified opinion if the assuming entity is not complying with the requirements of AG 48. The NAIC’s Term and Universal Life Insurance Reserve Financing Model Regulation codifies the same substantive requirements as AG 48, as amended by the NAIC in 2016, and establishes uniform, national standards governing reserve financing arrangements pertaining to the term life and universal life insurance policies with secondary guarantees. The model regulation became an NAIC accreditation standard on September 1, 2022, with enforcement beginning on January 1, 2023, although states can use AG 48 to satisfy the accreditation requirement.
We cannot predict the capital and reserve impacts, compliance costs, or other effects these initiatives will have on our business, financial condition or results of operations.
Surplus and Capital
Insurers must maintain their capital and surplus at or above minimum levels prescribed by the laws of their respective jurisdictions. Regulators generally have discretionary authority to limit or prohibit an insurer’s sales to policyholders if the insurer has not maintained minimum surplus or capital or if they find that the further transaction of business would be hazardous to policyholders.
Dividend Restrictions
New York restricts the dividends or other distributions an insurance company subsidiary may pay to its parent companies and limits the transactions between an insurer and its affiliates. Dividends in excess of prescribed limits and transactions above a specified size between an insurer and its affiliates require the approval of the NYDFS. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Statutory Capital and Dividends.” See also “Dividend Restrictions” in Note 1215 of the Notes to the Consolidated Financial Statements for further information regarding such limitations.
For developments that could affect our surplus and capital, see “Risk Factors.”
Risk-Based Capital
Metropolitan Life Insurance Company is subject to risk-based capital (“RBC”) requirements developed by the NAIC and adopted by New York. Insurers calculate RBC is calculated annually based on a formula that applies factors to various asset, premium, claim, expense and statutory reserve items, taking into account asset, insurance, interest rate, and market and business risk characteristics. Regulators use the RBC formula as an early warning tool to identify insurers that may be inadequately capitalized for purposes of initiating regulatory action, and not as a means to rank insurers generally. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels.action. See “Statutory Equity and Income” in Note 1215 of the Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Statutory Capital and Dividends.”
The NYDFS issues annual letters on Special Considerations (each, an “SCL”) to New York-licensed insurance companies, including MLIC, that affect year-end asset adequacy testing. An SCL could mandate assumption changes that would require us to increase, or influence our decision to release, certain asset adequacy reserves, which could materially impact our statutory capital and surplus. No changes were made to our asset adequacy reserves in either 2022 or 2021 as a result of the SCL. See “Statutory Equity and Income” in Note 12 of the NotesNAIC developments related to the Consolidated Financial Statements.RBC framework are described below.
The NAIC adopted revisions to certain factors used to calculate Life
•RBC which is the denominator of the RBC ratios, in light of changes to U.S. tax laws in recent years. These revisions have resulted in increased RBC charges and reduced our RBC ratios.Revisions. The NAIC has approved RBC revisions for corporate bonds, real estate equity and longevity risk that took effect at year-end 2021, which had a modest net positive RBC impact on us. The NAIC has also approved an RBC update for mortality risk that took effect at year-end 2022, which had a modest positive impact on our reported RBC ratio.
ratios. In 2023, the NAIC increased the RBC factor for structured security residual tranches from 30% to 45%, which will be effective for year-end 2024 RBC filings and is expected to have an immaterial RBC impact on us. The NAIC developedis currently reviewing the RBC treatment of collateralized loan obligations (“CLOs”). See “— Investments” for additional information.
•Bond Project. The NAIC has undertaken a principles-based bond project, which includes consideration of factors to determine whether an investment in an asset-backed security qualifies for reporting on an insurer’s statutory financial statement as a bond on Schedule D-1 as opposed to Schedule BA (other long-term investment assets), the latter of which has a higher risk charge. The NAIC adopted a new, principles-based definition of a bond that will be effective in certain statutory accounting guidance as of January 1, 2025. This will result in new reporting and disclosure requirements and may lead to categorical changes in the regulatory reporting and RBC charges associated with these investments.
•Interest Maintenance Reserve. In 2023, the NAIC adopted an interim solution with regard to the treatment of an insurer’s negative interest maintenance reserve (“IMR”) balance, which may occur in a rising interest rate environment and can impact how accurately the insurer’s surplus and financial strength are captured in its statutory financial statements due to lower surplus and RBC ratios. The NAIC’s interim statutory accounting guidance is effective until December 31, 2025 and permits an insurer with a company action level RBC ratio greater than 150% (or an authorized control level RBC ratio greater than 300%) to admit negative IMR up to 10% of its general account capital and surplus, subject to certain restrictions and reporting obligations. The NAIC is developing a long-term solution for this issue.
•Group Capital Calculation. The NAIC’s group capital calculation (“GCC”) tool usinguses an RBC aggregation methodology for all entities within an insurance holding company system, including non-U.S. entities. The NAIC amended the Model Holding Company Act and Regulation to adopt the GCC Template and Instructions and to implement the annual GCC filing requirement with an insurance group’s lead state regulator. The filing requirement becomes effective when the holding company actThese amendments arehave been adopted by the state where an insurance group’s lead state regulator is located. A bill is pending in themajority of states, including New York State legislature to adopt such amendments.York. We cannot predict what impact this regulatory tool may have on our business.
NAIC adoptions or NYDFS regulation changesInvestments
State insurance laws and regulations limit the amount of investments that we may have a material impact on our RBC ratio.
Diversityin certain asset categories, such as below investment grade fixed income securities, real estate equity, other equity investments, and Corporate Governancederivatives, and require diversification of investment portfolios. Investments exceeding regulatory limitations are not admitted for purposes of measuring surplus. In some instances, laws require us to divest any non-qualifying investments.
The NAIC is focused on enhancing regulatory oversight of insurers’ investments in complex assets, such as structured securities. In connection with evaluating the risks of investing in leveraged loans and stateCLOs, the NAIC adopted an amendment to the Purposes and Procedures Manual in 2023. Under the amendment, the NAIC Structured Securities Group (“SSG”) will assign risk weights to CLOs based on its own modeling, as opposed to credit ratings. The SSG will model CLO investments and evaluate tranche level losses across all debt tranches under a series of calibrated and weighted collateral stress scenarios to assign NAIC designations that minimize RBC arbitrage. The NAIC’s goal is to ensure that the aggregate RBC factor for owning all tranches of a CLO is similar to that required for owning all of the underlying loan collateral. We expect to begin reporting the financially modeled NAIC designations for CLOs with our year-end 2024 financial statement filings. It is possible that the NAIC may propose new regulations or changes to statutory accounting principles regarding CLOs.
Reserves and Asset Adequacy Analysis
The NAIC’s valuation manual contains a principle-based approach to the calculation of life insurance regulatorsreserves. Principle-based reserving, which is designed to better address reserving for life insurance and annuity products, has been adopted by all states.
We use capital markets solutions to finance a portion of our statutory reserve requirements for several products, such as level premium term life products and our closed block, which are evaluating issues relatedsubject to diversity within the insurance industry. In New York, the NYDFS expects the insurers it regulates to make diversityNAIC’s Valuation of their leadership a business priority and a key element of their corporate governance. The NYDFS collected data from insurers that met certain New York premium thresholds, including Metropolitan Life Insurance Company, regardingPolicies Model Regulation (commonly referred to as Regulation XXX), and universal and variable life policies with secondary guarantees subject to NAIC Actuarial Guideline 38 (commonly referred to as Guideline AXXX). The NAIC’s Actuarial Guideline 48 (“AG 48”) enhances the diversitystatutory financial statement disclosure of their corporate boardsan insurer's use of captives and management.narrows the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations. The NYDFS plansNAIC’s Term and Universal Life Insurance Reserve Financing Model Regulation codifies the same substantive requirements as AG 48. States must either adopt the model regulation or use AG 48 to publish such data onsatisfy the NAIC accreditation requirement.
Each year a qualified actuary must submit an aggregate basisopinion stating that our statutory reserves, including affiliated captive reinsurers, make adequate provision, according to measure progress inaccepted actuarial standards of practice, for the industry,anticipated cash flows required by our contractual obligations and it now includes diversity-related questions in its examination process. The NAIC is also evaluating issues related to race, diversity and inclusion, and it is examining practices in the insurance industryexpenses. We may increase reserves in order to determine how barriers are createdsubmit this opinion without qualification.
In addition, the NYDFS issues annual letters on Special Considerations (each, an “SCL”) to New York-licensed insurance companies, including us, that disadvantage peopleaffect year-end asset adequacy testing. An SCL could mandate assumption changes that would require us to increase, or influence our decision to release, certain asset adequacy reserves, which could materially impact our statutory capital and surplus. See “Statutory Equity and Income” in Note 15 of color or historically underrepresented groups.the Notes to the Consolidated Financial Statements.
Adjusting Non-Guaranteed Elements of Life Insurance Products
New York Insurance Regulation 210
York’s Insurance Regulation 210 establishes standards for the determination and any readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer’s discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York. NGEs include cost of insurance for universal life insurance policies, as well as interest crediting rates for annuities and universal life insurance policies. The regulation requires insurers to notify policyholders at least 60 days in advance of any change in NGEs that is adverse to policyholders and, with respect to life insurance, to notify the NYDFS at least 120 days prior to any such changes. The regulation also requires insurers to inform the NYDFS annually of any changes adverse to policyholders made in the prior year. The regulation generally prohibits insurers from increasing profit margins for in-force policies or adjusting NGEs in order to recoup past losses.
Guaranty Associations
the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. We have established liabilities for guaranty fund assessments that we consider adequate. Cybersecurity, Privacy and Data Protection Regulation
We are subject to a variety of laws and regulations at the local, state and federal level regarding the collection, storage, use, retrieval, processing, disclosure, protection and security of personal information, including health-related and customer information and data of MetLife employees (our “Associates”). Various local, state and federal laws require companies such as ours to inform consumersindividuals of data collection, storage andtheir privacy rights. Our personal information processing practices and further dictate whether, how, and under what circumstances we may transfer, process or receive personal information, the interpretation and scope of which are constantly evolving and vary significantly from jurisdiction to jurisdiction. We are also subject to laws and regulations governing the security and integrity of our information systems and the non-public information stored therein, many of which require the implementation and maintenance of a comprehensive information security program, and require notification to affected individuals and regulators in the event of security breaches and other cyber incidents.incidents affecting our information systems or the personal or non-public information stored thereon. Given growing cybersecurity risks and threats posed to information and financial systems by nation-states, terrorist organizations and independent criminal actors in recent years, insurance and other regulators have increased their focus on cybersecurity practices, and regulatory and legislative activity in the areas of privacy, data protection and cybersecurity continues to increase worldwide. Below, we highlight some of the key data protection and cybersecurity laws and regulations to which we are subject.
Cybersecurity
The NYDFS promulgated the New York Cybersecurity Requirements for Financial Services Companies (the “Regulation”) to promote the protection of customer information and information technology systems by establishing and regulating cybersecurity requirements for banking and insurance entities under the NYDFS’s jurisdiction. In general, the Regulation requires covered entities, including us, to assess risks associated with their information systems and establish and maintain a cybersecurity program designed to assess those risks and protect the confidentiality, integrity and availability of such systems and data. Specifically, the Regulation provides for, among other things: (i) technical safeguards and controls relating to the governance framework for a cybersecurity program; (ii) risk-based policies, procedures and minimum standards for technology systems for data protection; (iii) minimum standards for cyber breach responses, including notice to the NYDFS of certain material events; (iv) designation of a chief information security officerChief Information Security Officer (“CISO”) and other qualified cybersecurity personnel; (v) oversight of third party service providers with access to the information systems and nonpublic personal information of covered entities, including via implementation of written policies and procedures to evaluate the third party service provider’s cybersecurity practices; and (vi) identification and documentation of material deficiencies, remediation plans and annual certifications of regulatory compliance. The NYDFS has proposed amendments to the Regulation which, if adopted, would require the implementation of new reporting, governance and oversight measures, and enhanced cybersecurity safeguards (such as annual audits, vulnerability assessments, and password controls and monitoring), and mandate notifications in the event a covered entity makes a cyber-ransom payment. We cannot predict whether the amendments will be adopted, what form they will take, or what effect they would have on our business or compliance costs. Covered entities that fail to comply with the Regulation may be subject to enforcement actions brought by the NYDFS, the result of which could lead to civil penalties, and other legal and reputational costs.
In late 2023, the NYDFS adopted amendments to the Regulation following several public comment periods on exposure drafts. The NAIC adoptedamendments include significant changes, such as: (a) implementing additional governance and oversight measures, including that a senior governing body (e.g., the board of directors) must have sufficient understanding of cybersecurity-related matters and regularly review management reports about cybersecurity matters; (b) expanding the types of cybersecurity events that require timely notification to the NYDFS; (c) mandating notifications to the NYDFS within 24 hours of a covered entity’s cyber-ransom payment; and (d) requiring enhancements to a covered entity’s written policies and procedures related to remote access, vulnerability management, data retention and access privileges. The majority of the new requirements become effective on April 29, 2024. We cannot predict what effect the amended Regulation will have on our business or compliance costs.
The NAIC’s Insurance Data Security Model Law (the “Cybersecurity Model Law”), which requires insurers and other entities licensed by a state insurance department to develop, implement and maintain a risk-based information security program. The Cybersecurity Model Law also establishes standards for data security and for investigation of and notification to insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. Several states in which MLIC is licensed have adopted the Cybersecurity Model Law, and more may adopt it in the future, requiring further compliance and oversight efforts. Such compliance efforts may present an increasing demand on our systems and resources, and require significant new and ongoing investments, including investments in compliance processes, personnel, and technical infrastructure.
On May 12, 2021, President Biden signed Executive Order 14028 on Improving the Nation’s Cybersecurity (the “Order”) to strengthen the U.S. federal government’s cybersecurity defenses and that of its vendors. The Office of Management and Budget (“OMB”) has released several memoranda expounding on various aspects of the Order; for example, OMB released the federal government’s strategy to move towards Zero Trust cybersecurity principles on January 26, 2022. While MetLife provides employee benefits to several of the agencies that are subject to the Order, it is not directly subject to the new requirements at this time, based on the scope of the Order. While the Order is primarily aimed at technology and software providers and suppliers, there are efforts underway within a whole-of-government approach to combat cyber-attacks and ransomware attacks, which could potentially impose additional cybersecurity requirements on MetLife and other federal contractors over time.
Privacy and Data Protection
In the U.S., we are subject to state laws, which impose certain obligations on the processing of personal information and provide consumers specific rights to control their personal information. For instance, the California Consumer Privacy Act (“CCPA”), which applies to certain portions of our business, requires covered companies to provide disclosures to California consumers about such companies’ data collection, use and sharing practices and gives California residents expanded rights with respect to the processing of their personal information. In November 2020, the CCPA was amended by the California Privacy Rights Act, (“CPRA”), which took effect in most material respects on January 1, 2023. The CPRA expands the CCPA, including with respect to the processing of certain sensitive personal information,in 2023 and establishes a regulatory agency, the California Privacy Protection Agency (“CPPA”), to promulgate rulesimposes additional rights and regulations, and to enforce those requirements. Regulators may impose fines for violations, and individuals have a private right of action for the unauthorized disclosure of personal information as a result of a failure to maintain reasonable security procedures. CCPA enforcement thus far has been limited; it has not been subject to significant litigation and judicial interpretation, and the CPRA has shifted enforcement duties from the state Attorney General to the new CPPA. As a result, it remains unclear how various provisions of the CCPA will be interpreted and enforced. Moreover, in February 2023, the CPPA adopted its final rule changes to the CCPA regulations; these are expected to come into force in April 2023.obligations. While a significant portion of our business is exempted from the CCPA’s specific requirements, the Health Insurance Portability and Accountability Act and the insurance laws of several states to which we are subject grant similar rights to insureds, including the right to request copies of their personal information that a company has collected.
Several other states either have proposed or adopted new comprehensive privacy laws, which may apply to certain portions of our business. However, some of these state laws (such as those enacted in Virginia, Colorado, Connecticut, and Utah) include broad entity-wide exemptions for financial institutions. The NAIC is also developing a new consumer privacy model law that will likely be completed in 2024. Additionally, a draft of a new federal privacy bill, the American Data Privacy and Protection Act (“ADPPA”), was introduced in June 2022 with the aim of harmonizing and improving federal data protection legislation. The ADPPA was not enacted during the last Congress, but it or similar federal legislation may be enacted in the future. Adapting our practices to comply with new laws and regulations may increase compliance costs and potentially change our business practices.
The above laws, and other similar laws that may be passed, may require us to adapt our practices and divert resources from other initiatives and projects to address such evolving compliance and operational requirements. Moreover, despite our efforts, governmental authorities or others may assert that our business practices or that of our vendors fail to comply with such requirements, and if we or they are found to violate any such laws, we may incur substantial fines or damages, have to change our business practices, or face reputational harm, any of which could have an adverse effect on our business.
Innovation and Technology
As a result of increased innovation and technology in the insurance sector, the NAIC and insurance regulators are focused on the use of “big data” techniques, such as the use of artificial intelligence (“AI”), machine learning and automated decision-making. In 2023, the NAIC’s Innovation, Cybersecurity and Technology (H) Committee (the “(H) Committee”) adopted the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers (the “AI Bulletin”) after exposing a draft for comment. The AI Bulletin outlines how insurance regulators should govern the development, acquisition and use of AI technologies, as well as the types of information that regulators may request during an investigation or examination of an insurer in regard to AI systems. In 2024, the (H) Committee plans to form a new task force that will be charged with creating a regulatory framework for the oversight of insurers’ use of third-party data and models.
Further, the NAIC and state insurance regulators have been focused on addressing unfair discrimination in the use of consumer data and technology, and some states have passed laws targeting unfair discrimination practices. For instance, in 2021, Colorado enacted a law which prohibits insurers from using external consumer data and information sources (“ECDIS”), as well as algorithms or predictive models that use ECDIS, in a way that unfairly discriminates based on race, color, national or ethnic origin, religion, sex, sexual orientation, disability, gender identity or gender expression. In 2023, Colorado adopted the first legally binding regulation requiring life insurers to adopt a governance and risk management framework for the use of AI, machine learning and other technologies that utilize “external consumer data” in connection with individual life insurance policies. It is expected that Colorado will also promulgate governance and testing regulations for other lines of insurance. Similarly, in January 2024, the NYDFS released for public comment a proposed circular letter focused on how insurers should develop and manage their use of external consumer data and AI systems in underwriting and pricing so as not to harm consumers.
We expect big data to remain an important issue for the NAIC and state regulators. We cannot predict which insurance regulators will adopt the AI Bulletin, or what, if any, changes to laws or regulations may be enacted with regard to “big data” or AI technologies.
Standards of Conduct, ERISA and Fiduciary Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA and/or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”). ERISA and the Code impose restrictions, including fiduciary duties to perform solely in the interests of ERISA plan participants and beneficiaries, and to avoid prohibited non-exempt transactions. The applicable provisions of ERISA and the Code are subject to enforcement by the U.S. Department of Labor (the “DOL”), the Internal Revenue Service and the Pension Benefit Guaranty Corporation.
The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA plans and participants and to Individual Retirement Accounts (“IRAs”) (and certain other arrangements) if the investment recommendation results in fees paid to an individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment recommendation chosen, unless an exemption or exception is available. Similarly, without an exemption or exception, fiduciary advisors are prohibited from receiving compensation from third parties in connection with their advice. ERISA also affects certain of our in-force insurance policies and annuity contracts, as well as insurance policies and annuity contracts we may sell in the future.
The SEC adopted Regulation Best Interest in 2019, and compliance was required beginning on June 30, 2020. Regulation Best Interest requires broker-dealers to act in the best interest of individual investor retail customers when recommending account types, securities transactions or investment strategies involving securities, including recommendations to IRA owners, as well as non-benefit plan retail customers. In addition, other SEC rules require broker-dealers and investment advisers to retail customers to describe their services and conflicts of interest to their retail customers in client relationship summary disclosure and deliver a copy to their retail customers. In December 2020, the DOL released the final version of the prohibited transaction exemption (“PTE”) 2020-02 to allow investment advice fiduciaries to receive compensation without violating ERISA, subject to impartial conduct standards and disclosure obligations aligned with the new SECSecurities and Exchange Commission (the “SEC”) rules. In the preamble to PTE 2020-02, the DOL also provided its interpretation of the five-part test used to determine whether a person is acting as an ERISA investment advice fiduciary. PTE 2020-02 became effective on February 16,in 2021. In April 2021,2023, the DOL published additional guidance indicatingagain proposed a regulation to change the definition of “fiduciary” for purposes of the ERISA and parallel provisions of the Code when a financial professional, including an insurance producer, provides investment advice, and to amend various existing PTEs that it may amendfinancial professionals rely on when making recommendations. In November 2023, the DOL issued a proposed revised version of the five-part test, proposed amendments to PTE 2020-02, and proposed amendments to other PTEs, all of which relate to the provision of investment advice under ERISA. However, those proposed amendments are subject to notice and comment and will not be finalized for several months.
Federal and state regulators have adopted standards of conduct when recommending securities, including variable insurance products. The SEC’s Regulation Best Interest requires broker-dealers to act in the best interest of retail consumers when recommending account types, securities transactions or addinvestment strategies involving securities, including recommendations to this rule. FINRAIRA owners, as well as non-benefit plan retail customers. In addition, the Financial Industry Regulatory Authority (“FINRA”) rules similarly impose “know your customer” and “suitability” requirements on broker-dealers as well as supplemental rules relating to the sale of variable annuities, including with respect to certain benefit plan customers and IRA owners.insurance products.
State regulators and legislatures in Nevada, New Jersey, Maryland and New York have proposed measures that would make broker-dealers, sales agents, and investment advisers and their representatives subject to a fiduciary duty when providing products and services to customers, including pension plans and IRAs, and Massachusettscustomers. The North American Securities Administrators Association has enactedproposed a lawmodel rule regarding broker-dealer conduct that states might seek to that effect. The NYDFS’s annuity suitability regulation incorporates the “best interest” standard and expands the scope of the regulation beyond annuity transactions to include sales of life insurance policies to consumers. In April 2021, the Appellate Division of the New York Supreme Court overturned the regulation for being unconstitutionally vague, although the New York State Court of Appeals reversed this ruling on October 20, 2022.adopt. Although Regulation Best Interest under the Securities Exchange Act of 1934, as amended (“Exchange Act”) does not include a private right of action, although the SEC did not indicate an intent to pre-empt state regulation in this area, and some of the state proposals and adopted regulations would allow for a private right of action. As a result of these developments, it is possible that it may become more costly to provide and distribute our products and services in the states subject to the newsuch rules, and that we might be subject to additional litigation and regulatory investigations regarding our compliance with those rules.
The SECURE 2.0 Act of 2022 (“SECURE 2.0”), signed into law on December 29, 2022, makes significant changes to existing lawintroduced new requirements for retirement plans by building upon provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019. SECURE 2.0 introduces new requirements and considerations for plan sponsors that are intended to expand coverage, increase savings, preserve income, and simplify plan rules and administrative procedures. Among other provisions, SECURE 2.0 directsprocedures; and directed the DOL to review its current interpretive bulletin regarding ERISA plan sponsors’ selection of annuity providers for purposes of transferring plan sponsor benefit plan liability to such annuity providers. Such review could result in the DOL’s imposition of new or different requirements on plan sponsors or on annuity providers such as Metropolitan Life Insurance Company, or could make such selection process more difficult for the parties involved.
Investments RegulationManagement of Climate Risk
State insurance lawsClimate risk has come under increased scrutiny by regulators and regulations limit the amount of investments that we may have in certain asset categories,NAIC. In New York, the NYDFS expects both New York domestic insurers, such as belowMetropolitan Life Insurance Company, and foreign authorized insurers licensed in New York, to manage material climate risks by taking actions that are proportionate to the nature, scale and complexity of their businesses. However, the NYDFS issued separate guidance for New York domestic insurers, which contains more detailed expectations, such as (i) ensuring the board of directors understands relevant climate risks; (ii) performing regular reviews of the insurer’s procedures that are designed to manage climate risks; (iii) using scenario analysis to inform the insurer’s business strategies and risk assessment; and (iv) incorporating material climate risks into its financial risk management (e.g., enterprise risk management (“ERM”) and own risk and solvency assessment). The guidance states that the NYDFS will issue further guidance on the timing for implementation of certain of these expectations. In addition, New York’s regulation governing ERM, which applies to New York domestic and foreign authorized insurers, was amended to require an insurance group’s ERM function to address certain additional risks, including climate change risk.
The NAIC has adopted a new standard for insurance companies to report their climate-related risks as part of its annual Climate Risk Disclosure Survey, which applies to insurers that meet the reporting threshold of $100 million in countrywide direct premium and are licensed in one of the participating jurisdictions. The new disclosure standard is consistent with the international Task Force on Climate-Related Financial Disclosures’ framework for reporting climate-related financial information.
Pursuant to its authority under Dodd-Frank, the Federal Insurance Office (“FIO”) is also assessing how the insurance sector may mitigate climate risks and help achieve national climate-related goals. In 2023, the FIO released a report which evaluates climate-related issues and urges insurance regulators to adopt climate-related risk-monitoring guidance in order to enhance their regulation and supervision of insurers.
The SEC is also continuing its focus on climate, and environmental, social and governance (“ESG”) risks and opportunities and has published its rulemaking list which contains several ESG-related rulemakings that the SEC is considering. On March 6, 2024, the SEC adopted final rules requiring registrants to provide additional climate-related information in their registration statements and annual reports, including in their financial statements. The rules include a phased-in compliance period beginning with the 2025 fiscal year for large accelerated reporting companies, including MetLife, Inc. In 2022, the SEC also proposed rules requiring registered investment grade fixed income securities, real estate equity, other equity investments,companies, business development companies, and derivatives,registered and require diversificationcertain unregistered investment advisers to disclose in their fund prospectuses, annual reports and Form ADV information about how funds and advisers incorporate ESG factors into their investment strategies.
In 2023, California adopted laws establishing climate disclosure and climate-related financial risk reporting requirements which apply to companies doing business in California that meet applicable revenue thresholds. Also in 2023, California adopted a law establishing disclosure requirements for entities operating within California that market, sell, purchase, or use voluntary carbon offsets, as well as those that make claims of investment portfolios. Investments exceeding regulatory limitations are not admitted for purposesachieving net zero emissions or carbon neutrality that operate within and make such claims within the state.
Consumer Protection Laws
As part of measuring surplus. In some instances, laws require usDodd-Frank, Congress established the Consumer Financial Protection Bureau (“CFPB”) to divest any non-qualifying investments.supervise and regulate institutions that provide certain financial products and services to consumers. Although the consumer financial services subject to the CFPB’s jurisdiction generally exclude insurance business of the kind in which we engage, the CFPB does have authority to regulate non-insurance consumer services we provide.
Derivatives Regulation and Clearing of Treasury Securities
Dodd-Frank includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets requiring clearing of certain types of interest rate and credit default swapOTC derivative transactions and imposes additional costs, including reporting and margin requirements. Our costs of risk mitigation are increasing under Dodd-Frank. For example, Dodd-Frank imposes requirements to pledge variation and/or initial margin (i) for “OTC-cleared” transactions (OTC derivatives that are cleared and settled through central clearing counterparties), and (ii) for “OTC-bilateral” transactions (OTC derivatives that are bilateral contracts between two counterparties).
We expect increased margin requirements, and capital charges for our counterparties and central clearinghouses related to holding non-cash collateral, to continue to increase our required holdings of cash and government securities. This may cause lower yields and reduce our income due to less favorable pricing for OTC-cleared and OTC-bilateral transactions. Centralized clearing of certain OTC derivativesalso exposes us to the risk of a default by a clearing member or clearinghouse with respect to our cleared derivative transactions. We use derivatives to mitigate a wide range of risks in connection with our businesses, including the impact of increased benefit exposures from certain of our annuity products that offer guaranteed benefits. We have always been subject to the risk that
Our derivative hedging and other risk management procedures mightmay prove ineffective in reducing the risks to which our insurance policies expose us, or that unanticipated policyholder behavior or mortality, combined with adverse market events, could produce economic losses beyond the scope of the risk management techniques employed.business is exposed. Any such losses could be increased by higher costs of writing derivatives (including customized derivatives) and the reduced availability of customized derivatives that might result from the implementation of Dodd-Frank and comparable international derivatives regulations.
Dodd-Frank also expanded the definition of “swap” and mandated the SEC and U.S. Commodity Futures Trading Commission (“CFTC”) to study whether “stable value contracts” should be treated as swaps. Pursuant to the new definition and the SEC’s and CFTC’s interpretive regulations, products we offer, other than stable value contracts, might also be treated as swaps. ShouldThe effect of such products become regulated as swaps, we cannot predict how the rules would be appliedpotential treatment is difficult to them or the effect on such products’ profitability or attractiveness to our clients.predict. Special federal banking rules apply to certain qualified financial contracts, including many derivatives contracts securities lendingand other agreements and repurchase agreements, with some banking institutions and certain of their affiliates. These rules generally require the banking institutions and their applicable affiliates to limit or delay their counterparties’ defaultthe rights (such as their counterparties’ right to terminate the contracts or foreclose on collateral) and restrict assignments and transfers of credit enhancements (such as guarantees) in connection with the banking institution or affiliate bankruptcy, insolvency, resolution or similar proceeding. These rules could limit our recovery in the event of a default, limit our ability to close-out transactionscounterparties upon the bankruptcyinsolvency of an affiliate of our counterparty, andsuch banking institutions which could increase our counterparty risk.
We expectIn 2023, the amountprincipal U.S. federal banking regulatory agencies proposed for public comment regulations to implement certain international “Basel III” capital standards. The U.S. regulatory proposal could affect capital charges applicable to banks and their affiliates engaged in derivatives activities, and could thus increase the costs of collateral we are requiredour risk mitigation using derivatives, as well as impact the availability of derivatives from our counterparties. It is not certain in what manner these proposed regulations may be modified when and if finalized.
In 2023, the SEC adopted rules to pledgerequire that covered clearing agencies have policies and the payments we are requiredprocedures reasonably designed to make under our OTC swaps transactions to increase as a resultrequire every direct participant of the requirementagency to pledge initial marginsubmit for OTC-bilateralclearing eligible secondary market transactions basedin U.S. Treasury securities. The rule effectively requires such participants to clear eligible cash transactions in U.S. Treasury securities by December 31, 2025, and eligible repurchase transactions in U.S. Treasury securities by June 30, 2026. The rule’s potential effect on the final margin requirements for non-centrally cleared derivatives.U.S. Treasury markets is uncertain.
Securities, Broker-Dealer and Investment Adviser Regulation
Federal and state securities laws and regulations apply to insurance products that are also meet the definition of a “security,” including variable annuity contracts and variable life insurance policies, and certain fixed interest rate or index-linked contracts with features that require them to be registered as securities or exempt from registration. As a result, some of our activities in offering and selling variable insurance contracts and policies are subject to extensive regulation under these securities laws.
Federal and state securities laws and regulations generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting new or existing products, regulate the issuance, sale and distribution of our products and limit or restrict the conduct of business for failure to comply with such laws and regulations.
Some of our activities in offering and selling variable insurance products are subject to extensive regulation under the federal securities laws and regulations administered by the SEC. We issue variable annuity contracts and variable life insurance policies throughwith separate accounts that are registered with the SEC as investment companies under the Investment Company Act of 1940, as amended (the “Investment Company Act”) or are exempt from registration under the Investment Company Act. Such separate accounts are generally divided into sub-accounts, each of which invests in an underlying mutual fund which is itself a registered investment company under the Investment Company Act. In addition, the variable annuity contracts and variable life insurance policies associated with these registered separate accounts are registered with the SEC under the Securities Act of 1933, as amended (the “Securities Act”) or are exempt from registration under the Securities Act. We issue a fixed interest rate contract with features that require it to be registered under the Securities Act.
Certain variable contract separate accounts sponsored by our subsidiaries are exempt from registration but may be subject to other provisions of the federal securities laws.
The SEC, CFTC and FINRA from time to time propose and adopt rules and regulations that impact broker-dealers and products deemed to be securities.
Under SEC rules, the selling broker-dealers recommending our variable products and other securities offerings to retail customersend investors are required to comply with a “best interest” standard.various SEC and FINRA rules and regulations, including Regulation Best Interest. SEC rules also require these selling broker-dealers to disclose the nature of services, their standard of conduct, and their conflicts of interest to their retail customers. With regard to insurance products, the NAIC revised its Suitability in Annuity Transactions Model Regulation to add a “best interest” standard for the sale of annuities. In April 2021, as noted above, the Appellate Division of theannuities, which certain states, including New York, State Supreme Court overturned NYDFS Regulation 187-Suitabilityhave adopted and Best Interests in Life Insurance and Annuity Transactions for being unconstitutionally vague, although the New York State Court of Appeals reversed this ruling on October 20, 2022.others may consider.
Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations regarding our compliance with securities and other laws and regulations. We cooperate with such inquiries and examinations and take corrective action when warranted.
Diversity and Corporate Governance
The NAIC and state insurance regulators are evaluating issues related to diversity within the insurance industry. In New York, for example, the NYDFS expects the insurers it regulates to make diversity of their leadership a business priority and a key element of their corporate governance, and it includes diversity-related questions in its examination process.
Environmental Laws and Regulations
As an owner and operator of real property in many jurisdictions, we are subject to extensive environmental laws and regulations in such jurisdictions. Inherent in such ownership and operation is also the risk that there may be environmental liabilities and costs in connection with any required remediation of such properties. In addition, we hold equity interests in companies that could potentially be subject to environmental liabilities. We routinely have environmental assessments performed with respect to real estate being acquired for investment and real property to be acquired through foreclosure. Unexpected environmental liabilities may arise. However, based on information currently available to us, we believe that any costs associated with compliance with environmental laws and regulations or any remediation of such properties will not have a material adverse effect on our business, results of operations or financial condition.
Management of Climate Risks
The topic of climate risk has come under increased scrutiny by insurance regulators. The NYDFS issued a circular letter in September 2020 stating that it expects foreign authorized insurers, to integrate financial risks related to climate change into their governance frameworks, risk management processes, business strategies and scenario analysis, and develop their approach to climate related financial disclosure.
On November 15, 2021, the NYDFS issued final guidance for New York domestic insurers, stating that such insurers are expected to manage financial risks from climate change by taking actions that are proportionate to the nature, scale and complexity of their businesses. For instance, insurers should incorporate climate risk into their financial risk management and address this risk through their enterprise risk management functions. As of August 15, 2022, New York domestic insurers should have implemented certain corporate governance changes and developed plans to implement the organizational structure changes (e.g., defining roles and responsibilities related to managing climate risk). With respect to implementing additional changes (e.g., reflecting climate risks in the ORSA and using scenario analysis when developing business strategies), insurers are encouraged to work on these changes, although the NYDFS will issue further guidance with more specific timelines.
The NYDFS also adopted an amendment to the regulation governing enterprise risk management, applicable to New York domestic and foreign authorized insurers, which requires an insurance group’s enterprise risk management function to address certain additional risks, including climate change risk.
In addition, the Federal Insurance Office (“FIO”) is authorized to monitor the U.S. insurance industry under Dodd- Frank. In furtherance of President Biden’s Executive Order on Climate-Related Financial Risk, dated May 20, 2021, the FIO sought public comment on climate-related financial risks in the insurance industry. The FIO is assessing how the insurance sector may mitigate climate risks and help achieve national climate-related goals.
The SEC is also continuing its focus on climate, and environmental, social and governance (“ESG”) risks and opportunities and has published its rulemaking list which contains several ESG-related rulemakings that the SEC is considering.
On March 21, 2022, the SEC proposed rules requiring registrants to provide additional climate-related information in their registration statements and annual reports, including in their financial statements. The proposal sets forth proposed rules for disclosure of climate-related risks, material impacts, governance, risk management, financial statement metrics, greenhouse gas emissions, attestation of emissions disclosures, and targets and goals.
Unclaimed Property
We are subject to the laws and regulations of states and other jurisdictions concerning identification, reporting and escheatment of unclaimed or abandoned funds, and are subject to audit and examination for compliance with these requirements. See “— State Insurance Regulation, — Insurance Regulatory Examinations and Other Activities,” which references a consent order. See also Note 1619 of the Notes to the Consolidated Financial Statements.
London Interbank Offered Rate
The Financial Conduct Authority (“FCA”), the United Kingdom (“U.K.”) regulator of London Interbank Offered Rates (“LIBOR”), and the Intercontinental Exchange (“ICE”) Benchmark Administration, the administrator of LIBOR, have announced the cessation dates for the publication of all U.S. Dollar and non-U.S. Dollar LIBOR settings. The cessation dates of many of these settings have occurred and the cessation date of the remaining U.S. Dollar LIBOR settings (overnight and one-, three-, six- and 12-month U.S. Dollar LIBOR) will occur on June 30, 2023. The FCA has proposed that the ICE Benchmark Administration continue publication of one-, three- and six-month U.S. Dollar LIBOR settings on a “synthetic,” or non-representative, basis through the end of September, 2024.
We use LIBOR and other interbank offered rates as interest reference rates in many of our financial instruments. The transition of our existing LIBOR contracts to alternative reference rates, including the adequacy of LIBOR fallback provisions in such contracts, whether, how, and when we and others develop and adopt alternative reference rates, the availability of synthetic LIBOR and the applicability of U.S. legislative remedies that address LIBOR transaction risk for various legacy U.S. Dollar LIBOR contracts, will influence the effect of any changes to or discontinuation of LIBOR on us. We continue to identify, assess and monitor market and regulatory developments, assess agreement terms, and evaluate operational readiness related to the transition. The SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations) expects to assess registrants’ efforts to prepare for LIBOR discontinuation and their transition to alternatives. We actively participate in the New York Federal Reserve Bank convened Alternative Reference Rate Committee and other industry association efforts on the transition to alternative reference rates. The Company utilized the International Swaps and Derivatives Association, Inc. (“ISDA”) 2020 IBOR Fallbacks Protocol to address the transition from LIBOR and other interbank offered rates to other risk-free rates in its OTC bilateral ISDA derivatives contracts. We also monitor the Financial Accounting Standards Board’s, International Accounting Standards Board’s, and U.S. Treasury Department’s updates on the accounting and tax implications of reference rate reform. In March 2022, federal legislation was enacted to address, for U.S. Dollar LIBOR settings scheduled to cease being published at the end of June 2023, the transition to alternative reference rates for all U.S. law governed contracts with non-existent or inadequate U.S. Dollar LIBOR fallback provisions. Except with respect to the one-week and two-month U.S. Dollar LIBOR tenors, the federal legislation supersedes all state law addressing the U.S. Dollar LIBOR transition, including legislation enacted in New York in 2021. The Federal Reserve Board adopted regulations in December 2022 that implement this legislation by identifying benchmark rates based on Term SOFR that will automatically replace LIBOR in specified financial contracts after June 30, 2023. The regulation authorizes specified “determining persons” to select a benchmark replacement and substitutes a Federal Reserve Board-specified replacement where a determining person does not select a workable benchmark replacement by at least June 30, 2023. Each Federal Reserve Board-specified replacement in the regulation incorporates spread adjustments. We continue to assess current and alternative reference rates’ merits, limitations, risks and suitability for our investment and insurance processes.
Item 1A. Risk Factors
Any or each of the events described below may (or may continue to) adversely affect the global economy or global financial markets, or our reputation, our regulatory, customer, or other relationships, our results of operations, our liquidity or cash flows, our statutory capital position, our ability to meet our obligations, our credit and financial strength ratings, or our financial condition. The effects may vary depending on timing, product, market, region or segment.
Many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of any of them may cause others to emerge or worsen. Such combinations could materially increase the severity of the cumulative or separate impact of these risks.
These risk factors do not describe all potential risks that could affect us. You should carefully consider the risk factors together with other information contained in this Annual Report on Form 10-K, including “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in “Financial Statements and Supplementary Data,” and other reports and materials we submit to the SEC.
Economic Environment and Capital Markets Risks
We May Face Difficult Economic Conditions
Market factors, including interest rates, credit spreads, declining equity prices,or debt markets, derivative prices and availability, real estate conditions, foreign currency exchange rates, consumer and government spending, government default or spending reductions to avoid default, business investment, climate change, public health risks, volatility, disruptions and strength of the capital markets, deflation and inflation, and government actions in response thereto, may inhibit revenue growth, reduce investment opportunities and result in reduced investment returns or losses, derivative losses, reductions in fees generated, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves, reduced net investment income and changes in unrealized gain or loss positions.
Higher unemployment, changes to inflation, lower family income, lower corporate earnings, greater government regulation, lower business investment, lower consumer spending, elevated incidence of claims, adverse utilization of benefits relative to our best estimate expectations, lapses or surrenders of policies, reduced demand for our products, and deferred or canceled payments of insurance premiums may negatively affect our earnings and capitalization.
Declining equity or debt markets may decrease the account value of our products, reducing certain fees generated by these products, which may increase the level of insurance liabilities we carry. Additionally, higher or lower interest rates may impact the value and/or reduce returns in fixed income investments.
Public Health Risks
Pandemics and other public health issues, and governmental, business, and consumer reactions to them, have affected and may continue to affect economic conditions. They have and may continue to cause illnesses and deaths, changes in consumer or business confidence, behavior and investment and business activity, changes to interest rates and other market risk factors, and governmental or other restrictions on economic activity for prolonged periods. Any of these issues may cause or exacerbate any of the difficult economic conditions we describe in these risk factors.
Interest Rate Risks
Some of our products and investments expose us to interest rate risks, including changes in the difference between short-term and long-term interest rates, which may reduce or eliminate our investment spread and net income.
Interest rate increases may harm our profitability. During rapidly increasing interest rates, we may not be able to replace the investments in our general account with higher yielding investments needed to fund the higher crediting rates required to stay competitive. This could result in a lower spread, lower profitability, decreased sales, and greater loss of existing contracts and related assets. In addition, policy loans, surrenders and withdrawals may increase as policyholders seek investments with higher perceived returns. This may result in cash outflows requiring the sale of investments on less favorable terms, resulting in investment losses and reductions in net income. Reductions in net income may in turn harm our credit instrument covenants and rating agency assessment of our financial condition. Interest rate increases may harm the value of our investment portfolio, for example, by decreasing the estimated fair value of fixed income securities, and may increase our daily settlement payments on interest rate futures and cleared swaps, resulting in increased cash outflows and liquidity needs. Furthermore, if interest rates rise, our unrealized gains on fixed income securities may decrease and our unrealized losses may increase. We would recognize the accumulated change in estimated fair value of these fixed income securities in net income whenupon a sale, an intent to sell, a determination it is more likely than not we realize a gainwill be required to sell, or loss upon the sale of the security or we determine thatif the decline in estimated fair value is due to a credit loss. During inflationary periods with rising interest rates, the value of fixed income investments falls, which could increase realized and unrealized losses, resulting in additional deferred tax assets that may not be realizable. Finally, an increase in interest rates may decrease fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds.
The rapidly rising interest rate environment may cause our interest maintenance reserve (“IMR”) balance to decrease or become negative because of our bond sales at a capital loss. Current statutory accounting guidance requires the non-admittance of negative IMR. If our IMR balance becomes negative, our surplus and financial strength may not be captured in the Consolidated Financial Statements due to lower surplus and RBC ratios. The NAIC is considering whether the allowance of a negative IMR balance in statutory accounting should be permitted, although the outcome of this initiative is uncertain.
Federal Reserve Board monetary policy (and that of other central banks) may also impact the pricing levels of risk-bearing investments and may harm our investment income or product sales.
The measures we take to mitigate the risks of investing in a changing interest rate environment, such as mitigating our fixed income investments relative to our interest rate sensitive liabilities, may not be sufficient. For some of our liability portfolios, we may not be able to invest assets at the full liability duration, thereby creating some asset/liability mismatch.
Low interest rates and risk asset returns may reduce income from our investment portfolio, increase our liabilities for claims and future benefits, and increase the cost of risk transfer measures, decreasing our profit margins. During certain market events, such as a global credit crisis, a market downturn, or sustained low market returns, we may incur significant losses due to, among other reasons, losses incurred in our general account and the impact of guarantees, including increases in liabilities, capital maintenance obligations and collateral requirements. In addition, during periods of sustained lower
interest rates, we may need to reinvest proceeds from certain investments at lower yields, reducing our investment spread. Moreover, borrowers may prepay or redeem the fixed income securities and loans in our investment portfolio with greater frequency. Although we may be able to lower interest crediting rates to help offset decreases in spreads, our ability to lower these rates is limited to our products that have adjustable interest crediting rates, which could be limited by competition or contractually guaranteed minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our investment spread may decrease or become negative. Reductions in net income from these factors may in turn harm our credit instrument covenants or rating agency assessment of our financial condition.
During periods of declining interest rates, life insurance and annuity products may be more attractive investments to consumers, resulting in increased premium payments on certain products, repayment of policy loans and increased persistency, while our new investments carry lower returns. A market interest rate decline could also reduce our return on investments that do not support particular policy obligations. During periods of sustained lower interest rates, we may need to increase our reserves.
The measures we take to mitigate the risks of investing in a changing interest rate environment, such as mitigating our fixed income investments relative to our interest rate sensitive liabilities, may not be sufficient. For some of our liability portfolios, we may not be able to invest assets at the full liability duration, thereby creating some asset/liability mismatch. In addition, asymmetrical and non-economic accounting may cause material changes to our net income and stockholder’s equity because we record our non-qualified derivatives at fair value through earnings, while certain hedged items may follow an accrual-based accounting model or are recorded at fair value through other comprehensive income.
Credit Spread Risks
Changes in credit spreads may result in market price volatility and cash flow variability. Market price volatility may result in defaults and a lack of pricing transparency, and can make valuations of our securities difficult if trading becomes less frequent, which may require us to add to our reserves. Market volatility may cause changes in credit spreads, defaults and a lack of pricing transparency. An increase in credit spreads relative to U.S. Treasury benchmarks may increase our borrowing costs and decrease certain product fee income. A sustained decrease in credit spreads could reduce the yield on our future investments. The discount rate used to calculate liabilities for future policy benefitsbenefit liabilities (“FPBs”) includes a component for market credit spreads. Changes in market credit spreads could result in volatility to liabilities for future policy benefits.
Equity Risks
Downturns and volatility in equity markets may harm our savings and investment products’ revenues and investment returns, where fee income is earned based upon the fair value of our managed assets. Our variable annuity and life insurance business is highly sensitive to equity markets, and a sustained weakness or stagnation in the equity markets may decrease these products’ revenues and earnings. Furthermore, certain of our variable annuity and life products offer guaranteed benefits that increase our potential benefit exposure should equity markets decline or stagnate.
Sustained declines in long-term equity returns or interest rates may harm the funding of our pension plan obligations. An increase in equity markets could increase settlement payments on equity futures and total rate of return swaps (“TRRs”), which may increase our cash outflows and liquidity needs.
The timing of distributions from and valuations of our investments in leveraged buy-out funds, hedge funds, real estate ventures, real estate funds and other private equity funds depends on the performance of the underlying investments, distribution schedules, and the funds’ need for cash. The amount of net investment income from these investments can vary substantially from period to period and significant volatility may harm our returns and net investment income. In addition, downturns or volatility in the equity markets may decrease the estimated fair value of our alternative investments and equity securities.
Real Estate Risks
Changes in leasable commercial space supply and demand, lessee behaviors, pandemics and other public health issues, creditworthiness of tenants and partners, capital markets volatility, interest rate fluctuations, commodity prices, farm incomes, housing and commercial property market conditions, and real estate investment supply and demand may adversely impact our investments in commercial, agricultural and residential mortgage loans, and real estate equity investments including joint ventures.
Political, Obligor and Counterparty Risks
Our general account investments could be adversely affected by volatility resulting from economic and political concerns, as well as volatility in specific sectors. The federal governmentGovernment entities may face budget deficits and other financial difficulties, which may harm the value of securities we hold issued by or under the federal government. Oneauspices of the most serious threats such governments. A threat
facing the U.S. economy is the continued disagreement over the federal debt limit which, if not addressedand other budget questions. Failure to resolve these issues in the coming months,a timely manner could lead toresult in a government shutdown, erratic reduction in government spending or a default on the federalgovernment debt, adversewhich could result in increased market impactvolatility and a recession this year.reduced economic activity.
The issuers or guarantors of fixed income securities and mortgage loans we own may default on principal and interest payments they owe us. Additionally, the change in value of underlying collateral within asset-backed securities (“ABS”), including mortgage-backed securities,instruments backed by securitized assets may result in a default on principal and interest payments, reducing our cash flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit spreads, or other adverse events may reduce the estimated fair value of our portfolio of fixed income securities and mortgage loans and increase the default rate of the fixed income securities and mortgage loans in our investment portfolio.
Many of our transactions with counterparties such as brokers and dealers, central clearinghouses, commercial banks, investment banks, hedge funds, investment funds, reinsurers and other financial institutions expose us to the risk of counterparty default. Such credit risk may be exacerbated if we cannot realize on the collateral held by us in secured transactions or cannot liquidate such collateral at prices sufficient to recover the full amount of the loan or derivative exposure due to us. Furthermore, potential action by governments and regulatory bodies, such as controlling investment, nationalization, conservatorship, receivership and other intervention, or lack of action by governments and central banks, as well as deterioration in the banks’ credit standing, could negatively impact these instruments, securities, transactions and investments or limit our ability to trade with them. These may cause losses or impairments to the carrying value of our investments.
Our efforts to manage our total exposure to a single counterparty or limited number of counterparties within or among any of our investment, derivative, treasury, and reinsurance relationships, which we adjust from time to time, may not completely or adequately mitigate counterparty risks.
Derivatives Risks
If our counterparties, clearing brokers or central clearinghouses fail or refuse to honor their obligations under our derivatives agreements, our risks may not be fully hedged. A counterparty, clearing broker, or central clearinghouse may become insolvent or otherwise unable or unwilling to make payments or to return collateral under the terms of derivatives agreements, increasing our costs. If the net estimated fair value of a derivative to which we are a party declines, we may need to pledge additional collateral or make increased payments. In addition, we may face increased costs to the extent we replace counterparties who suffer financial difficulties. Furthermore, our derivatives valuations may change based on changes to our valuation methodology or errors in such valuation or valuation methodology.
We May Not Meet Our Liquidity Needs, Access Capital, or May Face Significantly Increased Cost of Capital Due to Adverse Capital and Credit Market Conditions
In cases of volatility, disruption, or other conditions in global financial markets, we may have to seek additional financing, the availability and cost of which could be adversely affected by market conditions, regulatory considerations, availability of credit to our industry generally, our credit ratings and credit capacity, reduced business activity, or investment losses, and the perception of our financial prospects. Our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. We may not be able to successfully obtain additional financing we need on favorable terms or at all. We may be required to return significant amounts of cash collateral on short notice under securities lending or derivatives agreements or post collateral or make payments related to specified counterparty agreements.
Our business and financial results may suffer without sufficient liquidity through impaired ability to pay claims, other operating expenses, interest on our debt, maintain our securities lending, replace certain maturing liabilities, and sustain our operations and investments. Capital and credit market volatility may limit our access to capital we need to operate, limiting our ability to raise capital, issue the types of securities we would prefer, timely replace maturing liabilities, satisfy regulatory requirements, and access capital to grow our business, any of which could decrease our profitability and significantly reduce our financial flexibility.
MetLife, Inc. May Be Unable to Access Its Credit Facility, Reducing Our Liquidity and Leading to Downgrades in Credit and Financial Strength Ratings
MetLife, Inc. may fail to comply with or fulfill all conditions under the unsecured revolving credit facility (the “Credit Facility”) MetLife, Inc. and MetLife Funding, Inc., a wholly-owned subsidiary of Metropolitan Life Insurance Company (“MetLife Funding”), maintain. Lenders may fail to fund their lending commitments under the Credit Facility due to insolvency, illiquidity or other reasons. This could limit our affiliates in supporting our liquidity.
We May Lose Business Due to a Downgrade or a Potential Downgrade in Financial Strength or Credit Ratings
Nationally Recognized Statistical Rating Organizations (“NRSROs”) and others may, at any time, downgrade MetLife, Inc.’s or our financial strength ratings or credit ratings, lower MetLife, Inc.’s or our ratings outlooks, increase the scope or frequency of their reviews, or increase capital or other requirements to maintain ratings. Such changes could reduce our product sales, reduce cash flows from funding agreements and other capital market products, and force us to change product
pricing and increase our financing costs, policy surrenders or withdrawals, collateral requirements, risk of derivative terminations, cost of reinsurance, regulatory scrutiny, or various other factors.
We May Not Find Available, Affordable or Adequate Reinsurance to Protect Us Against Losses
Reinsurers may increase our reinsurance costs, or may decline to offer us reinsurance, due to policy changes related to pandemics or other public health issues, (such as the COVID-19 pandemic), market conditions, or other factors. Our risk of loss may increase if we decrease the amount of our reinsurance. Any of these could harm our ability to write future business or result in the assumption of more risk with respect to the policies we issue.
We remain liable and may incur costs as the direct insurer on all risks we reinsure as a result of a reinsurer’s insolvency, inability or unwillingness to make payments, or inability or unwillingness to maintain collateral.collateral, which could have a material adverse impact on our business, results of operations or financial condition.
Our Statutory Life Insurance Reserve Financings Costs May Increase, and We May Find Limited Market Capacity for New Financings
If our ratings decline, market capacity is limited, or on other repricing occasions, our costs to finance statutory life insurance reserves may increase. If regulators disallow assets to back statutory reserves, we would not be able to take some or all related statutory reserve credit, which may harm our statutory capitalization.
Regulatory and Legal Risks
Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us
Insurance or other regulators may change licensing, permit, or approval requirements, or take other actions harmful to us. They may also take actions that harm our customers and independent sales intermediaries or their operations, which may affect our business relationships with them and their ability to purchase or distribute our products.
Governments may change regulation of financial services, insurance, variable annuities and variable life insurance, securities, derivatives, pension, health care, accounting, cybersecurity, AI, privacy and data protection, tort reform legislation, taxation, benefit plan investment advice and related fiduciary duties, antitrust as applied to the business of health insurance or otherwise, and other areas. Laws and regulations may also affect customers, sales intermediaries, or others. We or others may fail to comply with these requirements or suffer adverse regulatory examinations or audits. Regulators may also interpret rules differently from the way we have, or change interpretations of laws or rules, and legislators may change statutes. Any of these changes may harm our ability to continue to offer the products we do today or to introduce new products.
We may incur costs to comply with laws and regulations and changes to these laws and regulations may increase our expenses or require us to increase our reserves or change the assets we hold to cover those reserves.and regulatory capital charges. Our failure to comply with our own policies or with regulatory requirements may harm our reputation or result in sanctions or legal claims.
SolvencyCompliance with solvency standards complianceor financial condition regulations may increase our capital and reserve requirements, risk management costs, and reporting costs. See “Business — Regulation — State Insurance Regulation — Surplus and Capital” for a summary of the NAIC’s developments related to financial condition regulation. We may be subject to enhanced capital standards, supervision and additional requirements, such as group capital standards or insurer capital standards.
Regulators have reacted and may continueOur ability to react to pandemicsrapidly changing economic conditions and other public health issues (such as the COVID-19 pandemic). Theydynamic, competitive markets may require “no lapse” in policy coverage regardlessbe impaired if our product designs do not allow frequent and contemporaneous revisions of whether we receive premiumskey pricing elements, or are able to assess fees against policyholder account balances. They may extend insurance coverage beyond our policy or contract terms and may impose premium grace periods, suspend cancellations, lower or freeze premium rates, allow non-contractual withdrawals, and extend proof of loss deadlines, including retroactively, exposing us to risks and costsif we are unable to foreseework collaboratively with regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could harm our ability to react to such changing conditions. Rules on defined benefit pension plan funding may reduce the likelihood or underwrite. We may also adopt customer accommodations, such as waiving exclusions, forgoing rate increasesdelay corporate plan sponsors in terminating their plans or implementing lower rate increases than we would otherwise, relaxing claim documentation requirements, relaxing eligibility criteria, granting premium credits,engaging in transactions to partially or other accommodations for customers experiencing economic or other distress. Regulators may restrictfully transfer pension obligations. This could affect the mix of our underwriting on public policy or other grounds, excluding factors such as exposure, quarantine, infection,pension risk transfers and association with others suffering public health-related effects.increase non-guaranteed funding products.
Governmental bodies may delay acting on or implementing regulatory or policy changes due to pandemics or other public health issues, or because they are attending to pandemic or public health issues rather than to other topics. This may increase uncertainty, prolong deleterious regulations and policies, delay or prevent beneficial regulatory or policy changes, and create the potential for later, more rapid changes to which we find it more difficult to adjust.
Our New York insurance regulator’s annual SCL for year-end asset adequacy testing may impose unforeseen assumptions or requirements that require us to increase or release reserves, which could affect our statutory capital and surplus.
Governments or Others May Increase our Taxes by Changing or Re-Interpreting Tax Laws, Making Some of Our Products Less Attractive to Consumers
Changes in tax laws or interpretations of such laws could increase our corporate taxes, reduce our earnings, and adjust the value of our deferred tax assets and liabilities. Changes may increase our effective tax rate or have implications that make our products less attractive to consumers. Tax authorities may enact laws, change regulations to increase existing taxes, or add new types of taxes, and authorities who have not imposed taxes in the past may impose taxes.
Customers shifting away from employee benefits, life insurance and annuity contracts, or other tax-preferred products would reduce our income from these products and our asset base, reducing our earnings and potentially affecting the value of our deferred tax assets.
We May Face Increasing Litigation and Regulatory Investigations
Legal or regulatory actions, inquiries or investigations, for us or our competitors, whether ongoing or yet to come, could harm our reputation, ability to attract or retain customers or our Associates, and business, financial condition, or results of operations, even if we or our competitors, ultimately prevail. Regulators or private parties may bring class actions, individual suits, or investigations seeking large recoveries and alleging wrongs relating to sales or underwriting practices, claims payments and procedures, failure to adequately or appropriately supervise, inappropriate compensation contrary to licensing requirements, product design, disclosure, administration, investments, denial or delay of benefits, pandemic- or other public health-related practices, (such as those related to the COVID-19 pandemic),privacy and data protection, or data security incidents, discriminatory or inequitable practices, and breaches of fiduciary or other duties. We may be unable to anticipate the outcome of a litigation and the amount or range of loss because we do not know how adversaries, fact finders, courts, regulators, or others will evaluate evidence, the law, or accounting principles, and whether they will do so differently than we have.
We May Face Changes to Interest Rates, the Value of our Financial Instruments, the Competitiveness of our Products, the Performance of our Investments, and our Relationships Due to LIBOR’s Discontinuation and the Uncertainties in Our Transition to Alternative Reference Rates
The FCA, the U.K. regulator of LIBOR, and the ICE Benchmark Administration, the administrator of LIBOR, have announced the publication cessation dates for all U.S. Dollar and non-U.S. Dollar LIBOR settings. Most settings ceased at the end of December 2021 and the remaining U.S. Dollar settings (overnight and one-, three-, six- and 12-month U.S. Dollar LIBOR) will cease at the end of June 2023. The FCA has proposed that the ICE Benchmark Administration continue publication of one-, three- and six-month U.S. Dollar LIBOR settings on a “synthetic,” or non-representative, basis through the end of September, 2024. We continue to actively transition to the alternative reference rates. Differences between LIBOR and the applicable alternative reference rates may impact the value of, return on, and markets for, a broad array of our products, our financial instruments, the instruments in which we invest, or interest rates on our borrowing or debt. The effects on our business and investments will vary depending on the transition of our existing LIBOR contracts to alternative reference rates, including the adequacy of LIBOR fallback provisions in such contracts, whether, how, and when industry participants adopt alternative reference rates for new products or instruments, the availability of “synthetic” LIBOR and the applicability of U.S. legislative remedies that address LIBOR transition risk for various legacy U.S. Dollar LIBOR contracts. Uncertainty regarding the continued use and reliability of LIBOR, regarding the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, or regarding the application or effectiveness of alternative reference rates, could increase our costs, reduce the value of such instruments, or impair our cash or derivative positions. We may not effectively hedge or manage risks from differences among applicable alternative reference rates or timing of when such rates take effect.
We may fail to adequately prepare for or react to LIBOR discontinuation and replacement, or fail to fully protect ourselves from all the effects of such changes. We may also fail to manage adequately any transition to alternative reference rates in a way that maintains the competitiveness of our products and the performance of our investment portfolio. Our transition may not effectively protect other aspects of our business, such as our operations and the accuracy of the financial models and valuations we use to gauge our risks, for financial reporting, or other purposes.
Any such uncertainties or ineffective management may harm our reputation, our relationships with our customers, or regulators, our financial condition, and our business operations.
Our Efforts to Meet Environmental, Social, and Governance Standards and to Enhance the Sustainability of our Businesses May Not Meet Regulators' or Customers’Customers' Expectations
Our regulators, customers, or othersthose considering such a relationship with us, evaluate our business or other practices according to a variety of ESG standards and expectations. Our practices and performance are subject to increasing scrutiny with regard to various aspects of ESG performance from regulators and other stakeholders.
Others may evaluate our practices by ESG criteria that are continually evolving and not always clear or readily measurable. These standards and expectations may also, as a whole, reflect contrasting or conflicting values or agendas.agendas and are not always susceptible to consensus. Our decisions and priorities must also necessarily, and simultaneously, take account of multiple business goals and interests. Our practices may not change in the particulars or at the rate some stakeholders expect. As a result, our efforts to conduct our business in accordance with some or all these expectations may involve trade-offs. In June 2022, MetLife announced its goalcommitment to achieve net zero greenhouse gas (“GHG”) emissions for itsby 2050 or sooner. This commitment applies to GHG emissions from MetLife’s global operationsowned and leased offices and vehicle fleets, employee business travel, supply chain and general account investment portfolio, by 2050 or sooner.including the general accounts of MetLife, is reorientingInc.’s wholly-owned subsidiaries, including us, where reliable data and methodologies are available. MetLife has reoriented its climate commitmentsobjectives and interim targets to advance this goal,commitment, which involves assumptions and expectations that involve risks and uncertainties. Data and measurement techniques continue to evolve. Further, because of the financed emissions included in its investment portfolio, MetLife’s ability to meet its commitments is dependent on those counterparties meeting their own carbon reduction objectives. We may fail to meet our commitments or targets. Customerstargets, and our policies and processes to evaluate and manage ESG standards in coordination with other business priorities may not prove completely effective or fully satisfy expectations of some stakeholders. For example, some current customers and potential customers may be prohibited or choose notdecline to do business with us based on our sustainability practices and related policies and actions. We may also face adverse regulatory, media, or public scrutiny leading to business, reputational, or legal challenges.
Investment Risks
We May Face Defaults, Downgrades, Volatility or Other Events That Adversely Affect the Investments We Hold
In case of a major economic downturn, U.S. government default (or threatened default), acts of corporate malfeasance, widening credit risk spreads, ratings downgrades or other events, our estimated fair value of our fixed income securities and loan portfolios and corresponding earnings may decline, and the default rate of our investment portfolio may increase. These changes could harm the issuers or guarantors of securities or the underlying collateral of structured securities that we hold. We may have to hold more capital to support our securities to maintain our RBC levels if securities we hold suffer a ratings downgrade. Our intent to sell, or our assessment of the likelihood that we will be required to sell, fixed income securities may increase our write-downs or impairments. Our realized losses or impairments on these securities may harm our net income.
The default rate, loss severity or other performance of our mortgage loan investments may change. Any concentration of our mortgage loans by geography, tenancy or property type may have an adverse effect on our investment portfolio, the prices we can obtain when we sell assets, and our results of operations or financial condition. Legislation or regulations that would allow or require modifications to the terms of, or impact the value of, mortgage loans or other investments could harm our investment portfolio.
Pandemics and other majorMajor public health issues (such as the COVID-19 pandemic) have affected and may continue to affect financial markets and our investment portfolio. These may continue to contribute to our risk of investment defaults, downgrades and volatility, asset impairments and lower variable investment income and returns, and may cause or exacerbate any of the investment risks we describe in these risk factors.
Market volatility affects the value of or return on our investments. It may slow or prevent us from reacting to market events as effectively as we otherwise could. When we sell our investment holdings, we may not receive the prices we seek, and may sell at a price lower than our carrying value, due to reduced liquidity during periods of market volatility or disruption, or other reasons. Borrowers may delay or fail to pay principal and interest when due, or may demand loan modifications. Tenants may delay paying rent, or fail to pay it, or demand lease modifications. We may face moratoriums on foreclosures and other enforcement actions impairments, and loan or lease modifications, due to government action or market conditions. We may also encounter credit spread changes, increasing our borrowing costs and decreasing our product fee income. Issuer or guarantor default rates may increase.
We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value
When we sell holdings in our investment portfolio, we may not receive the price we seek and may sell at a price lower than our carrying value. We may face unfavorable conditions in privately-placed fixed income securities, private structured credit, certain derivative instruments, mortgage loans, policy loans, direct financing and leveraged leases, other limited partnership interests, tax credit and renewable energy partnerships, and real estate equity, including real estate joint ventures and funds. Our investments may suffer reduced liquidity during periods of market volatility or disruption or for other reasons. In addition, central banks' efforts to provide market liquidity or otherwise address market conditions may not be successful or sufficient. We may realize losses that harm our financial metrics, which could harm our compliance with our credit requirements and rating agency capital adequacy measures.
We may face similar risks if we are required under our securities lending program to return significant amounts of cash collateral that we have invested. Our securities lending activities and profitability may decrease.
We May Have to Pledge Collateral or Make Payments in Derivatives Transactions
We may have to pledge additional collateral and increase payments we make under our derivatives transactions. Regulators, clearinghouses, or counterparties may restrict or eliminate eligible collateral, increase our collateral requirements, or charge us to pledge such collateral, which would increase our costs, reduce our investment income, and harm our liquidity.
We May Change Our Securities and Investments Valuation, or Take Allowances and Impairments on Our Investments, or Change Our Methodologies, Estimations, and Assumptions
During periods of market disruption or rapidly changing market conditions, such as significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, or infrequent trading, or when market data is limited, our assets may become less liquid. We may base our asset valuations on less observable and more subjective judgments, assumptions, or methods that may result in estimated fair values that significantly vary by period, and may exceed the investment’s sale price. The estimated fair value of our securities may also decrease due to changes in valuation methods and assumptions.
Business Risks
Our Actual Claims or Other Results May Differ From Our Estimates, Assumptions, or Models
If our actual claims experience is less favorable than the underlying underwriting, reserving, and other assumptions we used in establishing claim liabilities, we could be required to reduce value of business acquired (“VOBA”), increase our liabilities, or incur higher costs.
The amounts that we will ultimately pay to settle our liabilities, particularly when those payments may not occur until well into the future, may vary from what we expect. We may change our liability assumptions and increase our liabilities based on actual experience and accounting requirements. Our operating practices and procedures that support our policyholders and contractholder obligation assumptions, such as obtaining, accumulating, and filtering data, and our use of technology, such as database analysis and electronic communications, may affect our reserve estimates. If these practices and
procedures do not accurately produce the data to support our assumptions or cause us to change our assumptions, or if enhanced technological tools become available to us, we may change those assumptions and procedures, as well as our reserves. If any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such deviations or errors may negatively impact our business, reputation, results of operations, or financial condition. We may change our assumptions, models, or reserves due to changes in longevity. Increases in the prevalence and accuracy of genetic testing, or restrictions on its use, may exacerbate adverse selection risks.
Pandemics and other public health issues (such as the COVID-19 pandemic) have caused and may continue to cause increased claims under many of our policies (for example, life, disability, leave, long-term care, major medical and supplemental health products), raising our resulting costs. Governments or others may fail to produce accurate population and impact data that we use in our estimates, assumptions, models, or reserves, such as death rates, infections, morbidity, hospitalization, or illness. This may cause or exacerbate any of the risks related to our estimates or assumptions. Pandemics and other public health issues may cause related or consequential long-term economic, social, political, policy, regulatory, business, demographic, or other changes to our claims or other areas subject to estimates, assumptions, models, or reserves. We may not accurately predict, prepare, and adjust to these changes.
We May Face Competition for Business
Competitive pressures, based on a number of factors including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities, name recognition, performance against ESG metrics, technology, adaptation in light of pandemics and other public health issues, changes in regulation and taxes, and other factors, may adversely affect the persistency of our products and our ability to sell products in the future. We may be harmed by competition from other insurance companies, as well as non-insurance financial services companies, which may have a broader array of products, more competitive pricing, higher claims paying ability ratings, greater financial resources with which to compete, or pre-existing customer bases for financial services products. Additionally, we may lose purchasers of group insurance products that are underwritten annually due to more favorable terms from competitors.
We Face Technological Changes That Present New and Intensified Challenges and May Fail to Foresee or Adapt to These Changes
Our business operations rely on functioning and secure information systems and those of our vendors. Technological changes present us with new or intensified challenges, and if we are unable to foresee or adapt to these changes, our business, results of operations and financial condition may be adversely affected. For example, our assumptions, models and reserves may need to be modified if we are unable to accurately, timely, or completely process, store and retrieve the increased volume and variety of information relating to our businesses, including information related to deaths, that new technological tools for data collection and analysis make available.
Similarly, our distribution channels may become more automated to increase flexibility of access to our services and products. We may incur significant costs to implement and adapt to such changes. If we are unsuccessful, our results of operations, competitive position, reputation and customer and distribution relationships may be harmed. Steps taken to adapt to these changes, such as changes to the method of collection and analysis of data, could also expose us to litigation or other regulatory and legal actions.
Technological changes may affect our business model and how we interact with existing or prospective customers, and evolving consumer preferences may require a redesign of our products and investment composition. For example, changes in energy technology and increasing consumer preferences for e-commerce may harm the profitability of some businesses. Likewise, the growth and availability of AI technologies, including generative AI, presents significant opportunities but also complex challenges, including with respect to balancing and mitigating potential risks of harm posed by the development or deployment of AI technologies. We may fail to adjust our investments accordingly or suffer stranded assets. If we are unable to update our business model to match evolving consumer preferences and purchasing behavior, or the evolving technological landscape, our business, results of operations and financial condition may be adversely affected.
New technologies may impact the configuration of our information systems, and how they connect with those of our vendors, service providers and/or partners. Such technological developments may introduce or uncover information security vulnerabilities, which may result in breaches or increased costs associated with maintaining appropriate data privacy, data protection, and cybersecurity measures or enforcement actions against us by regulators. Any such vulnerability that results in a security breach or failure of our information systems, or those of third parties on which we rely, may result in litigation, regulatory action, negative impacts to our business operations, and reputational harm.
We May Face Catastrophes That Affect Liabilities for Policyholder Claims and Reinsurance Availability
Catastrophic events could increase claims, impair assets in or otherwise harm our investment portfolio, and could harm our reinsurers’ financial condition, increasing reinsurance defaults. Pandemics and other public health issues or other events, and governmental, business, and consumer reactions to them, may affect economic conditions and may cause a large number of illnesses or deaths. An event that affects the workforce of oneAny such catastrophes may also result in changes in consumer or more of our customers could increase our mortalitybusiness confidence, behavior and investment and business activity, changes to interest rates and other market risk factors, and governmental or morbidity claims. Governmental and non-governmental organizations may not effectively mitigate catastrophes' effects.other restrictions on economic activity for prolonged periods. We may also be called upon to make contributions to guaranty associations or similar organizations as a result of catastrophes.
We May Face Direct or Indirect Effects of Climate Change or Responses to It
Climate change may increase the frequency and severity of short-, medium-, or long-term weather-related disasters, public health incidents, forest fires, rising sea levels and pandemics, and their effects may increase over time. Climate change regulation may harm the value of investments we hold or harm our counterparties, including reinsurers, or increase our compliance costs. Our regulators may also increasingly focus their examinations on our management of climate-related risks.
We May Need to Fund Deficiencies in Our Closed Block, and May Not Re-Allocate Closed Block Assets
The closed block assets established in connection with our demutualization, their cash flows, and the revenue from the closed block policies may not be sufficient to provide for the policies’ guaranteed benefits. If they are not, we must fund the shortfall. We may choose, for competitive or other reasons, to support policyholder dividend payments with our general account funds. Such actions may reduce funds otherwise available for other uses.
We May Be Required to Impair VOBA, VODA or VOCRA
Adverse changes to investment returns, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders, expenses to administer the business, creditworthiness of reinsurance counterparties, significant or sustained equity market declines, significant changes to bond spreads, and certain other economic variables, such as inflation, could cause an impairment of the value of distribution agreements acquired (“VODA”), VOBA or the value of customer relationships acquired (“VOCRA”). We may accelerate amortization or impair these assets in the period these occur.
We May Face Volatility, Higher Risk Management Costs, and Increased Counterparty Risk Due to Guarantees Within Certain of Our Products
Our liabilities for guaranteed benefits, including but not limited to no-lapse guarantee benefits, guaranteed minimum death benefits, guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, guaranteed minimum income benefits, and certain minimum crediting rate features could increase if equity or fixed income funds decline or become more volatile, or interest rates remain low or decrease.
Our derivatives and other risk management strategies to hedge our economic exposure to these liabilities may harm our results. Our use of reinsurance, derivatives, or other risk management techniques may not sufficiently offset the costs of guarantees or protect us against losses from changes in policyholder behavior, mortality, or market events.
Policyholders may also change their behavior in unexpected ways. For example, policyholders and contractholders seeking liquidity due to economic uncertainty or challenges may withdraw or surrender, change their premium payment practices, exercise product options, or take other actions at rates different from those we expect.
Operational Risks
Our Risk Management Policies and Procedures, or Our Models, May Leave Us Exposed to Unidentified or Unanticipated Risk
Our enterprise risk managementERM and business continuity policies and procedures may not be sufficiently comprehensive and may not identify or adequately protect us from every risk to which we are exposed.
Pandemics and other public health issues, (such as the COVID-19 pandemic), and authorities’ and people’s reactions thereto, have resulted in and may continue to result in remote, hybrid and/or flexible office working arrangements and other unusual conditions. These may strain our risk management and our business continuity plans, introduce or increase our operational and cybersecurity risks, and otherwise impair our ability to manage our business. They may increase the frequency and sophistication of attempts at unauthorized access to our technology systems.systems, or those of third parties on which we rely. They may hinder our efforts to prevent money-laundering or other fraud, whether due to limited abilities to “know our customers,” strains on our programs to avoid and deter foreign corrupt practices, or otherwise, and may increase both our compliance costs and our risk of violations.
The assumptions, projections and data on which our risk management models are based may be inaccurate, and our models may not be suitable for their purpose, be misused, not operate properly, and contain errors. Our decisions and model adjustments, including determination of reserves, are based on such model output and reports and may be flawed. We may fail to identify or remediate model errors adequately. Our models may not fully predict future exposures or correctly reflect past experience.
Our evaluation of markets, clients, catastrophe occurrence or other matters may not always be accurate, complete, up-to-date or properly evaluated. We may not effectively identify and monitor all risks or appropriately limit our exposures and our Associates, vendors or non-employee sales agents may not follow our risk management policies and procedures. Past or future misconduct by our Associates, vendors or non-employee sales agents could result in investigations, violations of law, regulatory sanctions, and litigation. We may have to implement more extensive or different risk management policies and procedures due to legal and regulatory requirements.
Our Policies and Procedures May Be Insufficient to Protect Us From Operational Risks
We may make errors in any of the large number of transactions we process through our complex administrative systems. Our controls and procedures to prevent such errors may not be effective. Our controls and procedures to comply with and enforce contractual obligations may not always be effective. Mistakes can subject us to claims from our customers.
If we are unable to obtain necessary and accurate information from our customers or their employees, we may be unable to provide or verify coverage and pay claims, or we may pay claims without sufficient documentation.
Pandemics and other public health issues (such as the COVID-19 pandemic) have increased, and may continue to increase, our administrative expenses and have impacted the reliability and efficacy of our operational processes. They may affect our Associates, agents, brokers and distribution partners, vendors, other service providers and counterparties. We may have difficulties conducting our business, including continued challenges in selling some of our products, such as those traditionally sold in person. We may face increased workplace safety costs and risks, lose access to critical Associates, and face increased employment-related claims and employee-relations challenges. Any of the third parties to whom we outsource certain critical business activities may fail to perform due to a force majeure or otherwise.
The controls of our vendors on whom we rely may not meet our standards or be adequate. Our vendors could fail to perform their services accurately, consistently with applicable law or timely. Our exchange of information with vendors may be imperfect, or our vendors may suffer financial or reputational distress. Each of these may cause errors, misconduct, or discontinuation of services.
We may fail to escheat property timely and completely. As a result, we may incur charges, reserve strengthening, and expenses, regulatory examinations, or penalties.
Our practices and procedures may, at times, limit our efforts to contact all our customers, which may result in delayed, untimely, or missed customer payments.
Our Associates, vendors, non-employee sales agents, customers, or others may commit fraud against us. Our policies and procedures may be ineffective in preventing, detecting or mitigating fraud and other illegal or improper acts.
Notwithstanding our compliance with regulatory and accounting requirements in relation to internal controls and our conclusion that internal control over financial reporting is effective as of the date reported, the Company’s internal controls have in the past proved, and there is a risk that the Company’s internal controls will prove ineffective and significant deficiencies or material weaknesses in internal controlsthey may occur in the future.future prove, to be deficient or ineffective.
We May Fail to Protect the Confidentiality and Integrity of Our Data, Including As a Result of a Failure in Our Cybersecurity or Other Information Security Systems or Our Disaster Recovery Plans or Those of Our Vendors
Our business is highly dependent upon the effective operation of our information systems, and those of our service providers, vendors, and other third parties. Our business relies on the proper functioning of these systems, including processing claims, transactions and applications, providing information to customers and distributors, performing actuarial analyses, retaining customer and business records and other core business functions. A failure in the security of such systems, use by our Associates or agents of unauthorized tools, software or other technology to communicate with customers or business counterparties or a failure to maintain the security of our internal or external vendors’ systems, or the confidential information stored thereon, may adversely affect our ability to conduct business, result in regulatory enforcement action and litigation, and harm our results of operations, financial condition and reputation.
We, our Associates, and our vendors, like other commercial entities, continue to be targeted by or subject to computer viruses or other malicious codes,code, unauthorized or fraudulent access, human errors, ransomware or cyber-attacks, and other breaches ofor incidents affecting our cybersecurity and information security systems. Globally, the frequency, severity and sophistication of cybersecurity incidents have increased, and these trends may continue. While we have implemented, and we require our critical vendors to implement, what we believe to be effectivereasonable and appropriate cybersecurity and data protection measures, including a formal risk-based information security program, our efforts to minimize the risk of cyber-incidents and protect our information technology may be insufficient to prevent material break-ins, attacks, fraud, security breaches or other unauthorized access to our and our vendors’ systems, including as a result of software code that contains vulnerabilities that are unknown to us or our vendors that may increase the potential of cyber-attacks or unauthorized access. We may not timely detect such incidents.
If we or our vendors fail to prevent, detect, address and mitigate such incidents, we may suffer significant financial and reputational harm. There is no assurance that our security measures or those of our vendors, including information security policies, administrative, technical and physical controls and other actions designed as preventative, will provide fully effective protection from such events.
In addition, we routinely transmit, receive and store personal, confidential and proprietary information by electronic means, including customers’ confidential health-related information. Although we attempt to keep such information confidential and secure, we may be unable to do so in all events, and we or our vendors may also fail to maintain adequate internal controls or comply with relevant policies and procedures designed to ensure the privacy and integrity of sensitive data. Such failure may result in our or our vendors’ intentional or unintentional disclosure or misuse of confidential information, as well as others’ misappropriation of such confidential information, which could damage our reputation, reduce demand for our products and services and subject us to significant legal and regulatory liability and expenses, which would harm our business, results of operations and financial condition.
We, our vendors, our reinsurers, and our customers may suffer disasters such as a natural catastrophe, epidemic, pandemic, industrial accident, blackout, computer virus, terrorist attack, ransomware or cyber-attack, or war, and ours or their disaster recovery systems may be insufficient to safeguard our ability to conduct normal business operations, obtain reinsurance and maintain our critical business or information technology systems in such circumstances, particularly if such disasters affect computer-based data processing, transmission, storage and retrieval systems and/or destroy or otherwise adversely impact the confidentiality, integrity or availability of valuable data or the financial wherewithal of reinsurers or vendors. Our ability to conduct business effectively and maintain the security, integrity, confidentiality or privacy of sensitive data could be severely compromised if, as a result of such disaster, key personnel are unavailable, or our vendors’ ability to provide goods and services and our Associates’ ability to perform their job responsibilities are impaired. We may not carry business interruption insurance sufficient to protect us from all losses that may result from such interruptions, and any insurance for liability, operational and other risks may become less readily available or more expensive in the future.
We may not be able to reliably access all the documents and records in the information storage systems we use, whether electronic or physical. We may fail to obtain or maintain all the records we need to administer and establish appropriate reserves for benefits and claims accurately and timely. If a data breach releasedexposed any of our sensitive financial information, then customers or regulators may develop an inaccurate perception of our financial condition or results of operations. We could be compelled to publicly disclose information prematurely in order to dispel such inaccurate perceptions, or in order to fulfill our disclosure obligations, even if we do not believe the information is yet completely reliable or confirmed per our usual internal controls and disclosure controls. This may result in harm to our reputation.
Regulators’ or others’ scrutiny of cybersecurity, including new laws or regulations, could increase our compliance costs and operational burdens, especially as regulatory and legislative focus on cybersecurity matters intensifies.intensifies, which could lead to more enforcement actions of such laws or regulations. See “Business — Regulation — Cybersecurity, Privacy and Data Protection Regulation” for additional information. Regulators, customers, or others may act against us for any cybersecurity failures. We also have an increasing challenge of attracting and retaining highly qualified personnel to assist us in combating these security threats. Our continuous technological evaluations and enhancements, including changes designed to update our protective measures, may increase our risk of a breach or gap in our security. We may incur higher costs to comply with laws on, or regulators’ scrutiny of, our use, collection, management, or transfer of data and other privacy practices. We are continuously evaluating and enhancing our cybersecurity and information security systems and creating new systems and processes. However, there can be no assurance that these measures will be effective in preventing or limiting the impact of future cybersecurity incidents.
We May Face Changes in Accounting Standards
Authorities may change accounting standards that apply to us, and we may adopt changes earlier than required. Changes in accounting rules applicable to our business may have an adverse impact on our results of operations and financial condition. For a discussion of the impact of U.S. GAAP accounting pronouncements issued but not yet implemented, see Note 1 of the Notes to the Consolidated Financial Statements.
Our Associates May Take Excessive Risks
Our Associates, including executives and others who manage sales, investments, products, wholesaling, underwriting, and others, may take excessive risks. Our compensation programs and practices, and our other controls, may not effectively deter excessive risk-taking or misconduct.
We May Have Difficulty in or Complications from Marketing and Distributing Our Products
Our product distributors may suspend, alter, reduce or terminate their distribution relationships with us if we change our strategy, if our business performance declines, as a result of rating agency actions or concerns about market-related risks, or for regulatory or other reasons. Our distributors may merge, change their business models in ways that affect us, or terminate their distribution contracts with us, and new distribution channels could emerge, harming our distribution efforts. Distributors may try to renegotiate the terms of any existing selling agreements to less favorable terms due to consolidation or other industry changes or for other reasons. Disruption or changes to our relationships with our distributors could harm our ability to market our products.
Our Associates or unaffiliated firms or agents may distribute our products in an inappropriate manner, or our customers may not understand them or whether they are suitable.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Cybersecurity Management & Strategy
MetLife manages information security risk through, and as part of, MetLife’s Information Security Program (the “Program”), which institutes and maintains controls for the systems, applications, and databases of MetLife and of its third-party providers. The primary goal of the Program is to protect the confidentiality, integrity and availability of all data MetLife owns or possesses, as well as its technology assets, through physical, technical, and administrative safeguards. This includes controls and procedures for monitoring, detecting, reporting, containing, managing, and remediating cyber threats. The Program aims to prevent data exfiltration, manipulation, and destruction, as well as system and transactional disruption. The Program’s threat-centric and risk-based approach for securing the MetLife environment takes into consideration applicable guidelines from the cybersecurity framework developed by the U.S. Government’s National Institute of Standards and Technology, and is managed by MetLife’s CISO, in collaboration across lines of business and corporate functions. The Board of Directors of MetLife, Inc. (the “Board” or “Board of Directors”) oversees the Program.
The key features of the Program include:
•A cybersecurity incident response team under the CISO’s direction, which is responsible for monitoring and responding to threats, vulnerabilities, and incidents.
•An incident response plan that is managed by the CISO and MetLife’s Privacy Office and tested through cross-functional annual exercises in various geographical regions of MetLife, many of which include participation from senior executives and the Board of Directors.
•Information security policies and procedures that are reviewed at least annually and updated to reflect applicable changes in law, technology, practice and emerging threats.
•Regular network and application testing and surveillance.
•Periodic review of threats, vulnerabilities and other cybersecurity risks, internal and external.
•Risk mitigation strategies, including annual internal and third-party risk assessments, as well as cybersecurity and privacy liability insurance intended to defray costs associated with an information security breach.
•Vendor management procedures designed to identify and address potential risks associated with the use of third-party service providers.
•Employee training programs on information security, data security, and cybersecurity practices and protection of data against cyber threats, at least annually.
•A cross-functional approach to addressing cybersecurity risk, with participation from Global Technology & Operations, Risk, Compliance, Legal, Privacy and Internal Audit functions.
We exercise risk-based due diligence in selecting our third-party service providers, including, as appropriate, review of vendor applications, general IT controls and the IT facilities used to service MetLife’s business. Third parties are governed by the MetLife Third-Party Risk Management program, which includes risk assessment prior to onboarding. Based on the assessment of risk, certain third-party service providers must periodically update relevant assessment documentation and be reevaluated by MetLife relative to their internal controls. Vendors deemed critical and high risk are continuously monitored by various industry solutions and services designed to identify cybersecurity risks.
MetLife also works with third parties, such as independent assessors (for example, for industry maturity assessments, penetration testing, application security reviews, and independent audits), external legal counsel and other consultants as part of the design and implementation of the Program. The Program is periodically evaluated by external experts, and the results of those reviews are reported to the Board of Directors.
During the period covered by this report, we have not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. For further discussion of our risks related to cybersecurity, see “Risk Factors — Operational Risks — We May Fail to Protect the Confidentiality and Integrity of Our Data, Including As a Result of a Failure in Our Cybersecurity or Other Information Security Systems or Our Disaster Recovery Plans or Those of Our Vendors.”
Cybersecurity Governance
The CISO is a senior-level executive responsible for establishing and executing MetLife’s information security strategy. Management provides regular reports to the CISO detailing on-going cybersecurity risk management. The CISO and the head of Global Technology & Operations present updates to the Audit Committee of MetLife, Inc. (the “Audit Committee”) quarterly and, as necessary, to the full Board of Directors. These regular reports include updates on MetLife’s performance preparing for, preventing, detecting, responding to and recovering from cyber incidents. The Audit Committee also reviews with management, as necessary, but at least annually, the adequacy and effectiveness of MetLife’s policies and internal controls regarding information security and cybersecurity. Additionally, the CISO periodically and on an event-driven basis informs and updates the Board of Directors about information security incidents and the related risks posed to MetLife.
The Program is subject to MetLife’s risk management framework and operates under the “Three Lines of Defense” model MetLife uses. The CISO regularly reports about information security risk to the Enterprise Risk Committee (“ERC”), including the Chief Risk Officer (“CRO”), and other members of the senior management team. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”
The CISO, who oversees an organization that supports the day-to-day operation of the Program, is qualified in the areas of data protection and cybersecurity, having more than twenty years of professional IT experience in financial services. Prior to his current role, the CISO previously served as MetLife’s Global Chief Technology Officer with accountability for MetLife’s global infrastructure, engineering, service operations, quality assurance, application maintenance, and production management functions; he also served variously as the chief technology officer, CISO, chief information officer and global head of telecommunications engineering at other financial institutions prior to joining MetLife in 2012.
Item 2. Properties
Not applicable.
Item 3. Legal Proceedings
See Note 1619 of the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
No established public trading market exists for Metropolitan Life Insurance Company’s common equity; all of Metropolitan Life Insurance Company’s common stock is held by MetLife, Inc.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Other Financial Information
For purposes of this discussion, “MLIC,” the “Company,” “we,” “our” and “us” refer to Metropolitan Life Insurance Company, a New York corporation incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”). Management's narrative analysis of the Company’s results of operations is presented pursuant to General Instruction I(2)(a) of Form 10-K. This narrative analysis should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company's consolidated financial statements included elsewhere herein.
This narrative analysis may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Note Regarding Forward-Looking Statements” for cautionary language regarding forward-looking statements.
This narrative analysis includes references to our performance measure, adjusted earnings, that is not based on accounting principles generally accepted in the United States of America (“GAAP”). See “— Non-GAAP and Other Financial Disclosures” for definitions and a discussion of this and other financial measures, and “— Results of Operations” and “— Investments” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.
Overview
MLIC is a provider of insurance, annuities, employee benefits and asset management. MLIC is organized into two segments: U.S. and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.
Current Market Conditions
In the U.S., the Federal Reserve Board and the Federal Open Market Committee took various actions in 20222023 to promote economic stability and combat inflation, including raising interest rates, although a heightened level of concern about an economic downturn inrates have remained steady over the U.S. remains.last few months, reflecting lower inflation. During inflationary periods with rising interest rates, the value of fixed income investments falls which could increase realized and unrealized losses, resulting in additional deferred tax assets that may not be realizable.
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. Effective January 1, 2023, the Company adopted a new accounting pronouncement related to targeted improvements to the accounting for long-duration contracts (“LDTI”) with a January 1, 2021 transition date (the “Transition Date”). The effects of adoption were therefore applied for years ended December 31, 2022 and 2021, as described in Note 1 of the Notes to the Consolidated Financial Statements. This summary of critical accounting estimates reflects this adoption. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:
| | | | | |
(i) | liabilities for future policy benefits and the accounting for reinsurance; |
(ii) | capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of VOBA; |
(iii) | estimated fair values of investments in the absence of quoted market values; |
(iv) | investment allowance for credit loss (“ACL”) and impairments; |
(v) | estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; |
(vi) | measurement of employee benefit plan liabilities; |
(vii) | measurement of income taxes and the valuation of deferred tax assets; and |
(viii) | liabilities for litigation and regulatory matters. |
(i)FPBs, market risk benefits (“MRBs”) and the accounting for reinsurance;(ii)estimated fair values of investments in the absence of quoted market values;
(iii)investment allowance for credit loss (“ACL”) and impairments;
(iv)estimated fair values of freestanding derivatives;
(v)measurement of employee benefit plan liabilities;
(vi)measurement of income taxes and the valuation of deferred tax assets; and
(vii)liabilities for litigation and regulatory matters.
Due to the adoption of LDTI, the measurement model for deferred policy acquisition costs (“DAC”) and VOBA changed and the majority of the embedded derivatives met the criteria to be accounted for as MRBs; therefore, we no longer believe that DAC, VOBA and embedded derivatives are critical accounting estimates. LDTI impacted the recognition and measurement of FPBs, MRBs and reinsurance, along with the resulting impacts to deferred income taxes which are described in further detail below. The other critical accounting estimates above were not impacted by the adoption of LDTI and are described below.
In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.
Liability for Future Policy BenefitsBenefit Liabilities
Generally, future policy benefitsFPBs are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits and claim settlement expenses to be paid, reduced by the present value of future expected net premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilitiesFPBs for future policy benefitstraditional long-duration non-participating products are expectations related to mortality, morbidity, termination, claim settlement expense, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type.type and geographical area. These assumptions are establishedreviewed at the time the policy is issuedleast annually and are intendedupdated as needed to estimate thereflect our expected experience for future periods. If net premiums exceed gross premiums (i.e., expected benefits exceed expected gross premiums), the period the policy benefitsFPBs are payable. Utilizing these assumptions, liabilities are established onincreased, and a block of business basis. If experiencecorresponding adjustment is less favorable than assumed, additional liabilities may be established, resultingrecognized in a charge to policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are estimated at the time of claim incurral, using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.net income.
Liabilities for unpaid claims are estimated based upon our historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs.
Future policy benefitTraditional non-participating long-duration and limited-payment contracts comprise the majority of MLIC’s FPBs, inclusive of deferred profit liabilities, as described in Note 3 of the Notes to the Consolidated Financial Statements. For such contracts, cash flow assumptions are used to project the amount and timing of expected future benefits and claim settlement expenses to be paid and the expected future premiums to be collected for a cohort. Generally, the liabilities for minimum deaththese products are updated retrospectively on a quarterly basis for actual experience and income benefit guarantees relatingat least once a year for any changes in cash flow assumptions. The change in FPBs reflected in the statement of operations is calculated using a locked-in discount rate. For contracts issued prior to certain annuity contracts are based on estimatesthe Transition Date, the Company developed a cohort level locked-in discount rate that reflects the interest accretion rates that were locked in at inception of the expected value of benefitsunderlying contracts (unless there was a historical premium deficiency event that resulted in excessupdating the interest accretion rate prior to the Transition Date), or the acquisition date for contracts acquired through an assumed in-force reinsurance transaction or a business combination. As described in Note 1 of the projected account balance, recognizingNotes to the excess ratably overConsolidated Financial Statements, for contracts issued subsequent to the accumulationTransition Date, the upper-medium grade discount rate is locked-in for the cohort and used to discount the estimated cash flows. The Company generally interprets this as a rate comparable to that of a corporate single A discount rate and reflects the duration characteristics of the liability. The FPB for all cohorts is remeasured to a current upper-medium grade discount rate at each reporting period based on total expected assessments. through other comprehensive income (loss) (“OCI”).
Liabilities for universal and variable universal life policies with secondary guarantees and paid-up guarantees (“additional insurance liabilities”) are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with thoseinvestment income, mortality, lapse, and premium payment pattern and persistency. In addition, the projected account balance and assessments used for amortizing DAC,in this calculation are impacted by the earned rate on investments and the interest crediting rates, which are thustypically subject to the same variability and risk.guaranteed minimums. The assumptions of investment performance and volatility for variable productsproducts’ separate account funds are consistent with historical experience of the appropriate underlying equity index,indices, such as the S&P Global Ratings (“S&P”) 500 Index.
We regularly review our estimates of liabilities for future policy benefits These assumptions are monitored and compare them with our actual experience. Differences between actualupdated retrospectively based on market conditions and historical experience and the assumptions used in pricing these policies and guarantees, as well as in the establishment of the related liabilities, result in variances in profit and could result in losses.
Traditional long-duration and limited-payment contracts comprise approximately 60% of MLIC’s liabilities for future policyholder benefits. For such contracts, original assumptions developed at the time of issue are locked-in and used in all future liability calculations provided the resulting liabilities are adequate to provide for future benefits and expenses (i.e., there is no premium deficiency). Therefore, liabilities for these products would not be impacted by changes in assumptions unless such change would result in an adverse impact that would trigger an establishment ofon a premium deficiency reserve. Favorable experience for traditional long-duration and limited-payment contracts would have no impact on liabilities given that the current assumption is required to remain locked-in, however the positive experience would be reflected in net income over the life of the policies in force.
Our traditional life and other participating blocks comprise approximately 35% of our future policyholder benefit liabilities. For these contracts, MLIC’s risk of adverse experience may be mitigated through adjustments to the dividend scales.
For all insurance assets and liabilities, MLIC holds capital and surplus to mitigate potential adverse experience development. The Company’s approaches for managing liquidity and capital are described in “— Liquidity and Capital Resources.”
See Note 3 of the Notes to the Consolidated Financial Statements for additional information on our liability for future policy benefits.
Reinsuranceperiodic basis.
Accounting for reinsurance requires extensive usegenerally presents the income statement effect of direct policies on a net-of-reinsurance basis by using assumptions and estimates, particularly relatedmethodologies consistent with those used to project the future performance of the underlying business anddirect business. Further, the potential impact of counterparty credit risks.risks is considered when measuring the reinsurance recoverables. We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements using criteria similar to that evaluated in our security impairment process. See “— Investment Allowance for Credit Loss and Impairments.” Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of accounting.
We measure market risk related to our market sensitive traditional long-duration non-participating and limited-payment contracts, additional insurance liabilities and reinsurance recoverables based on changes in interest rates utilizing a sensitivity analysis. The results of this sensitivity analysis are included in “Quantitative and Qualitative Disclosures About Market Risk — Risk Measurement: Sensitivity Analysis.” We have also assessed the sensitivities of hypothetical changes in significant assumptions to reported amounts related to our traditional long-duration non-participating and limited-payment contracts, additional insurance liabilities and reinsurance recoverables for products including, but not limited to, those within the disaggregated rollforwards included in Note 3 of the Notes to the Consolidated Financial Statements, as reflected in the following table:
Traditional long-duration non-participating and limited-payment contracts, additional insurance liabilities and reinsurance recoverables
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | FPBs (1) | | Reinsurance Recoverables | | Net Effect to Pre-tax
Net Income | | Net Effect to OCI |
| | Increase / (Decrease) (In millions) |
| Assumptions (2): | | | | | | | | |
| Mortality | | | | | | | | |
| Effect of an increase by 1% | | $ | (56) | | | $ | 8 | | | $ | 68 | | | $ | (4) | |
| Effect of a decrease by 1% | | $ | 60 | | | $ | (8) | | | $ | (71) | | | $ | 3 | |
| Morbidity (3) | | | | | | | | |
| Effect of an increase by 5% | | $ | 345 | | | $ | 2 | | | $ | (393) | | | $ | 50 | |
| Effect of a decrease by 5% | | $ | (211) | | | $ | (2) | | | $ | 255 | | | $ | (46) | |
| Lapse (4) | | | | | | | | |
| Effect of an increase by 10% | | $ | (159) | | | $ | (13) | | | $ | 235 | | | $ | (89) | |
| Effect of a decrease by 10% | | $ | 312 | | | $ | 13 | | | $ | (406) | | | $ | 107 | |
__________________
(1)FPBs are inclusive of deferred profit liabilities where applicable.
(2)All sensitivities exclude potential changes in our future premium rate assumptions.
(3)For products which are subject to morbidity risk, MLIC applied sensitivities to the incidence rate assumptions only.
(4)For MetLife Holdings long-term care products, the lapse impacts include mortality as both mortality and lapse result in termination of these contractswithout any additional benefit payment.
See Note 53 of the Notes to the Consolidated Financial Statements for additional information, including the significant inputs, judgments, valuation methods and assumptions used in the establishment of FPBs, as well as the effect of changes in such factors on the measurement of our FPBs during the year. See Note 8 of the Notes to the Consolidated Financial Statements for additional information on our reinsurance programs.
Deferred Policy Acquisition Costs and ValueTraditional participating contracts comprise a significant portion of Business Acquired
We incur significant costsMLIC’s FPBs, as described in connection with acquiring new and renewal insurance business. Costs that relate directlyNote 3 of the Notes to the successful acquisitionConsolidated Financial Statements. For such contracts, original assumptions developed at the time of issue are locked-in and used in all future liability calculations. An additional liability would be required if the resulting liabilities are not adequate to provide for future benefits and expenses (i.e., there is a premium deficiency). For these contracts, MLIC’s risk of adverse experience may be mitigated through adjustments to the dividend scales.
For all insurance assets and liabilities, MLIC holds capital and surplus to mitigate potential adverse experience development. The Company’s approaches for managing liquidity and capital are described in “— Liquidity and Capital Resources.”
Market Risk Benefits
MRBs are contracts or renewal of insurance contracts are capitalizedcontract features that guarantee benefits, such as DAC. Inguaranteed minimum benefits (referred to as “GMXBs”), in addition to commissions, certain direct-response advertising expensesan account balance which expose insurance companies to other than nominal capital market risk (e.g., equity price, interest rate, and/or foreign currency exchange risk) and other direct costs, deferrable costs includeprotect the portioncontractholder from the same risk. Certain contracts may have multiple contract features or guarantees that meet the definition of an employee’s totalMRB. Those benefits are aggregated and measured as a single compound MRB.
All identified MRBs are required to be measured at estimated fair value, which is determined based on the present value of projected future benefits minus the present value of projected future fees attributable to those benefit features. The projections of future benefits and future fees require capital market and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates. The valuation of these MRBs also includes an adjustment for our nonperformance risk and risk margins for non-capital market inputs. The nonperformance risk adjustment, which is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability, is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation and benefitsa market participant would require to assume the risks related to time spent selling, underwriting or processing the issuanceuncertainties in certain actuarial assumptions. The establishment of newrisk margins requires the use of significant management judgment, including assumptions of the amount and renewal insurance business only with respectcost of capital needed to actual policies acquired or renewed. We utilize various techniques to estimatecover the portion of an employee’s time spent on qualifying acquisition activities that resultguarantees.
Changes in actual sales, including surveys, interviews, representative time studies and other methods. These estimates include assumptions that are reviewed and updated on a periodic basis to reflect significant changes in processes or distribution methods.
VOBA represents the excess of book value over the estimated fair value of acquired insurance, annuity and investment-type contractsMRBs are recognized in force atnet income, except for fair value changes attributable to a change in nonperformance risk of the acquisition date. Company which is recorded within OCI.
The estimated fair value of the acquired obligations is based on projections, by each block of business, of future policynet MRB liability may rise in volatile or declining equity markets or in a low interest rate environment. Market conditions including changes in interest rates, equity indices, market volatility and contract charges, premiums,foreign currency exchange rates, variations in actuarial assumptions regarding policyholder behavior, mortality and morbidity, separate account performance, surrenders, expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience on the purchased businessmargins related to non-capital market inputs, may vary from these projections. The recovery of DAC and VOBA is dependent upon the future profitability of the related business.
Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortizationthe estimated fair value of DACthe guarantees that could materially affect net income, and VOBA. Our practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC and VOBA amortization with an offset to our unearned revenue liability which nets to approximately $20 million. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for the U.S. business variable universal life contracts and variable deferred annuity contracts is 5.75%.
We periodically review long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business. Assumptions used in the calculation of estimated gross margins and profits which may have significantly changed are updated annually. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.
Our most significant assumption updates resulting in a change to expected future gross margins and profits and the amortization of DAC and VOBA are due to revisions to expected future investment returns, expenses, in-force or persistency assumptions and policyholder dividends on participating traditional life contracts, variable and universal life contracts and annuity contracts. We expect these assumptions to be the ones most reasonably likely to cause significant changes in the future. Changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time.our nonperformance risk could materially affect OCI.
We measure market risk related to our MRBs based on changes in interest rates, foreign currency exchange rates and equity market prices utilizing a sensitivity analysis. The results of this sensitivity analysis are included in “Quantitative and Qualitative Disclosures About Market Risk — Risk Measurement: Sensitivity Analysis.” We have also assessed the sensitivities of hypothetical changes in significant assumptions to reported amounts related to our MRBs for products included within the disaggregated rollforwards in Note 5 of the Notes to the Consolidated Financial Statements, as reflected in the following table:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | MRBs
(Liabilities net of Assets) | | Net Effect to
Pre-tax
Net Income | | Net Effect to OCI |
| | Increase / (Decrease) (In millions) |
| Assumptions: | | | | | | |
| Mortality | | | | | | |
| Effect of an increase by 1% | | $ | 2 | | | $ | (1) | | | $ | (1) | |
| Effect of a decrease by 1% | | $ | (2) | | | $ | 1 | | | $ | 1 | |
| Lapse | | | | | | |
| Effect of an increase by 10% | | $ | (28) | | | $ | 32 | | | $ | (4) | |
| Effect of a decrease by 10% | | $ | 28 | | | $ | (32) | | | $ | 4 | |
| Nonperformance risk | | | | | | |
| Effect of an increase by 50 bps | | $ | (220) | | | N/A | | $ | 220 | |
| Effect of a decrease by 50 bps | | $ | 244 | | | N/A | | $ | (244) | |
See Note 45 of the Notes to the Consolidated Financial Statements for additional information, including the significant inputs, judgments, valuation methods and assumptions used in the establishment of the MRBs, as well as the effect of changes in such factors on the measurement of our MRBs during the year. Also, see Note 12 of the Notes to the Consolidated Financial Statements for additional information on DAC and VOBA.the fair value measurement of MRBs.
Estimated Fair Value of Investments
In determining theThe estimated fair valuevalues of our investments fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment, including assumptions or estimates, are used to determine the estimated fair value of investments. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such investments. The methodologies, assumptions and inputs utilized are described in Note 912 of the Notes to the Consolidated Financial Statements.
For the vast majority of our investments, sensitivity analysis regarding unobservable inputs is not necessary or appropriate, as they are valued using quoted prices, as described above. Quantitative information about the significant unobservable inputs used in fair value measurement and the sensitivity of the estimated fair value to changes in those inputs for the more significant asset and liability classes measured at estimated fair value on a recurring basis is presented in Note 912 of the Notes to the Consolidated Financial Statements.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain investments.
Investment Allowance for Credit Loss and Impairments
The significant estimates and inherent uncertainties related to our evaluation of credit loss and impairments on our investment portfolio are summarized below. See “Quantitative and Qualitative Disclosures About Market Risk” for information regarding the sensitivity of our fixed maturity securities and mortgage loan portfolios to changes in interest rates and foreign currency exchange rates.
Fixed Maturity Securities
The assessment of whether a credit loss has occurred is based on our case-by-case evaluation of whether the net amount expected to be collected is less than the amortized cost basis. We consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. We evaluate credit loss by considering information that changes from time to time about past events, current and forecasted economic conditions, and we measure credit loss by estimating recovery value using a discounted cash flow analysis. We estimate recovery value based on our best estimate of future cash flows, which is inherently subjective, and methodologies can vary depending on the facts and circumstances specific to each security. We record an ACL for the amount of the credit loss instead of recording a reduction of the amortized cost as an impairment.cost. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of credit loss are described in Notes 1 and 710 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these evaluationsestimates and assumptions as conditions change and new information becomes available. The valuation of our fixed maturity securities portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our fixed maturities securities portfolio that is foreign denominated is sensitive to changes in foreign currency exchange rates.
Mortgage Loans
The ACL is established both for pools of loans with similar risk characteristics and for loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings,certain modified loans, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in an amount that represents the portion of the amortized cost basis of mortgage loans that we do not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. To determine the mortgage loan ACL, we apply significant judgment to estimate expected lifetime credit loss over the contractual term of our mortgage loans adjusted for expected prepayments and any extensions; and we consider past events and current and forecasted economic conditions which are subject to inherent uncertainty and which necessarilymay change from time to time. The ACL methodologies, significant inputs and significant judgments and assumptions used to determine the amount of credit loss are described in Notes 1 and 710 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these estimates as conditions change and new information becomes available. The estimated fair value of our mortgage loan portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our mortgage loan portfolio that is foreign denominated is sensitive to changes in foreign currency exchange rates.
Leases, Real Estate Leases and Other Asset Classes
The determination of the amount of ACL on leases and impairments on real estate and the remaining asset classes is highly subjective and is based upon our quarterly evaluation and assessment of known and inherent risks associated with the respective asset class. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of ACL and impairments are described in Notes 1 and 710 of the Notes to the Consolidated Financial Statements. Such evaluations and assessments are revised as conditions change and new information becomes available.
Derivatives
The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 812 of the Notes to the Consolidated Financial Statements for additional details on significant inputs into the OTC derivative pricing models and credit risk adjustment.
We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates. The valuation of these embedded derivatives also includes an adjustment for our nonperformance risk and risk margins for non-capital market inputs. The nonperformance risk adjustment, which is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability, is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
Variable annuities with guaranteed minimum benefits may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates, changes in our nonperformance risk, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income. If interpretations change, there is a risk that features previously not bifurcated may require bifurcation and reporting at estimated fair value on the consolidated financial statements and respective changes in estimated fair value could materially affect net income.
Additionally, we ceded the risk associated with certain of the variable annuities with guaranteed minimum benefits described in the preceding paragraphs. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously for the guarantees directly written by us with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. Because certain of the direct guarantees do not meet the definition of an embedded derivative and, thus, are not accounted for at fair value, significant fluctuations in net income may occur since the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a corresponding and offsetting change in fair value of the direct guarantee.
See Note 811 of the Notes to the Consolidated Financial Statements for additional information on our derivatives and hedging programs. See also “Quantitative and Qualitative Disclosures About Market Risk” for information regarding the sensitivity of our derivatives to changes in interest rates, foreign currency exchange rates, and equity market prices.
Employee Benefit Plans
The Company sponsors a U.S. nonqualified defined benefit pension plan covering MetLife employees who meet specified eligibility requirements. The calculation of the obligations and expenses associated with this plan requires an extensive use of assumptions such as the discount rate and rate of future compensation increases, as well as assumptions regarding participant demographics such as rate and age of retirement, withdrawal rates and mortality. In consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as the historical experience of the plan, currently available market and industry data, and expected benefit payout streams.
We determine the discount rate used to value the Company’s pension obligation based upon rates commensurate with current yields on high quality corporate bonds. Given our pension obligations as of December 31, 2021,2022, the beginning of the measurement year, if we had assumed a discount rate for our pension plan that was 100 basis points higher or 100 basis points lower than the rate we assumed, the change in our net periodic benefit costs in 20222023 would have been as follows:
| | | | | |
| Year Ended December 31, 20222023 |
| Increase/(Decrease) in Net Periodic Pension Costs |
| (In millions) |
| Increase in discount rate by 100 bps | $ | (7)(5) | |
| Decrease in discount rate by 100 bps | $ | 74 | |
Given our pension obligations as of December 31, 2022,2023, the end of the measurement year, if we had assumed a discount rate for our pension plan that was 100 basis points higher or 100 basis points lower than the rate we assumed, the change in our pension benefit obligation would have been as follows:
| | | | | | |
| | Year Ended December 31, 20222023 |
| | Increase/(Decrease) in Pension Benefit Obligation |
| | (In millions) |
| Increase in discount rate by 100 bps | | $ | (81)(86) | |
| Decrease in discount rate by 100 bps | | $ | 95101 | |
These tables consider only changes in our assumed discount rate without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant impact on the Company’s consolidated financial statements and liquidity.
See Note 1417 of the Notes to the Consolidated Financial Statements for additional discussion of assumptions used in measuring liabilities relating to our employee benefit plans.
Income Taxes and Valuation of Deferred Tax Assets
Our accounting for income taxes represents our best estimate of various events and transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions in which we conduct business.
The Company considers all available factors, both positive and negative, to determine whether, based on the weight of these factors, a partial or full valuation allowance for categories of deferred tax assets is required. The weight given to these factors is commensurate with the extent to which it can be objectively verified. Examples of factors considered in determining deferred tax asset realizability include past earnings history, projections of taxable income and tax planning strategies.strategies, including the intent and ability to hold certain securities until they recover in value. Changes in tax laws and/or statutory tax rates in countries in which we operate could have an impact on our valuation of net deferred tax assets. If there werehad been a 1% increase in the global effective income tax rate, the change would have resulted in an approximate $127$139 million increase in the net deferred income tax asset balance at December 31, 2022.2023.
See Notes 1 and 1518 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.
Litigation Contingencies
We are a defendant in a large number of litigation matters and are involved in a number of regulatory investigations. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of reliable data and uncertainty regarding numerous variables that can affect liability estimates. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.
See Note 1619 of the Notes to the Consolidated Financial Statements for additional information regarding our assessment of litigation contingencies.
Results of Operations
Overview
MLIC is a provider of insurance, annuities, employee benefits and asset management. In the fourth quarter of 2023, the Company reorganized from two segments into the following three segments to reflect changes in management’s responsibilities: Group Benefits; Retirement and Income Solutions (“RIS”); and MetLife Holdings. The Group Benefits and RIS businesses were previously reported as the U.S. segment. These changes were applied retrospectively and did not have an impact on prior period total consolidated net income (loss) or adjusted earnings. In addition, the Company continues to report certain of its results of operations in Corporate & Other. See Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.
Reinsurance Transaction
In November 2023, the Company completed a risk transfer transaction with a subsidiary of Global Atlantic Financial Group, a retirement and life insurance company, to reinsure an in-force block of universal life, variable universal life, universal life with secondary guarantees, and fixed annuities, which was reported in the MetLife Holdings segment. See Note 8 of the Notes to the Consolidated Financial Statements for further information.
Key Financial Highlights
•Net income attributable to MLIC was $1.1 billion for the year ended December 31, 2023, compared to $5.6 billion for the year ended December 31, 2022.
•Adjusted earnings were $3.5 billion for the year ended December 31, 2023, compared to $3.0 billion for the year ended December 31, 2022.
Consolidated Results
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| (In millions) |
| Revenues | | | |
| Premiums | $ | 31,198 | | | $ | 26,191 | |
| Universal life and investment-type product policy fees | 1,997 | | | 2,062 | |
| Net investment income | 10,122 | | | 12,486 | |
| Other revenues | 1,698 | | | 1,616 | |
| Net investment gains (losses) | (127) | | | 652 | |
| Net derivative gains (losses) | 472 | | | (964) | |
| Total revenues | 45,360 | | | 42,043 | |
| Expenses | | | |
| Policyholder benefits and claims and policyholder dividends | 33,513 | | | 30,151 | |
| Interest credited to policyholder account balances | 2,382 | | | 2,027 | |
| Capitalization of DAC | (184) | | | (64) | |
| Amortization of DAC and VOBA | 144 | | | 259 | |
| Interest expense on debt | 104 | | | 96 | |
| Other expenses | 5,491 | | | 5,326 | |
| Total expenses | 41,450 | | | 37,795 | |
| Income (loss) before provision for income tax | 3,910 | | | 4,248 | |
| Provision for income tax expense (benefit) | 639 | | | 530 | |
| | | |
| | | |
| Net income (loss) | 3,271 | | | 3,718 | |
| Less: Net income (loss) attributable to noncontrolling interests | 28 | | | 5 | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | $ | 3,243 | | | $ | 3,713 | |
Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021
During 2022, net income (loss) decreased $447 million from 2021, primarily driven by unfavorable changes in adjusted earnings and net investment gains (losses), largely offset by a favorable change in net derivative gains (losses), net of investment hedge adjustments, and a favorable change from our actuarial assumption reviews.
Management of Investment Portfolio and Hedging Market Risks with Derivatives. See “— Investments — Overview” for a discussion of the management of our investment portfolio.
We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period can significantly impact the levels of provision for credit loss and impairments on our investment portfolio, as well as realized gains and losses on investments sold.
We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our liquidity objectives are met under a range of market conditions. | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| (In millions) |
| Revenues | | | |
| Premiums | $ | 24,718 | | | $ | 31,189 | |
| Universal life and investment-type product policy fees | 1,664 | | | 1,817 | |
| Net investment income | 11,206 | | | 10,122 | |
| Other revenues | 1,673 | | | 1,694 | |
| Net investment gains (losses) | (1,375) | | | (127) | |
| Net derivative gains (losses) | (1,537) | | | 752 | |
| Total revenues | 36,349 | | | 45,447 | |
| Expenses | | | |
| Policyholder benefits and claims and policyholder dividends | 26,620 | | | 33,696 | |
| Policyholder liability remeasurement (gains) losses | (150) | | | (11) | |
| Market risk benefit remeasurement (gains) losses | (703) | | | (3,379) | |
| Interest credited to policyholder account balances | 3,602 | | | 2,509 | |
| Amortization of DAC and VOBA | 298 | | | 297 | |
| Interest expense on debt | 132 | | | 104 | |
| Other expenses, net of capitalization of DAC | 5,355 | | | 5,302 | |
| Total expenses | 35,154 | | | 38,518 | |
| Income (loss) before provision for income tax | 1,195 | | | 6,929 | |
| Provision for income tax expense (benefit) | 60 | | | 1,273 | |
| | | |
| | | |
| Net income (loss) | 1,135 | | | 5,656 | |
| Less: Net income (loss) attributable to noncontrolling interests | 41 | | | 28 | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | $ | 1,094 | | | $ | 5,628 | |
Certain direct or assumed variable annuity productsYear Ended December 31, 2023 Compared with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract,Year Ended December 31, 2022
Net income (loss) attributable to MLIC- Decreased $4.5 billion primarily due to the following:
Net Investment Gains (Losses)(1)- Unfavorable change of $1.2 billion ($986 million, net of income tax):
•Impairment losses in 2023 for investments disposed of in connection with changesa reinsurance transaction
•Gains in estimated fair value recorded2022 on (i) sales of real estate investments and (ii) foreign currency transactions
Partially offset by:
•Lower losses on sales of fixed maturity securities in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but does not have an economic impact on us.
We continuously review and refine our hedging strategy in light of changing economic and market conditions, evolving NAIC and NYDFS statutory requirements and accounting rule changes. As a part of our current hedging strategy, we maintain portfolio level derivatives in our macro hedge program. These macro hedge program derivatives, which are included in the non-VA program derivatives section of the table below, mitigate the potential deterioration in our capital positions from significant adverse economic conditions.2023
Net Derivative Gains (Losses). Direct and assumed variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives.” All other derivatives that are economic hedges(2)- Unfavorable change of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives.” The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| (In millions) |
| Non-VA program derivatives: | | | |
| Interest rate | $ | (1,113) | | | $ | (775) | |
| Foreign currency exchange rate | 348 | | | 236 | |
| Credit | 40 | | | 54 | |
| Equity | (6) | | | (726) | |
| Non-VA embedded derivatives | 1,609 | | | 333 | |
| Total non-VA program derivatives | 878 | | | (878) | |
| VA program derivatives: | | | |
| Embedded derivatives - direct and assumed guarantees: | | | |
| Market risks | 462 | | | 670 | |
| Nonperformance risk adjustment | 21 | | | 27 | |
| Other risks | (508) | | | (297) | |
| Total | (25) | | | 400 | |
| Freestanding derivatives hedging direct and assumed embedded derivatives | (381) | | | (486) | |
| Total VA program derivatives | (406) | | | (86) | |
| Net derivative gains (losses) | $ | 472 | | | $ | (964) | |
The favorable change in net derivative gains (losses) on non-VA program derivatives was $1.8$2.3 billion ($1.41.8 billion, net of income tax). This was primarily due to a change(3):
•Change in the value of the underlying assets favorably impacting non-VA- unfavorable impact to embedded derivatives related to funds withheld on a certain reinsurance agreement. In addition, keyagreements
•Key equity indexes increased in 2023 versus decreased in 2022 versus increased in 2021, favorably impacting- unfavorable impact to equity options and total rate of return swaps (“TRRs”) acquired primarily as part of our macro hedge program. ThisTRRs
Partially offset by:
•Long-term interest rates increased less significantly in 2023 versus 2022 - favorable impact was partially offset by long-term rates increasing more significantly in 2022 compared to 2021. This unfavorably impacted the estimated fair value of receive fixedreceive-fixed interest rate swaps. Because certainswaps
Market Risk Benefit Remeasurement (Gains) Losses(4) - Unfavorable change of these hedging strategies are not designated or do not qualify$2.7 billion ($2.1 billion, net of income tax):
•Long-term interest rates increased less significantly in 2023 versus 2022
•Updates resulting from the actuarial assumption review, as accounting hedges,well as risk margin and other model updates, were unfavorable in 2023 versus largely favorable in 2022
Partially offset by:
•Key equity indexes increased in 2023 versus decreased in 2022
Actuarial Assumption Review- Unfavorable change of $183 million ($144 million, net of income tax):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Variance |
| | 2023 | | 2022 | |
| | (In millions, net of income tax) |
| Economic assumptions | | $ | (25) | | | $ | 16 | | | $ | (41) | |
| Biometric assumptions | | (56) | | | (11) | | | (45) | |
| Policyholder behavior assumptions | | 152 | | | 292 | | | (140) | |
| Operational assumptions | | 6 | | | (76) | | | 82 | |
| Total | | $ | 77 | | | $ | 221 | | | $ | (144) | |
•Total results for 2023 and 2022 include gains of $77 million and $221 million, respectively:
•Of the changes$77 million gain, a loss of $7 million was recognized in the estimated fair valuemarket risk benefit remeasurement (gains) losses, a loss of these freestanding derivatives are$2 million was recognized in net derivative gains (losses) without an offsetting, both of which are discussed above, and a gain or lossof $86 million was recognized in adjusted earnings, forwhich is discussed below
•Of the items being hedged.
The unfavorable change in net derivative gains (losses) on VA program derivatives$221 million gain, a gain of $253 million was $320 million ($253 million, net of income tax). This was due to (i) an unfavorable change of $103 million ($81 million, net of income tax)recognized in market risksrisk benefits remeasurement (gains) losses, which is discussed above, and a loss of $32 million was recognized in embedded derivatives, net of freestanding derivatives hedging market risksadjusted earnings, which is discussed below
•The $144 million decrease was primarily driven by updates made in embedded derivatives, (ii) an unfavorable change of $211 million, ($167 million, net of income tax) in other risks in embedded derivatives. and (iii) an unfavorable change of $6 million ($5 million, net of income tax)2022 to policyholder behavior assumptions in the nonperformanceMetLife Holdings segment related to projected annuitizations for variable annuities, which were recognized in market risk adjustment on the direct and assumed variable annuity embedded derivatives.benefit remeasurement (gains) losses
The aforementioned $103 million ($81 million, netAdjusted Earnings(5)- Favorable change of income tax) unfavorable change reflects a $208 million ($164 million, net of income tax) unfavorable$483 million. See “— Consolidated Results — Adjusted Earnings.”
Taxes- Favorable change in market riskseffective tax rate - 5% in embedded derivatives, partially offset by a $105 million ($83 million, net of income tax) favorable change2023 versus 18% in freestanding derivatives hedging market risks in embedded derivatives.
The primary changes in market factors affecting the valuation of VA program derivatives are summarized as follows:
•Long-term interest rates increased more significantly in 2022 compared to 2021, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives. For example, the 30-year U.S. swap rate increased 176 basis points in 2022 and increased 33 basis points in 2021.2022:
•Key equity index levels decreased in 20222023 effective tax rate on income before provision for income tax was 5% versus increased in 2021, contributing to an unfavorable change in our embedded derivatives and a favorable change in our freestanding derivatives. For example, the S&P 500 Index decreased 19% in 2022 and increased 27% in 2021.
The aforementioned $211 million ($167 million, netstatutory rate of income tax) unfavorable change in other risks in embedded derivatives reflects actuarial assumption updates and a combination of factors, such as fees deducted from accounts, changes in the benefit base, premiums, lapses, withdrawals and deaths, in addition to changes to cross-effect, basis mismatch, risk margin and fund allocation.
The aforementioned $6 million ($5 million, net of income tax) unfavorable change in the nonperformance risk adjustment on the direct and assumed variable annuity embedded derivatives resulted from an unfavorable change of $27 million ($21 million, net of income tax) related to changes in our own credit spread, partially offset by a favorable change of $21 million ($16 million, net of income tax) related to model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees.
When equity index levels decrease in isolation, the direct and assumed variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives.
When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives.
When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. For each of these primary market drivers, the opposite effect occurs when the driver moves in the opposite direction.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $779 million ($615 million, net of income tax) primarily reflects higher losses on sales on fixed maturity securities, and higher provisions for credit loss on fixed maturity securities, partially offset by net foreign currency transaction gains in 2022.21%:
Taxes.• Our Low income housing and other tax credits
•Non-taxable investment income
•2022 effective tax rate on income (loss) before provision for income tax was 16%. Our effective tax rate differed from the U.S.18% versus statutory rate of 21% primarily due to:
•Low income housing and other tax benefits from tax credits the corporate
•Corporate tax deduction for stock compensation and non-taxable investment income. Our 2021 effective tax rate on income (loss) before provision for income tax was 12%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation.
Actuarial Assumption Review•Non-taxable investment income
__________________
(1) See “— Investments — Overview” and Certain Other Insurance Adjustments.“— Investments — Investment Portfolio Results — Net Investment Gains (Losses)” for 2022 include a $17 million ($14 million, netinformation regarding management of income tax) gain associated with our annual reviewinvestment portfolio.
(2) See “—Derivatives — Net Derivative Gains (Losses)” for information regarding the use of actuarial assumptions relatedderivatives to reserves and DAC, ofhedge market risk.
(3) Includes amounts relating to investment hedge adjustments, which a $353 million ($279 million, net of income tax) loss was recognized in net derivative gains (losses).
Of the $17 million gain, a $226 million ($179 million, net of income tax) gain was related to DAC and a $209 million ($165 million, net of income tax) charge was associated with reserves. The portion of the $17 million gain that isare also included in adjusted earnings is a chargeavailable to common shareholders. See “— Investments — Investment Portfolio Results” for additional information.
(4) See Note 5 of $1 million ($1 million, net of income tax).
The $353 million ($279 million, net of income tax) loss recognized in net derivative gains (losses) associated with our annual review of actuarial assumptions is included within the other risks in embedded derivatives caption in the table above.
As a result of our annual review of actuarial assumptions, changes were made to economic, biometric, policyholder behavior, and operational assumptions. The most significant impacts were in the MetLife Holdings segment, including economic assumption updates relatedNotes to the projection of closed block resultsConsolidated Financial Statements for further information on the Company’s MRBs.
(5) As used in “— Consolidated Results — Adjusted Earnings” and updates to the behavioral assumptions for variable annuities. The breakdown of total current period results is summarized as follows:
•Economic assumption updates resulted in favorable impacts to reserves and DAC for a net gain of $179 million ($142 million, net of income tax).
•Changes in biometric assumptions resulted in favorable impacts to DAC and unfavorable impacts to reserves for a net gain of $1 million ($1 million, net of income tax).
•Changes in policyholder behavior assumptions resulted in unfavorable impacts to reserves and favorable impacts to DAC for a net charge of $201 million ($159 million, net of income tax).
•Changes in operational assumptions resulted in favorable impacts to reserves and unfavorable impacts to DAC for a net gain of $38 million ($30 million, net of income tax).
Results for 2021 include a $167 million ($133 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $6 million ($5 million, net of income tax) loss was recognized in net derivative gains (losses). Of the $167 million charge, a $7 million ($2 million, net of income tax) gain was related to DAC and a $174 million ($135 million, net of income tax) charge was associated with reserves. The portion of the $167 million charge that is included in adjusted earnings is $68 million ($53 million, net of income tax).
Certain other insurance adjustments recorded in 2022 include a $115 million ($91 million, net of income tax) favorable reinsurance recapture in our U.S. segment and an $83 million ($66 million, net of income tax) charge related to model refinements in our MetLife Holdings segment. These adjustments are included in adjusted earnings.
Adjusted Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we userefer to adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings allows analysis of our performance and facilitates comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss). Adjusted earnings decreased $1.7 billion, net of income tax, to $3.0 billion, net of income tax, for 2022 from $4.7 billion, net of income tax, for 2021.
Reconciliation of net income (loss) to adjusted earnings and premiums, fees and other revenues to adjusted premiums, fees and other revenues
| | Years Ended December 31, |
| 2022 | | 2021 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 |
| | (In millions) | | | | (In millions) |
| Net income (loss) | Net income (loss) | $ | 3,271 | | | $ | 3,718 | |
| Less: adjustments from net income (loss) to adjusted earnings: | Less: adjustments from net income (loss) to adjusted earnings: | |
| Revenues: | Revenues: | |
| Revenues: | |
| Revenues: | |
| Net investment gains (losses) | |
| Net investment gains (losses) | |
| Net investment gains (losses) | Net investment gains (losses) | | (127) | | | 652 | |
| Net derivative gains (losses) | Net derivative gains (losses) | | 472 | | | (964) | |
| Premiums | Premiums | | — | | | — | |
| Universal life and investment-type product policy fees | Universal life and investment-type product policy fees | | 75 | | | 80 | |
| Net investment income | Net investment income | | (588) | | | (579) | |
| Other revenues | Other revenues | | — | | | — | |
| Expenses: | Expenses: | |
| Policyholder benefits and claims and policyholder dividends | Policyholder benefits and claims and policyholder dividends | | 445 | | | (366) | |
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder liability remeasurement (gains) losses | |
| Market risk benefits remeasurement (gains) losses | |
| Interest credited to policyholder account balances | Interest credited to policyholder account balances | | — | | | 2 | |
| Capitalization of DAC | Capitalization of DAC | | — | | | — | |
| Amortization of DAC and VOBA | Amortization of DAC and VOBA | | 59 | | | (32) | |
| Interest expense on debt | Interest expense on debt | | — | | | — | |
| Other expenses | Other expenses | | 23 | | | 9 | |
| Provision for income tax (expense) benefit | Provision for income tax (expense) benefit | (78) | | | 241 | |
| Adjusted earnings | Adjusted earnings | $ | 2,990 | | | $ | 4,675 | |
| | Premiums, fees and other revenues | Premiums, fees and other revenues | | $ | 34,893 | | | $ | 29,869 | |
| Premiums, fees and other revenues | |
| Premiums, fees and other revenues | |
| Less: adjustments to premiums, fees and other revenues | Less: adjustments to premiums, fees and other revenues | | 75 | | | 80 | |
| Adjusted premiums, fees and other revenues | Adjusted premiums, fees and other revenues | | $ | 34,818 | | | $ | 29,789 | |
Consolidated Results — Adjusted Earnings
Business Overview.Overview. Adjusted premiums, fees and other revenues for 2022 increased $5.0the year ended December 31, 2023 decreased $6.7 billion, or 17%19%, compared to 2021. This was2022 primarily due to higherlower premiums in our Retirement and Income Solutions (“RIS”) business, as well as growth in our Group Benefits business, both in our U.S. segment. The increase in premiums in RIS wassegment, mainly driven by a large pension risk transfer transaction in 2022. Changes in RIS premiums are mostlygenerally offset by a corresponding change in policyholder benefits. The increase in our Group Benefits business was primarily due to growth from our group disability, voluntary and dental products.
Our MetLife Holdings segment consists of operations relating to products and businesses that we no longer actively market. We anticipate an annual decline in adjusted premiums, fees and other revenues in our MetLife Holdings segment from expected business run-off. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the existing block of business, which contributed to asset growth in the segment, and we expect the related reserves to grow as this block matures. Our future policyholder benefit liability for our long-term care business was $14.3 billion and $14.4 billion as of December 31, 2022 and 2021, respectively.
Year Ended December 31, 20222023 Compared with the Year Ended December 31, 20212022
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. Adjusted Earnings -The primary driver of the decrease in adjusted earnings was lower investment yields Increased $483 million primarily due to the unfavorable impact offollowing business drivers:
Market Factors- Decreased adjusted earnings by $257 million:
•Higher average interest crediting rates on investment-type and certain insurance products, primarily in our RIS segment
•Variable investment income decreased - lower equity market returns on our private equity funds and hedgereal estate funds partially
Largely offset by:
•Recurring investment income increased - higher yields on fixed income securities and mortgage loans
Volume Growth - Increased adjusted earnings by favorable underwriting, primarily driven by an overall decline in COVID-19 related claims. In addition, the favorable change from our actuarial assumption reviews increased adjusted earnings. Our results for 2022 also included the favorable impact from a reinsurance recapture in our U.S. segment and the unfavorable impact from model refinements in our MetLife Holdings segment. Our results for 2021 included the favorable impact of a tax adjustment related to the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent.$93 million:
Business Growth.• Net investment income improved as a result of higher average invested assets, predominantly in our U.S. segment, due to positive netPositive flows primarily from pension risk transfer transactions and funding agreement issuances. Growthissuances in our RIS segment and higher average invested assets in Corporate & Other’s investment portfolio also contributed to improved net investment income. However, this was partiallyOther
Partially offset by a corresponding increaseby:
•Increase in interest credited expenses on long-duration insurance products. In our MetLife Holdings segment, negative net flows from our deferred annuity business resulted in lower asset-based fee income. In addition, premiums declined due to business run-off and the impact of dividend scale reductions in both years, which decreased adjusted earnings. Also,products, primarily in our U.S.RIS segment higher direct expenses, including certain employee-related costs, coupled with an increase in variable expenses, exceeded the corresponding increase in premiums, fees and other revenues. The combined impact of the items affecting our business growth, as well as lower DAC amortization, resulted in a $15 million decrease in adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased driven by the unfavorable impact of lower equity market returns on our private equity funds, hedge funds and fair value option securities (“FVO Securities”), as well as lower prepayment fees. These decreases were partially offset by higher yields on our fixed income securities and mortgage loans. In our U.S. segment, the impact of interest rate fluctuations resulted in an increase in our average interest credited rates on our deposit-type and long-duration insurance products, which drove an increase in interest credited expenses. The changes in market factors discussed above resulted in a $2.5 billion decrease in adjusted earnings.Corporate & Other
Underwriting Actuarial Assumption Review and Other Insurance Adjustments. Underwriting results increased- Increased adjusted earnings by $758 million primarily due to$585 million:
•Favorable underwriting - favorable mortality in our U.S. segment. Favorable mortality in our U.S. segment was primarily driven by our Group Benefits business, partially offset by less favorable mortality in our RIS business. The favorable Group Benefits mortality was the result ofsegment - decreases in both incidence and severity of claims, including the impact of lower COVID-19 and non-COVID-19 claims. Less favorable mortalityclaims, in our RIS business was driven by our structured settlement and pension risk transfer businesses. The favorablelife businesses
•Favorable change from our annual actuarial assumption reviews resulted in a net increase of $52 million in adjusted earnings. Refinementsrefinements to certain insurance and other assets and liabilities in both years resulted in a $363 million increase in adjusted earnings, which- includes the favorable impact from a reinsurance recapture in our U.S. segment largely offset by model refinements in our MetLife Holdings segment, all in 2022, as well as the favorable impactchange from adjustments to certain deposit reinsurance assets in both years. Dividend scale reductions, as well as run-offyears and the favorable impact in Metropolitan Life Insurance Company’s closed block, contributed to lower dividend expense, net2022 from a reinsurance recapture in our RIS segment
Actuarial Assumption Review- Increased adjusted earnings by $118 million:
•2023 actuarial assumption review impacting all of DAC amortization,our segments - favorable impact of $86 million
•2022 actuarial assumption review impacting our RIS and resulted in a $78MetLife Holdings segments - unfavorable impact of $32 million increase in adjusted earnings.
Expenses. Adjusted- Decreased adjusted earnings decreased $267 million mainly due to anby $47 million:
•Higher litigation reserve and higher corporate-related expenses in Corporate & Other
•Higher employee-related and technology costs exceeded the corresponding increase in corporate-related expensespremiums, fees and higherother revenues in our Group Benefits segment
Largely offset by:
•Lower market-related employee costs and lower interest expense on uncertain tax positions due to audit settlements in both years, partially offset by a decrease in employee-related expenses.
Taxes. Our 2022 effective tax rate on adjusted earnings was 16%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, the corporate tax deduction for stock compensation and non-taxable investment income. Our 2021 effective tax rate on adjusted earnings was 14%. Our effective tax rate differed from the U.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent and the corporate tax deduction for stock compensation.Corporate & Other
Investments
Overview
We maintain a diversified global general account investment portfolio to support our mix of liabilities in our global businesses. We position our portfolio based on relative value and our view of the economy and financial markets. We maintain our focus on appropriate level of diversification and asset quality.
We manage our investment portfolio using disciplined asset/liability management (“ALM”) principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with the vast majority of our portfolio invested in fixed maturity securities available-for-sale (“AFS”) and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities.
Current Environment
As a large insurer with a diverse investment portfolio, we continue to be impacted by the changing global financial and economic environment, the fiscal and monetary policy of governments and central banks around the world and other governmental measures. Global inflation, supply chain disruptions, the Russia-Ukraine conflictacts of war and the COVID-19 pandemicbanking sector volatility continue to impact the global economy and financial markets and hashave caused volatility in the global equity, credit and real estate markets. These factors may persist for some time and may continue to impact pricing levels of risk-bearing investments, as well as our business operations, investment portfolio and derivatives. Rising market interest rates have impacted our investment portfolio and derivatives. See “— Results of Operations — Consolidated Results,” and “— Results of Operations — Consolidated Results — Adjusted Earnings” for impacts on our derivatives and analysis of the period over period changes in investment portfolio results and “Investments — Fixed Maturity Securities AFS — Evaluation of Fixed Maturity Securities AFS for Credit Loss —Evaluation of Fixed Maturity Securities AFS in an Unrealized Loss Position” in Note 710 of the Notes to the Consolidated Financial Statements for impacts on the net unrealized gain (loss) on our fixed maturity securities AFS.
Selected Country Investments
We have country-specific exposureOur investment portfolio, which supports our insurance operations and related policyholder liabilities, as well as our global portfolio diversification objectives, is exposed to volatilityrisks posed by local political and economic conditions as a result of our global portfolio diversification objectives for our general account investments.conditions. The countries included in the following table have been the most affected by these risks. The table below presents a summary of selected country fixed maturity securities AFS, at estimated fair value, on a “country of risk basis” (e.g. where the issuer primarily conducts business).
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Selected Country Fixed Maturity Securities AFS at December 31, 2022 |
| Country | Sovereign (1) | | Financial
Services | | Non-Financial
Services | | | | Total (2) |
| | (Dollars in millions) |
| | | | | | | | | |
| | | | | | | | | |
| Italy | $ | 10 | | | $ | 12 | | | $ | 333 | | | | | $ | 355 | |
| Peru | 79 | | | 12 | | | 129 | | | | | 220 | |
| Russian Federation (3) | 35 | | | — | | | — | | | | | 35 | |
| Turkey | 2 | | | — | | | 10 | | | | | 12 | |
| Ukraine (3) | — | | | — | | | 2 | | | | | 2 | |
| Total | $ | 126 | | | $ | 24 | | | $ | 474 | | | | | $ | 624 | |
| Investment grade % | 66.4 | % | | 94.6 | % | | 65.3 | % | | | | 66.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Selected Country Fixed Maturity Securities AFS at December 31, 2023 |
| Country | Sovereign (1) | | Financial
Services | | Non-Financial
Services | | | | Total (2) |
| | (Dollars in millions) |
| | | | | | | | | |
| | | | | | | | | |
| Peru | $ | 56 | | | $ | 4 | | | $ | 135 | | | | | $ | 195 | |
| Russian Federation | 22 | | | — | | | — | | | | | 22 | |
| Turkey | 6 | | | 2 | | | 6 | | | | | 14 | |
| Ukraine | 1 | | | — | | | 2 | | | | | 3 | |
| Egypt | 1 | | | — | | | 1 | | | | | 2 | |
| Total | $ | 86 | | | $ | 6 | | | $ | 144 | | | | | $ | 236 | |
| Investment grade % | 59.4 | % | | 40.3 | % | | 87.6 | % | | | | 76.1 | % |
______________
(1)Sovereign includes government and agency.
(2)The par value, amortized cost, net of ACL, and estimated fair value, net of purchased and written credit default swaps of these securities were $756285 million, $696240 million and $55665 million, respectively, at December 31, 2022.2023. The notional value and estimated fair value of the net purchased and written credit default swaps were $68174 million and less than $13 million, respectively, at December 31, 2022.2023.
(3)As of December 31, 2022, the amortized cost, ACL and amortized cost, net of ACL of our Russian Federation sovereign securities were $102 million, $67 million and $35 million, respectively; and the amortized cost, ACL and amortized cost, net of ACL of our Russian Federation corporate securities were $2 million, $2 million and less than $1 million, respectively. As of December 31, 2022, the amortized cost, ACL and amortized cost, net of ACL of our Ukraine sovereign securities were $1 million, $1 million and less than $1 million, respectively; and the amortized cost, ACL and amortized cost, net of ACL of our Ukraine corporate securities were $3 million, $1 million and $2 million, respectively.
We manage direct and indirect investment exposure in the selected countries through fundamental analysis and we continually monitor and adjust our level of investment exposure. We do not expect that our general account investments in these countries will have a material adverse effect on our results of operations or financial condition.
Investment Portfolio Results
See “— Overview” for a discussion of our investment portfolio and a summary of how we manage our investment portfolio. The following tables present a reconciliation of net investment income under GAAP to adjusted net investment income and our yield table. The yield table presentation is presented below.consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 |
| | (In millions) |
| Net investment income — GAAP | $ | 10,122 | | | $ | 12,486 | |
| Investment hedge adjustments | 576 | | | 571 | |
| Other | 12 | | | 8 | |
| Adjusted net investment income (1) | $ | 10,710 | | | $ | 13,065 | |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 |
| | (In millions) |
| Net investment income — GAAP | $ | 11,206 | | | $ | 10,122 | |
| Investment hedge adjustments | 777 | | | 576 | |
| | | |
| Other | 12 | | | 12 | |
| Adjusted net investment income (1) | $ | 11,995 | | | $ | 10,710 | |
__________________
(1)See “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements for a discussion of the adjustments made to net investment income under GAAP in calculating adjusted net investment income.
The following yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.Yield Table
| | For the Years Ended December 31, |
| 2022 | | 2021 |
| For the Years Ended December 31, | | | For the Years Ended December 31, |
| 2023 | | | 2023 | | 2022 |
| Asset Class | Asset Class | Yield% (1) | | Amount | | Yield% (1) | | Amount | Asset Class | Yield% (1) | | Amount | | Yield% (1) | | Amount |
| (Dollars in millions) |
| Fixed maturity securities AFS (2), (3) | 4.04 | | % | $ | 6,124 | | | 4.18 | | % | $ | 6,183 | |
| (Dollars in millions) | | | (Dollars in millions) |
| Fixed maturity securities (2), (3) | |
| Mortgage loans (3) | Mortgage loans (3) | 4.28 | | % | 2,612 | | | 4.19 | | % | 2,656 | |
| Real estate and real estate joint ventures | Real estate and real estate joint ventures | 5.40 | | % | 437 | | | 3.80 | | % | 294 | |
| Policy loans | Policy loans | 5.01 | | % | 288 | | | 4.95 | | % | 292 | |
| | Other limited partnership interests (4) | |
| Other limited partnership interests (4) | |
| Other limited partnership interests (4) | Other limited partnership interests (4) | 5.28 | | % | 435 | | | 42.74 | | % | 3,169 | |
| Cash and short-term investments | Cash and short-term investments | 4.46 | | % | 83 | | | 1.89 | | % | 8 | |
| Other invested assets | Other invested assets | | 1,040 | | | 792 | |
| Investment income | Investment income | 4.47 | | % | 11,019 | | | 5.56 | | % | 13,394 | |
| Investment fees and expenses | Investment fees and expenses | (0.13) | | | (309) | | | (0.14) | | | (329) | |
| Adjusted net investment income | Adjusted net investment income | 4.34 | | % | $ | 10,710 | | | 5.42 | | % | $ | 13,065 | |
______________
(1)We calculate annualized yields using adjusted net investment income as a percent of average quarterly asset carrying values. Adjusted net investment income excludes realized gains (losses) from sales and disposals and includes the impact of changes in foreign currency exchange rates. Average quarterly assetAsset carrying values utilized in the calculation of yields exclude unrecognized unrealized gains (losses), collateral received in connection with our securities lending program, annuities funding structured settlement claims, freestanding derivative assets and collateral received from derivative counterparties. Invested assets reclassified to held-for-sale and ceded policy loans are included in the calculation of yields, but are otherwise excluded from asset carrying values. A yield is not presented for other invested assets, as it is not considered a meaningful measure of performance for this asset class.
(2)InvestmentFixed maturity securities in the yield table includes fair value option (“FVO”) securities; accordingly, investment income (loss) from fixed maturity securities AFS includes amounts from FVO Securitiessecurities of ($143)$147 million and $102($143) million for the years ended December 31, 2023 and 2022, respectively, and 2021, respectively.FVO securities asset carrying values are included in the calculation of average quarterly fixed maturity securities asset carrying values in the yield calculation.
(3)Investment income from fixed maturity securities AFS and mortgage loans includes prepayment fees.
(4)See “— Results of Operations — Consolidated Results — Adjusted Earnings” for discussion of results for the year ended December 31, 20222023 compared to the year ended December 31, 2021.2022.
See “— Results of Operations — Consolidated Results — Adjusted Earnings” for an analysis of the period over period changes in investment portfolio results.
Net Investment Gains (Losses)
We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period can significantly impact the levels of provision for credit loss and impairments on our investment portfolio, as well as realized gains and losses on investments sold.
See “— Results of Operations — Consolidated Results” for an analysis of the year-over-year changes in realized gains (losses) on investments sold, provision (release) for credit loss and impairments and non-investment portfolio gains (losses).
Fixed Maturity Securities AFS
The following table presents public and private fixed maturity securities AFS held at:
| | December 31, 2022 | | December 31, 2021 | |
| December 31, 2023 | |
| Securities by Type | Securities by Type | Estimated
Fair
Value | | % of Total | | Estimated
Fair
Value | | % of Total | |
| (Dollars in millions) | |
| Securities by Type | |
| Securities by Type | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| Fixed maturity securities AFS | |
| Fixed maturity securities AFS | |
| Fixed maturity securities AFS | Fixed maturity securities AFS | |
| Publicly-traded | Publicly-traded | $ | 105,977 | | | 72.8 | | % | $ | 131,916 | | | 75.0 | | % |
| Publicly-traded | |
| Publicly-traded | | $ | 99,121 | | | 69.4 | | % | $ | 105,977 | | | 72.8 | | % |
| Privately-placed | Privately-placed | 39,599 | | | 27.2 | | | 43,969 | | | 25.0 | | |
| Total fixed maturity securities AFS | |
| Total fixed maturity securities AFS | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | $ | 145,576 | | | 100.0 | | % | $ | 175,885 | | | 100.0 | | % | $ | 142,805 | | | 100.0 | | 100.0 | | % | % | $ | 145,576 | | | 100.0 | | 100.0 | | % | % |
| Percentage of cash and invested assets | Percentage of cash and invested assets | 55.7 | % | | | | 60.0 | % | | | |
|
See Note 710 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities, continuous gross unrealized losses; as well as realized gains (losses) on sales and disposals.
Included within fixed maturity securities AFS are structured securities, including residential mortgage-backed securities (“RMBS”), asset-backed securities and collateralized loan obligations (collectively, “ABS & CLO”) and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Products”). See “— Structured Products” for further information.
Valuation of Securities. We are responsible for the determination of the estimated fair value of our investments. We determine the estimated fair value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent pricing services (after we determine the independent pricing services’ use of available observable market data). For publicly-traded securities, the number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by observable market data. See Note 912 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not available in the active market or through an independent pricing service, management values the security primarily using market standard internal matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the following section, less than 1% of our fixed maturity securities AFS were valued using non-binding quotations from independent brokers at December 31, 2022.2023.
Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies for securities, mortgage loans, real estate and derivatives. On a quarterly basis, new transaction types and markets are reviewed and approved to ensure that observable market prices and market-based parameters are used for valuation, wherever possible, and for determining that valuation adjustments, when applied, are based upon established policies and are applied consistently over time. Senior management oversees the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing.
We review our valuation methodologies on an ongoing basis and revise those methodologies when necessary based on changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with fair value accounting guidance through controls designed to ensure valuations represent an exit price. Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. We ensure that prices received from independent brokers, also referred to herein as “consensus pricing,” are representative of estimated fair value by considering such pricing relative to our knowledge of the current market dynamics and current pricing for similar investments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio.
On a quarterly basis, we also apply a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair value, compared with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates are generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence, management’s best estimate is used.
We have reviewed the significance and observability of inputs used in the valuation methodologies to determine the appropriate fair value hierarchy level for each of our securities. Based on the results of this review and investment class analysis, each instrument is categorized as Level 1, 2 or 3 based on the lowest level significant input to its valuation. See Note 912 of the Notes to the Consolidated Financial Statements for valuation approaches and key inputs by major category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Fair Value of Fixed Maturity Securities AFS
Fixed maturity securities AFS measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources were as follows:
| | December 31, 2022 | | |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Level | Level | Fixed Maturity
Securities AFS | | |
| (Dollars in millions) | | |
| Level | |
| Level | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| Level 1 | |
| Level 1 | |
| Level 1 | Level 1 | | |
| Quoted prices in active markets for identical assets | Quoted prices in active markets for identical assets | $ | 9,130 | | | 6.3 | % | | |
| Quoted prices in active markets for identical assets | |
| Quoted prices in active markets for identical assets | |
| Level 2 | Level 2 | | | | | |
| Level 2 | |
| Level 2 | |
| Independent pricing sources | |
| Independent pricing sources | |
| Independent pricing sources | Independent pricing sources | 118,325 | | | 81.3 | | | |
| | Significant other observable inputs | Significant other observable inputs | 118,325 | | | 81.3 | | | |
| | Significant other observable inputs | |
| | Significant other observable inputs | |
| Level 3 | |
| Level 3 | |
| Level 3 | Level 3 | | | | | |
| Independent pricing sources | Independent pricing sources | 12,894 | | | 8.9 | | | |
| Independent pricing sources | |
| Independent pricing sources | |
| Internal matrix pricing or discounted cash flow techniques | |
| Internal matrix pricing or discounted cash flow techniques | |
| Internal matrix pricing or discounted cash flow techniques | Internal matrix pricing or discounted cash flow techniques | 5,189 | | | 3.5 | | | |
| Independent broker quotations | Independent broker quotations | 38 | | | — | | | |
| Independent broker quotations | |
| Independent broker quotations | |
| Significant unobservable inputs | |
| Significant unobservable inputs | |
| Significant unobservable inputs | Significant unobservable inputs | 18,121 | | | 12.4 | | | |
| Total at estimated fair value | Total at estimated fair value | $ | 145,576 | | | 100.0 | % | | |
| Total at estimated fair value | |
| Total at estimated fair value | |
See Note 912 of the Notes to the Consolidated Financial Statements for the fixed maturity securities AFS fair value hierarchy, a rollforward of the fair value measurements for securities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs; transfers into and/or out of Level 3; and further information about the valuation approaches and inputs by level by major classes of invested assets that affect the amounts reported above.
The majority of the Level 3 fixed maturity securities AFS were concentrated in three sectors at December 31, 2022:2023: U.S. corporate securities, foreign corporate securities and RMBS.ABS & CLO. During the year ended December 31, 2022,2023, Level 3 fixed maturity securities AFS decreasedincreased by $1.4$2.2 billion, or 7.3%12%. The decreaseincrease was driven by a decrease in estimated fair value recognized in other comprehensive income (loss), partially offset by purchases in excess of sales and an increase in estimated fair value recognized in OCI, partially offset by transfers intoout of Level 3 in excess of transfers outinto of Level 3.
Fixed Maturity Securities AFS Credit Quality — Ratings
The Securities Valuation Office of the NAIC evaluates the fixed maturity securities of insurers for regulatory reporting and capital assessment purposes. The NAIC assigns securities to one of six credit quality categories defined as “NAIC designations.” In general, securities with NAIC designations of 1 and 2 are considered investment grade and securities with NAIC designations of 3 through 6 are considered below investment grade. If no NAIC designation is available, then, as permitted by the NAIC, an internally developed designation is used.
NAIC designations for non-agency RMBS and CMBS are based on a modeling methodology that estimates security level expected losses under a variety of economic scenarios. The modeling methodology for non-agency RMBS and CMBS issued prior to January 1, 2013 incorporates the amortized cost of the security (including any purchase discounts and prior impairments) and the likelihood of recovery of the amortized cost; while for non-agency RMBS and CMBS issued after January 1, 2013, the modeling methodology does not incorporate the amortized cost of the security. The NAIC’s objective with the modeling methodology is to increase accuracy in estimating expected losses and recovery value, and to use this credit quality assessment to determine an appropriate RBC charge for non-agency RMBS and CMBS. We utilize these NAIC designations for our non-agency RMBS and CMBS in our disclosures below. The NAIC evaluates non-agency RMBS and CMBS held by insurers on an annual basis. When we acquire non-agency RMBS and CMBS that have not been previously evaluated by the NAIC, an internally developed designation is used until a NAIC designation becomes available.
In addition to the six NAIC designations, the NAIC maintains 20 “NAIC designation categories” which is an additional, more granular credit quality categorization. These NAIC designation categories correspond more closely to the NRSRO’s alpha-numeric credit quality ratings. The NAIC maintains unique RBC factors for each of the 20 NAIC designation categories. The NAIC’s goal is to better align RBC charges on securities with the instruments’ actual credit risk.
Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s Investors Service (“Moody’s”), S&P, Fitch Ratings (“Fitch”), DBRS Morningstar, A.M. Best Company (“A.M. Best”), Kroll Bond Rating Agency and Egan Jones Ratings Company. If no rating is available from a rating agency, then an internally developed rating is used.
NAIC designations are generally similar to the credit quality ratings of the NRSROs, except for (i) non-agency RMBS and CMBS as described above, and (ii) securities rated Ca or C by NRSROs, included within Caa and lower in our disclosures below, that are designated NAIC 6; accordingly, NAIC designations may not correspond to NRSRO ratings.
The following table presents total fixed maturity securities AFS by NRSRO rating, except for non-agency RMBS and CMBS, which are presented using NAIC designations for modeled securities. In addition, in the following table, the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations is provided.
| | December 31, | |
| 2022 | | 2021 | |
| | | | December 31, | |
| | | | 2023 | |
| | | | 2023 | |
| | | | 2023 | |
| NRSRO Rating | NRSRO Rating | | NAIC
Designation | | Amortized
Cost net of ACL | | Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | | Amortized
Cost net of ACL | | Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | |
| | | | (Dollars in millions) | |
| NRSRO Rating | |
| NRSRO Rating | |
| | | | (Dollars in millions) | |
| | | | (Dollars in millions) | |
| | | | (Dollars in millions) | |
| Aaa/Aa/A | |
| Aaa/Aa/A | |
| Aaa/Aa/A | Aaa/Aa/A | | 1 | | $ | 103,739 | | | $ | (9,023) | | | $ | 94,716 | | | 65.1 | | % | | $ | 103,617 | | | $ | 12,569 | | | $ | 116,186 | | | 66.0 | | % | | 1 | | $ | 99,918 | | | $ | | $ | (6,484) | | | $ | | $ | 93,434 | | | 65.5 | | 65.5 | | % | % | | $ | 103,739 | | | $ | | $ | (9,023) | | | $ | | $ | 94,716 | | | 65.1 | | 65.1 | | % | % |
| Baa | Baa | | 2 | | 46,820 | | | (4,868) | | | 41,952 | | | 28.8 | | | 44,696 | | | 4,826 | | | 49,522 | | | 28.2 | | |
| Subtotal investment grade | Subtotal investment grade | | | 150,559 | | | (13,891) | | | 136,668 | | | 93.9 | | | 148,313 | | | 17,395 | | | 165,708 | | | 94.2 | | |
| Subtotal investment grade | |
| Subtotal investment grade | |
| Ba | |
| Ba | |
| Ba | Ba | | 3 | | 7,042 | | | (612) | | | 6,430 | | | 4.4 | | | 7,127 | | | 215 | | | 7,342 | | | 4.2 | | |
| B | B | | 4 | | 2,320 | | | (191) | | | 2,129 | | | 1.5 | | | 2,463 | | | (12) | | | 2,451 | | | 1.4 | | |
| B | |
| B | |
| Caa and lower | |
| Caa and lower | |
| Caa and lower | Caa and lower | | 5 | | 370 | | | (92) | | | 278 | | | 0.2 | | | 389 | | | (24) | | | 365 | | | 0.2 | | |
| In or near default | In or near default | | 6 | | 72 | | | (1) | | | 71 | | | — | | | 9 | | | 10 | | | 19 | | | — | | |
| In or near default | |
| In or near default | |
| Subtotal below investment grade | |
| Subtotal below investment grade | |
| Subtotal below investment grade | Subtotal below investment grade | | | 9,804 | | | (896) | | | 8,908 | | | 6.1 | | | 9,988 | | | 189 | | | 10,177 | | | 5.8 | | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | | | $ | 160,363 | | | $ | (14,787) | | | $ | 145,576 | | | 100.0 | | % | | $ | 158,301 | | | $ | 17,584 | | | $ | 175,885 | | | 100.0 | | % |
| Total fixed maturity securities AFS | |
| Total fixed maturity securities AFS | | | | | $ | 151,948 | | | $ | (9,143) | | | $ | 142,805 | | | 100.0 | | % | | $ | 160,363 | | | $ | (14,787) | | | $ | 145,576 | | | 100.0 | | % |
The following tables present total fixed maturity securities AFS, at estimated fair value, by sector and by NRSRO rating, except for non-agency RMBS and CMBS, which are presented using NAIC designations for modeled securities. In addition, in the following table, the applicable NAIC designation from the NAIC published comparison of the NRSRO ratings to NAIC designations is provided.
| | Fixed Maturity Securities AFS — by Sector & Credit Quality Rating |
| Fixed Maturity Securities AFS — by Sector & Credit Quality Rating | | | Fixed Maturity Securities AFS — by Sector & Credit Quality Rating |
| NRSRO Rating | NRSRO Rating | Aaa/Aa/A | | Baa | | Ba | | B | | Caa and
Lower | | In or Near
Default | | Total
Estimated
Fair Value | NRSRO Rating | Aaa/Aa/A | | Baa | | Ba | | B | | Caa and
Lower | | In or Near
Default | | Total
Estimated
Fair Value |
| NAIC Designation | NAIC Designation | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | |
| (Dollars in millions) |
| December 31, 2022 | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| (Dollars in millions) | |
| December 31, 2023 | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | U.S. corporate | $ | 23,238 | | | $ | 22,708 | | | $ | 3,403 | | | $ | 1,558 | | | $ | 164 | | | $ | 19 | | | $ | 51,090 | |
| Foreign corporate | Foreign corporate | 6,473 | | | 14,969 | | | 2,093 | | | 412 | | | 46 | | | — | | | 23,993 | |
| U.S. government and agency | U.S. government and agency | 21,977 | | | 381 | | | — | | | — | | | — | | | — | | | 22,358 | |
| RMBS | RMBS | 18,823 | | | 376 | | | 56 | | | 55 | | | 13 | | | 10 | | | 19,333 | |
| ABS & CLO | ABS & CLO | 9,619 | | | 1,848 | | | 280 | | | 63 | | | 19 | | | 7 | | | 11,836 | |
| Municipals | Municipals | 7,306 | | | 135 | | | 23 | | | — | | | — | | | — | | | 7,464 | |
| CMBS | CMBS | 5,897 | | | 69 | | | 48 | | | — | | | 29 | | | — | | | 6,043 | |
| Foreign government | Foreign government | 1,383 | | | 1,466 | | | 527 | | | 41 | | | 7 | | | 35 | | | 3,459 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | $ | 94,716 | | | $ | 41,952 | | | $ | 6,430 | | | $ | 2,129 | | | $ | 278 | | | $ | 71 | | | $ | 145,576 | |
| Percentage of total | Percentage of total | 65.1 | % | | 28.8 | % | | 4.4 | % | | 1.5 | % | | 0.2 | % | | — | % | | 100.0 | % | Percentage of total | 65.5 | % | | 28.7 | % | | 4.3 | % | | 1.4 | % | | 0.1 | % | | — | % | | 100.0 | % |
| December 31, 2021 | |
| December 31, 2022 | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | U.S. corporate | $ | 26,778 | | | $ | 26,018 | | | $ | 3,738 | | | $ | 1,675 | | | $ | 193 | | | $ | — | | | $ | 58,402 | |
| Foreign corporate | Foreign corporate | 8,350 | | | 18,242 | | | 2,494 | | | 487 | | | 112 | | | — | | | 29,685 | |
| U.S. government and agency | U.S. government and agency | 30,765 | | | 457 | | | — | | | — | | | — | | | — | | | 31,222 | |
| RMBS | RMBS | 22,422 | | | 516 | | | 132 | | | 52 | | | 4 | | | 19 | | | 23,145 | |
| ABS & CLO | ABS & CLO | 10,840 | | | 1,684 | | | 260 | | | 76 | | | 19 | | | — | | | 12,879 | |
| Municipals | Municipals | 8,473 | | | 238 | | | 17 | | | — | | | — | | | — | | | 8,728 | |
| CMBS | CMBS | 6,347 | | | 330 | | | 91 | | | 85 | | | 25 | | | — | | | 6,878 | |
| Foreign government | Foreign government | 2,211 | | | 2,037 | | | 610 | | | 76 | | | 12 | | | — | | | 4,946 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | $ | 116,186 | | | $ | 49,522 | | | $ | 7,342 | | | $ | 2,451 | | | $ | 365 | | | $ | 19 | | | $ | 175,885 | |
| Percentage of total | Percentage of total | 66.0 | % | | 28.2 | % | | 4.2 | % | | 1.4 | % | | 0.2 | % | | — | % | | 100.0 | % | Percentage of total | 65.1 | % | | 28.8 | % | | 4.4 | % | | 1.5 | % | | 0.2 | % | | — | % | | 100.0 | % |
U.S. and Foreign Corporate Fixed Maturity Securities AFS
We maintain a broadly diversified portfolio of corporate fixed maturity securities AFS across many industries and issuers. This portfolio did not have any exposure to any single issuer in excess of 1% of total investments at either December 31, 20222023 or 2021.2022. The top 10 holdings comprised 1% and 2% of total investments at both December 31, 2023 and 2022, and 2021.respectively. The table below presents our U.S. and foreign corporate securities portfolios by industry at:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Industry | Estimated
Fair
Value | | % of
Total | | Estimated
Fair
Value | | % of
Total |
| (Dollars in millions) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Finance | $ | 16,264 | | | 21.7 | % | | $ | 18,828 | | | 21.4 | % |
| Consumer (1) | 15,368 | | | 20.5 | | | 18,125 | | | 20.6 | |
| Utility | 12,439 | | | 16.6 | | | 15,494 | | | 17.6 | |
| Industrial (2) | 8,678 | | | 11.5 | | | 9,694 | | | 11.0 | |
| Transportation | 6,523 | | | 8.7 | | | 7,488 | | | 8.5 | |
| Communications | 5,739 | | | 7.6 | | | 7,200 | | | 8.2 | |
| Energy | 5,058 | | | 6.7 | | | 6,048 | | | 6.8 | |
| Technology | 2,409 | | | 3.2 | | | 2,743 | | | 3.1 | |
| Other | 2,605 | | | 3.5 | | | 2,467 | | | 2.8 | |
| Total | $ | 75,083 | | | 100.0 | % | | $ | 88,087 | | | 100.0 | % |
__________________
(1)Includes consumer cyclical and consumer non-cyclical.
(2)Includes basic industry, capital goods and other industrial. | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Industry | Estimated
Fair
Value | | % of
Total | | Estimated
Fair
Value | | % of
Total |
| (Dollars in millions) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Finance | $ | 16,790 | | | 22.3 | % | | $ | 16,264 | | | 21.7 | % |
| Consumer (cyclical and non-cyclical) | 15,352 | | | 20.3 | | | 15,368 | | | 20.5 | |
| Utility | 12,678 | | | 16.7 | | | 12,439 | | | 16.6 | |
| Industrial (basic, capital goods and other) | 8,439 | | | 11.1 | | | 8,678 | | | 11.5 | |
| Transportation | 7,069 | | | 9.3 | | | 6,523 | | | 8.7 | |
| Communications | 5,453 | | | 7.2 | | | 5,739 | | | 7.6 | |
| Energy | 5,330 | | | 7.0 | | | 5,058 | | | 6.7 | |
| Technology | 2,189 | | | 2.9 | | | 2,409 | | | 3.2 | |
| Other | 2,408 | | | 3.2 | | | 2,605 | | | 3.5 | |
| Total | $ | 75,708 | | | 100.0 | % | | $ | 75,083 | | | 100.0 | % |
Structured Products
Our investments in Structured Products are collateralized by residential mortgages, commercial mortgages, bank loans and other assets. Our investment selection criteria and monitoring includesinclude review of credit ratings, characteristics of the assets underlying the securities, borrower characteristics and the level of credit enhancement. We held $37.2$36.4 billion and $42.9$37.2 billion of Structured Products, at estimated fair value, at December 31, 20222023 and 2021,2022, respectively, as presented in the RMBS, ABS & CLO and CMBS sections below.
RMBS
Our RMBS portfolio is broadly diversified by security type and risk profile.
On a security type basis, RMBS includes collateralized mortgage obligations and pass-through mortgage-backed securities. Collateralized mortgage obligations are structured by dividing the cash flows of mortgage loans into separate pools or tranches of risk that create multiple classes of bonds with varying maturities and priority of payments. Pass-through mortgage-backed securities are secured by a mortgage loan or collection of mortgage loans. The monthly mortgage loan payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments and, for a fee, remits or passes these payments through to the holders of the pass-through securities.
On a risk profile basis, RMBS includes Agency and Non-Agency securities. Agency RMBS were guaranteed or otherwise supported by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Government National Mortgage Association. Non-Agency securities include prime, prime investor, non-qualified residential mortgage (“NQM”), alternative (“Alt-A”), reperforming and sub-prime mortgage-backed securities. Prime (owner-occupied) and prime investor (non owner-occupied) loans were originated to the most creditworthy borrowers with high quality credit profiles. NQM and Alt-A are classifications of mortgage loans where the risk profile of the borrower is between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles, while reperforming loans were previously delinquent that returned to performing status.
The following table presents our RMBS portfolio by security type, risk profile and ratings profile at:
| | December 31, |
| 2022 | | 2021 |
| Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) |
| (Dollars in millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Estimated
Fair
Value | | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) |
| (Dollars in millions) | | | (Dollars in millions) |
| Security type | Security type | |
| Collateralized mortgage obligations | |
| Collateralized mortgage obligations | |
| Collateralized mortgage obligations | Collateralized mortgage obligations | $ | 10,960 | | | 56.7 | % | | $ | (1,160) | | | $ | 13,184 | | | 57.0 | % | | $ | 913 | |
| Pass-through mortgage-backed securities | Pass-through mortgage-backed securities | 8,373 | | | 43.3 | | | (1,046) | | | 9,961 | | | 43.0 | | | 150 | |
| Total RMBS | Total RMBS | $ | 19,333 | | | 100.0 | % | | $ | (2,206) | | | $ | 23,145 | | | 100.0 | % | | $ | 1,063 | |
| Risk profile | Risk profile | | | | | | | | | | | |
| Agency | Agency | $ | 11,886 | | | 61.5 | % | | $ | (1,473) | | | $ | 14,472 | | | 62.5 | % | | $ | 523 | |
| Agency | |
| Agency | |
| Non-Agency | Non-Agency | |
| Prime and prime investor | |
| Prime and prime investor | |
| Prime and prime investor | Prime and prime investor | 2,808 | | | 14.5 | | | (451) | | | 2,216 | | | 9.2 | | | 16 | |
| NQM and Alt-A | NQM and Alt-A | 1,580 | | | 8.2 | | | (66) | | | 2,100 | | | 9.1 | | | 209 | |
| Reperforming and sub-prime | Reperforming and sub-prime | 2,310 | | | 11.9 | | | (142) | | | 3,463 | | | 15.0 | | | 316 | |
| Other (1) | Other (1) | 749 | | | 3.9 | | | (74) | | | 894 | | | 4.2 | | | $ | (1) | |
| Subtotal Non-Agency | Subtotal Non-Agency | 7,447 | | | 38.5 | % | | (733) | | | 8,673 | | | 37.5 | % | | 540 | |
| Total RMBS | Total RMBS | $ | 19,333 | | | 100.0 | % | | $ | (2,206) | | | $ | 23,145 | | | 100.0 | % | | $ | 1,063 | |
| Ratings profile | Ratings profile | | | | | | | | | | | |
| Rated Aaa and Aa | Rated Aaa and Aa | $ | 15,956 | | | 82.5 | % | | $ | 17,956 | | | 77.6 | % | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | |
| Designated NAIC 1 | Designated NAIC 1 | $ | 18,827 | | | 97.4 | % | | $ | 22,480 | | | 97.1 | % | |
| Designated NAIC 1 | |
| Designated NAIC 1 | |
__________________
(1)Other Non-Agency RMBS are broadly diversified across several subsectors and issuers, including securities collateralized by the following mortgage loan types: single family rental, early buyout securitization and small business commercial.
The majority of our RMBS holdings were rated Aaa and were designated NAIC 1 at both December 31, 20222023 and 2021.2022.
We manage our exposure to reperforming and sub-prime RMBS holdings by focusing primarily on senior tranche securities, stress testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our reperforming RMBS are generally newer vintage securities and higher quality at purchase and the vast majority are investment grade under NAIC designations (e.g., NAIC 1 and NAIC 2). Our sub-prime RMBS portfolio consists predominantly of securities that were purchased at significant discounts to par value and discounts to the expected principal recovery value of these securities, and the vast majority are investment grade under NAIC designations (e.g., NAIC 1 and NAIC 2).designations.
ABS & CLO
Our non-mortgage loan-backed structured securities are comprised of two broad categories of securitizations: ABS & CLO. These portfolios are broadly diversified by collateral type and issuer. The following table presents our ABS & CLO portfolios by collateral type and ratings profile at:
| | December 31, |
| 2022 | | 2021 |
| Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) |
| (Dollars in millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Estimated
Fair
Value | | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) | | Estimated
Fair
Value | | % of
Total | | Net
Unrealized
Gains (Losses) |
| (Dollars in millions) | | | (Dollars in millions) |
| ABS | ABS | |
| Collateral type | Collateral type | |
| Collateral type | |
| Collateral type | |
| Digital infrastructure | |
| Digital infrastructure | |
| Digital infrastructure | |
| Vehicle and equipment loans | |
| Consumer loans | Consumer loans | $ | 954 | | | 8.1 | % | | $ | (98) | | | $ | 1,278 | | | 9.9 | % | | $ | 37 | |
| Vehicle and equipment loans | 892 | | | 7.5 | | | (41) | | | 1,165 | | | 9.0 | | | 7 | |
| Franchise | |
| Credit card loans | Credit card loans | 801 | | | 6.8 | | | (11) | | | 561 | | | 4.4 | | | 8 | |
| Franchise | 730 | | | 6.2 | | | (94) | | | 563 | | | 4.4 | | | 11 | |
| Digital infrastructure | 730 | | | 6.2 | | | (78) | | | 547 | | | 4.2 | | | 4 | |
| Student loans | Student loans | 560 | | | 4.7 | | | (54) | | | 742 | | | 5.8 | | | 14 | |
| Other (1) | Other (1) | 1,509 | | | 12.7 | | | (169) | | | 1,495 | | | 11.6 | | | 17 | |
| Total ABS | Total ABS | $ | 6,176 | | | 52.2 | % | | $ | (545) | | | $ | 6,351 | | | 49.3 | % | | $ | 98 | |
| CLO (2) | CLO (2) | $ | 5,660 | | | 47.8 | % | | $ | (258) | | | $ | 6,528 | | | 50.7 | % | | $ | (6) | |
| Total ABS & CLO | Total ABS & CLO | $ | 11,836 | | | 100.0 | % | | $ | (803) | | | $ | 12,879 | | | 100.0 | % | | $ | 92 | |
| | ABS ratings profile | ABS ratings profile | |
| ABS ratings profile | |
| ABS ratings profile | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | Rated Aaa and Aa | $ | 2,582 | | | 41.8 | % | | $ | 3,085 | | | 48.6 | % | |
| Designated NAIC 1 | Designated NAIC 1 | $ | 4,506 | | | 73.0 | % | | $ | 4,817 | | | 75.8 | % | |
| Designated NAIC 1 | |
| Designated NAIC 1 | |
| CLO ratings profile | |
| CLO ratings profile | |
| CLO ratings profile | CLO ratings profile | |
| Rated Aaa and Aa | Rated Aaa and Aa | $ | 4,246 | | | 75.0 | % | | $ | 5,172 | | | 79.2 | % | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | |
| Designated NAIC 1 | |
| Designated NAIC 1 | |
| Designated NAIC 1 | Designated NAIC 1 | $ | 5,111 | | | 90.3 | % | | $ | 5,979 | | | 91.6 | % | |
| ABS & CLO ratings profile | ABS & CLO ratings profile | |
| ABS & CLO ratings profile | |
| ABS & CLO ratings profile | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | Rated Aaa and Aa | $ | 6,828 | | | 57.7 | % | | $ | 8,257 | | | 64.1 | % | |
| Designated NAIC 1 | Designated NAIC 1 | $ | 9,617 | | | 81.3 | % | | $ | 10,796 | | | 83.8 | % | |
| Designated NAIC 1 | |
| Designated NAIC 1 | |
______________
(1)Other ABS are broadly diversified across several subsectors and issuers, including securities with the following collateral types: foreign residential loans, transportation equipment, and renewable energy.
(2)Includes primarily securities collateralized by broadly syndicated bank loans.
CMBS
Our CMBS portfolio is comprised primarily of conduit, and single asset and single borrower securities. Conduit securities are collateralized by many commercial mortgage loans and are broadly diversified by property type, borrower and geography. The following tables present our CMBS portfolio by collateral type and ratings profile at.at:
| | December 31, 2022 | | December 31, 2021 |
| Estimated Fair Value | | % of Total | | Net Unrealized Gains (Losses) | | Estimated Fair Value | | % of Total | | Net Unrealized Gains (Losses) |
| (Dollars in millions) |
| | December 31, 2023 | | | | December 31, 2023 | | December 31, 2022 |
| | Estimated Fair Value | | | | Estimated Fair Value | | % of Total | | Net Unrealized Gains (Losses) | | Estimated Fair Value | | % of Total | | Net Unrealized Gains (Losses) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Collateral type | Collateral type | |
| Conduit | |
| Conduit | |
| Conduit | Conduit | | $ | 4,289 | | | 71.0 | % | | $ | (485) | | | $ | 4,982 | | | 72.4 | % | | $ | 169 | |
| Single asset and single borrower | Single asset and single borrower | | 1,262 | | | 20.9 | | | (117) | | | 1,305 | | | 19.0 | | | 15 | |
| Agency | Agency | | 273 | | | 4.5 | | | (24) | | | 219 | | | 3.2 | | | 21 | |
| Commercial real estate collateralized loan obligations | Commercial real estate collateralized loan obligations | | 219 | | | 3.6 | | | (7) | | | 359 | | | 5.2 | | | — | |
| Other | Other | | — | | | — | | | — | | | 13 | | | 0.2 | | | — | |
| Total CMBS | Total CMBS | | $ | 6,043 | | | 100.0 | % | | $ | (633) | | | $ | 6,878 | | | 100 | % | | $ | 205 | |
| Ratings profile | Ratings profile | | | | | | | | | | | | |
| Rated Aaa and Aa | Rated Aaa and Aa | | $ | 4,960 | | | 82.1 | % | | $ | 5,592 | | | 81.3 | % | |
| Rated Aaa and Aa | |
| Rated Aaa and Aa | |
| Designated NAIC 1 | Designated NAIC 1 | | $ | 5,897 | | | 97.6 | % | | $ | 6,347 | | | 92.3 | % | |
| Designated NAIC 1 | |
| Designated NAIC 1 | |
Evaluation of Fixed Maturity Securities AFS for Credit Loss, Rollforward of Allowance for Credit Loss and Credit Loss on Fixed Maturity Securities AFS Recognized in Earnings
See Note 710 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for credit loss, rollforward of the ACL, net credit loss provision (release) and impairment (losses), as well as realized gross gains (losses) on sales and disposals of fixed maturity securities AFS at December 31, 20222023 and 20212022 and for the years ended December 31, 2023, 2022 2021 and 2020.2021.
Securities Lending Transactions and Repurchase Agreements
We participate in securities lending transactions and repurchase agreements with unaffiliated financial institutions in the normal course of business for the purpose of enhancing the total return on our investment portfolio. We account for these arrangements as secured borrowings and record a liability in the amount of the cash received. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the securities are returned to us. Through these arrangements, we were liable for cash collateral under our control of $9.9$8.7 billion and $18.3$9.9 billion at December 31, 20222023 and 2021,2022, respectively, including a portion that may require the immediate return of cash collateral we hold. See Notes 1 and 710 of the Notes to the Consolidated Financial Statements for further information about the secured borrowings accounting and the classification of revenues and expenses.
Mortgage Loans
Our mortgage loansloan investments are principally collateralized by commercial, agricultural and residential properties.
Mortgage loans carried at amortized cost and the related ACL are summarized as follows at:
| | December 31, |
| 2022 | | 2021 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Portfolio Segment | Portfolio Segment | Amortized Cost | | % of
Total | | ACL | | ACL as % of
Amortized Cost | | Amortized Cost | | % of
Total | | ACL | | ACL as % of
Amortized Cost | Portfolio Segment | Amortized Cost | | % of
Total | | ACL | | ACL as % of
Amortized Cost | | Amortized Cost | | % of
Total | | ACL | | ACL as % of
Amortized Cost |
| (Dollars in millions) |
| (Dollars in millions) | | | (Dollars in millions) |
| Commercial | Commercial | $ | 37,196 | | | 59.0 | % | | $ | 174 | | | 0.5 | % | | $ | 35,772 | | | 59.0 | % | | $ | 260 | | | 0.7 | % | Commercial | $ | 37,129 | | | 58.8 | | 58.8 | % | | $ | 210 | | | 0.6 | | 0.6 | % | | $ | 37,196 | | | 59.0 | | 59.0 | % | | $ | 174 | | | 0.5 | | 0.5 | % |
| Agricultural | Agricultural | 15,869 | | | 25.2 | | | 105 | | | 0.7 | % | | 15,450 | | | 25.5 | | | 79 | | | 0.5 | % | Agricultural | 15,831 | | | 25.1 | | 25.1 | | | 152 | | 152 | | | 1.0 | | 1.0 | % | | 15,869 | | | 25.2 | | 25.2 | | | 105 | | 105 | | | 0.7 | | 0.7 | % |
| Residential | Residential | 9,953 | | | 15.8 | | | 169 | | | 1.7 | % | | 9,406 | | | 15.5 | | | 197 | | | 2.1 | % | Residential | 10,133 | | | 16.1 | | 16.1 | | | 147 | | 147 | | | 1.5 | | 1.5 | % | | 9,953 | | | 15.8 | | 15.8 | | | 169 | | 169 | | | 1.7 | | 1.7 | % |
| Total | Total | $ | 63,018 | | | 100.0 | % | | $ | 448 | | | 0.7 | % | | $ | 60,628 | | | 100.0 | % | | $ | 536 | | | 0.9 | % | Total | $ | 63,093 | | | 100.0 | | 100.0 | % | | $ | 509 | | | 0.8 | | 0.8 | % | | $ | 63,018 | | | 100.0 | | 100.0 | % | | $ | 448 | | | 0.7 | | 0.7 | % |
The carrying value of all mortgage loans, net of ACL, was 23.9% and 20.5% of cash and invested assets at December 31, 2022 and 2021, respectively.
We diversify our mortgage loan portfolioinvestments by both geographic region and property type to reduce the risk of concentration. Of our commercial and agricultural mortgage loans carried at amortized cost, 89%89% are collateralized by properties located in the U.S., with the remaining 11% collateralized by properties located primarily in Mexico, at December 31, 2022.2023. The carrying values of our commercial and agricultural mortgage loans carried at amortized costcollateralized by properties located in California, New York and Texas were 16%15%, 8% and 7%6%, respectively,respectively, of total commercial and agricultural mortgage loans carried at amortized cost at December 31, 2022.2023. Additionally, we manage risk when originating commercial and agricultural mortgage loansloan investments by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.
We manage our residential mortgage loans carried at amortized cost in a similar manner to reduce risk of concentration. The carrying values of our residential mortgage loans carried at amortized cost located in California, Florida and New York were 34%35%, 11%, and 9%, respectively, of total residential mortgage loans carried at amortized cost at December 31, 2022.2023.
Commercial Mortgage Loans by Geographic Region and Property Type. CCommercialommercial mortgage loans are the largest mortgage loan portfolio segment. The tables below present, at amortized cost, the diversification of these investments across geographic regions and property types of commercial mortgage loans carried at amortized cost at:types:
| | December 31, |
| 2022 | | 2021 |
| Amount | | % of
Total | | Amount | | % of
Total |
| (Dollars in millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Amount | | | Amount | | % of
Total | | Amount | | % of
Total |
| (Dollars in millions) | | | (Dollars in millions) |
| Region | Region | |
| Pacific | Pacific | $ | 6,840 | | | 18.4 | % | | $ | 6,996 | | | 19.5 | % |
| Pacific | |
| Pacific | | $ | 6,407 | | | 17.3 | % | | $ | 6,840 | | | 18.4 | % |
| Middle Atlantic | Middle Atlantic | 5,402 | | | 14.5 | | | 5,450 | | | 15.2 | |
| South Atlantic | |
| Non-U.S. | Non-U.S. | 4,977 | | | 13.4 | | | 5,500 | | | 15.4 | |
| South Atlantic | 4,913 | | | 13.2 | | | 5,146 | | | 14.4 | |
| West South Central | West South Central | 2,784 | | | 7.5 | | | 2,563 | | | 7.2 | |
| New England | New England | 1,681 | | | 4.5 | | | 1,727 | | | 4.8 | |
| East North Central | |
| Mountain | Mountain | 1,373 | | | 3.7 | | | 1,171 | | | 3.3 | |
| East North Central | 1,176 | | | 3.2 | | | 1,491 | | | 4.2 | |
| West North Central | West North Central | 519 | | | 1.4 | | | 604 | | | 1.7 | |
| East South Central | East South Central | 413 | | | 1.1 | | | 552 | | | 1.5 | |
| Multi-Region and Other | Multi-Region and Other | 7,118 | | | 19.1 | | | 4,572 | | | 12.8 | |
| Total amortized cost | Total amortized cost | 37,196 | | | 100.0 | % | | 35,772 | | | 100.0 | % | Total amortized cost | 37,129 | | | 100.0 | | 100.0 | % | | 37,196 | | | 100.0 | | 100.0 | % |
| Less: ACL | Less: ACL | 174 | | | | | 260 | | | |
| Carrying value, net of ACL | Carrying value, net of ACL | $ | 37,022 | | | $ | 35,512 | | |
| Carrying value, net of ACL | |
| Carrying value, net of ACL | |
| Property Type | Property Type | | | | |
| Property Type | |
| Property Type | |
| Office | |
| Office | |
| Office | Office | $ | 14,223 | | | 38.2 | % | | $ | 15,477 | | | 43.3 | % | $ | 13,080 | | | 35.2 | | 35.2 | % | | $ | 14,223 | | | 38.2 | | 38.2 | % |
| Apartment | Apartment | 7,372 | | | 19.9 | | | 6,441 | | | 18.0 | |
| Retail | Retail | 5,521 | | | 14.8 | | | 5,725 | | | 16.0 | |
| Industrial | Industrial | 4,217 | | | 11.3 | | | 3,735 | | | 10.4 | |
| Single Family Rental | |
| Hotel | Hotel | 2,306 | | | 6.2 | | | 2,421 | | | 6.8 | |
| Other | 3,557 | | | 9.6 | | | 1,973 | | | 5.5 | |
| | Total amortized cost | |
| Total amortized cost | |
| Total amortized cost | Total amortized cost | 37,196 | | | 100.0 | % | | 35,772 | | | 100.0 | % | 37,129 | | | 100.0 | | 100.0 | % | | 37,196 | | | 100.0 | | 100.0 | % |
| Less: ACL | Less: ACL | 174 | | | | | 260 | | | |
| Carrying value, net of ACL | Carrying value, net of ACL | $ | 37,022 | | | $ | 35,512 | | |
| Carrying value, net of ACL | |
| Carrying value, net of ACL | |
__________________
Our commercial mortgage loan portfolio isinvestments are well positioned with exposures concentrated in high quality underlying properties located in primary markets typically with institutional investors who are better positioned to manage their assets during periods of market volatility. Our portfolio is comprised primarily of lower risk loans with higher debt-service coverage ratios (“DSCR”) and lower loan-to-value (“LTV”) ratios. See “— Mortgage Loan Credit Quality — Monitoring Process” for further information and Note 7 of the Notes to the Consolidated Financial Statements for a distribution of our commercial mortgage loans by DSCR and LTV ratios.ratios, as shown below.
Mortgage Loan Credit Quality — Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans by credit quality indicator and loans that areby the performance indicators of current, past due, restructured and under foreclosure. See below for further information on mortgage loans by credit quality indicator. See Note 10 7 of the Notes to the Consolidated Financial Statements for further information regarding mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans.performance indicator.
We review our commercial mortgage loansloan investments on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. The monitoring process for agricultural mortgage loansloan investments is generally similar, with a focus on higher risk loans, such as loans with higher LTV ratios. Agricultural mortgage loansloan investments are reviewed on an ongoing basis which include, but are not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, including reviews on a geographic and property-type basis. We review our residential mortgage loansloan investments on an ongoing basis, with a focus on higher risk loans, such as nonperforming loans. See Note 7 ofNotes 1 and 10 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loansloan investments and related ACL methodology.
LTV ratios and DSCR are common measures in the assessment of the quality of commercial mortgage loans.loan investments. LTV ratios are a common measure in the assessment of the quality of agricultural mortgage loans.loan investments. LTV ratios compare the amount of the loan to the estimated fair value of the underlying collateral. An LTV ratio greater than 100% indicates that the loan amount is greater than the collateral value. An LTV ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average LTV ratio was 64% and 58% and 56% at December 31, 20222023 and 2021,2022, respectively, and our average DSCR was 2.1x and 2.4x at both December 31, 2023 and 2022, and 2021.respectively. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio.investments. For our agricultural mortgage loans, our average LTV ratio was 47% and 48% at both December 31, 20222023 and 2021, respectively.2022. The values utilized in calculating our agricultural mortgage loan investments LTV ratio are developed in connection with the ongoing review of our agricultural loan portfolio and are routinely updated.
The distribution of our commercial mortgage loan portfolios totaling $37.1 billion at amortized cost at December 31, 2023 by key credit quality indicators of LTV and DSCR was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | December 31, 2023 |
| | DSCR |
| LTV | | > 1.2x | | 1.0-1.2x | | < 1.0x | | Total |
| <65% | | 48.0 | % | | 2.4 | % | | 1.2 | % | | 51.6 | % |
| 65% - 75% | | 23.4 | % | | 2.6 | % | | 1.4 | % | | 27.4 | % |
| 76% - 80% | | 5.8 | % | | 0.7 | % | | 0.4 | % | | 6.9 | % |
| >80% | | 8.9 | % | | 2.3 | % | | 2.9 | % | | 14.1 | % |
| Total | | 86.1 | % | | 8.0 | % | | 5.9 | % | | 100.0 | % |
The distribution of our agricultural mortgage loan portfolios totaling $15.8 billion at amortized cost at December 31, 2023 by the key credit quality indicator of LTV was as follows:
| | | | | | | | |
| | December 31, 2023 |
| | |
| LTV | | Total |
| <65% | | 92.3 | % |
| 65% - 75% | | 6.7 | % |
| 76% - 80% | | — | % |
| >80% | | 1.0 | % |
| Total | | 100.0 | % |
Mortgage Loan Allowance for Credit Loss. Our ACL is established for both pools of loans with similar risk characteristics and for mortgage loansloan investments with dissimilar risk characteristics, such as collateral dependent loans, individually and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents the portion of the amortized cost basis of mortgage loansloan investments that the Company does not expect to collect, resulting in mortgage loansloan investments being presented at the net amount expected to be collected.
In determining our ACL, management (i) pools mortgage loans that share similar risk characteristics, (ii) considers expected lifetime credit loss over the contractual termterms of our mortgage loans, as adjusted for expected prepayments and any extensions, and (iii) considers past events and current and forecasted economic conditions. Actual credit loss realized could be different from the amount of the ACL recorded. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the ACL to increase or decrease over time as such evaluations are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the ACL. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the ACL. See Notes 1 and 7 of10 of the Notes to the Consolidated Financial Statements for information on how the ACL is established and monitored, and activity in and balances of the ACL.
Real Estate and Real Estate Joint Ventures
Our real estate investments are comprised of wholly-owned properties, and interests in both real estate joint ventures and real estate funds which invest in a wide variety of properties and property types, including single and multi-property projects, and are broadly diversified across multiple property types and geographies.
The carrying value of our real estate investments was $8.7 billion and $8.4 billion, or 3.4% and $7.9 billion, or 3.2% and 2.7% of cash and invested assets, at December 31, 20222023 and 2021,2022, respectively.
Our real estate investments are typically stabilized properties that we intend to hold for the longer-term for portfolio diversification and long-term appreciation. Our real estate investment portfolio had significantly appreciated to a $4.7$3.4 billion and $4.9$4.7 billion unrealized gain position at December 31, 2023 and 2022, and 2021, respectively.
We continuously monitor and assess our real estate investments for impairment when facts and circumstances indicate that the real estate may be impaired. There were no impairments (losses) recognized on our real estate investments for either the year ended December 31, 20222023 or 2021.2022.
We diversify our real estate investments by property type, form of equity interest (wholly-owned, joint venture and funds) and geographic region to reduce risk of concentration. See Note 710 of the Notes to the Consolidated Financial Statements for a summary of our real estate investments, by income type, as well as income earned.
Property type diversification: Our real estate investments are categorized by property type as follows at:
| | December 31, |
| 2022 | | 2021 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Property Type | Property Type | Carrying
Value | | % of
Total | | Carrying
Value | | % of
Total | Property Type | Carrying
Value | | % of
Total | | Carrying
Value | | % of
Total |
| (Dollars in millions) |
| (Dollars in millions) | | | (Dollars in millions) |
| Office | Office | $ | 2,487 | | | 29.5 | % | | $ | 2,583 | | | 32.8 | % | Office | $ | 2,692 | | | 31.0 | | 31.0 | % | | $ | 2,487 | | | 29.5 | | 29.5 | % |
| Apartment | Apartment | 950 | | | 11.3 | | | 1,020 | | | 13.0 | |
| Retail | Retail | 730 | | | 8.6 | | | 530 | | | 6.7 | |
| Hotel | Hotel | 665 | | | 7.9 | | | 581 | | | 7.4 | |
| Industrial | |
| Land | Land | 362 | | | 4.3 | | | 396 | | | 5.0 | |
| Industrial | 268 | | | 3.2 | | | 336 | | | 4.3 | |
| Agriculture | Agriculture | 5 | | | 0.1 | | | 18 | | | 0.2 | |
| Other | Other | 6 | | | 0.1 | | | 9 | | | 0.1 | |
| Wholly-owned and real estate joint ventures | Wholly-owned and real estate joint ventures | $ | 5,473 | | | 65.0 | % | | $ | 5,473 | | | 69.5 | % | Wholly-owned and real estate joint ventures | $ | 5,524 | | | 63.6 | | 63.6 | % | | $ | 5,473 | | | 65.0 | | 65.0 | % |
| Diversified property types and multi-property | Diversified property types and multi-property | 1,156 | | | 13.8 | | | 931 | | | 11.8 | |
| Real estate funds | Real estate funds | 1,787 | | | 21.2 | | | 1,469 | | | 18.7 | |
| Total real estate and real estate joint ventures | Total real estate and real estate joint ventures | $ | 8,416 | | | 100.0 | % | | $ | 7,873 | | | 100.0 | % | Total real estate and real estate joint ventures | $ | 8,690 | | | 100.0 | | 100.0 | % | | $ | 8,416 | | | 100.0 | | 100.0 | % |
Geographical diversification: Wholly-owned and real estate joint ventures totaled $5.5 billion at December 31, 2022,2023, substantially all of which were located in the U.S., at December 31, 2022,2023, at carrying value. The portion of these properties located in Washington, D.C., Georgia and Massachusetts were each 13%, 13% and 12%, respectively, at December 31, 2022,2023, at carrying value.
Other Limited Partnership Interests
Other limited partnership interests are comprised of investments in private funds, including private equity funds and hedge funds. At December 31, 20222023 and 2021,2022, the carrying value of other limited partnership interests was $7.9$7.8 billion and $8.8$7.9 billion, which included $20518 million and $350$205 million of hedge funds, respectively. Other limited partnership interests were 3.1% and 3.0% of cash and invested assets at both December 31, 2023 and 2022, and 2021.respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.
We use the equity method of accounting for most of our private equity funds. We generally recognize our share of a private equity fund’s earnings in net investment income on a three-month lag, which is when the information is reported to us. Accordingly, changes in equity market levels, which can impact the underlying results of these private equity funds, are recognized in earnings within our net investment income on a three-month lag.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
| | | | December 31, | | December 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| Carrying Value | | % of Total | | Carrying Value | | % of Total | Carrying Value | | % of Total | | Carrying Value | | % of Total |
| Asset Type | Asset Type | |
| | | (Dollars in millions) | | |
| | | (Dollars in millions) | |
| | | (Dollars in millions) | |
| | | (Dollars in millions) | |
| Freestanding derivatives with positive estimated fair values | |
| Freestanding derivatives with positive estimated fair values | |
| Freestanding derivatives with positive estimated fair values | Freestanding derivatives with positive estimated fair values | $ | 8,396 | | | 43.8 | % | | $ | 8,618 | | | 43.4 | % | $ | 6,506 | | | 38.2 | | 38.2 | % | | $ | 8,396 | | | 43.8 | | 43.8 | % |
| Funds withheld | Funds withheld | 3,170 | | | 16.6 | % | | 3,390 | | | 17.1 | % | Funds withheld | 3,018 | | | 17.7 | | 17.7 | % | | 3,170 | | | 16.6 | | 16.6 | % |
| Annuities funding structured settlement claims | | Annuities funding structured settlement claims | 1,256 | | | 7.4 | % | | 1,238 | | | 6.5 | % |
| Affiliated investments | | Affiliated investments | 1,130 | | | 6.6 | % | | 1,307 | | | 6.8 | % |
| Tax credit and renewable energy partnerships | Tax credit and renewable energy partnerships | 1,308 | | | 6.8 | % | | 1,554 | | | 7.8 | % | Tax credit and renewable energy partnerships | 1,034 | | | 6.6 | | 6.6 | % | | 1,308 | | | 6.8 | | 6.8 | % |
| Affiliated investments | 1,307 | | | 6.8 | % | | 1,499 | | | 7.5 | % |
| Annuities funding structured settlement claims | 1,238 | | | 6.5 | % | | 1,251 | | | 6.3 | % |
| FVO Securities | 844 | | | 4.4 | % | | 848 | | | 4.3 | % |
| FVO securities | | FVO securities | 746 | | | 4.4 | % | | 844 | | | 4.4 | % |
| Leveraged leases | Leveraged leases | 731 | | | 3.8 | % | | 787 | | | 4.0 | % | Leveraged leases | 689 | | | 4.0 | | 4.0 | % | | 731 | | | 3.8 | | 3.8 | % |
| FHLBNY common stock | FHLBNY common stock | 659 | | | 3.4 | % | | 718 | | | 3.6 | % | FHLBNY common stock | 637 | | | 3.7 | | 3.7 | % | | 659 | | | 3.4 | | 3.4 | % |
| Operating joint venture | Operating joint venture | 400 | | | 2.1 | % | | 411 | | | 2.1 | % | Operating joint venture | 614 | | | 3.6 | | 3.6 | % | | 400 | | | 2.1 | | 2.1 | % |
| Company-owned life insurance policies | | Company-owned life insurance policies | 414 | | | 2.4 | % | | 200 | | | 1.0 | % |
| Equity securities | Equity securities | 240 | | | 1.3 | % | | 226 | | | 1.1 | % | Equity securities | 347 | | | 1.2 | | 1.2 | % | | 240 | | | 1.3 | | 1.3 | % |
| Direct financing leases | Direct financing leases | 127 | | | 0.7 | % | | 137 | | | 0.7 | % | Direct financing leases | 116 | | | 0.7 | | 0.7 | % | | 127 | | | 0.7 | | 0.7 | % |
| Other | Other | 728 | | | 3.8 | % | | 421 | | | 2.1 | % | Other | 533 | | | 3.5 | | 3.5 | % | | 528 | | | 2.8 | | 2.8 | % |
| Total | Total | $ | 19,148 | | | 100.0 | % | | $ | 19,860 | | | 100.0 | % | Total | $ | 17,040 | | | 100.0 | | 100.0 | % | | $ | 19,148 | | | 100.0 | | 100.0 | % |
| Percentage of cash and invested assets | Percentage of cash and invested assets | 7.3 | % | | | | 6.8 | % | | |
See Notes 1, 5, 78, 10 and 811 of the Notes to the Consolidated Financial Statements for information regarding freestanding derivatives with positive estimated fair values, funds withheld, which is comprised primarily of affiliated funds withheld, annuities funding structured settlement claims, affiliated investments, tax credit and renewable energy partnerships, affiliated investments, annuities funding structured settlement claims, FVO Securities,securities, leveraged and direct financing leases, Federal Home Loan Bank of New York (“FHLBNY”) common stock, our operating joint venture and equity securities, as well as gains (losses) on disposalssecurities.
Investment Commitments
We enter into the following commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See Note 1619 of the Notes to the Consolidated Financial Statements for the amount of our unfunded investment commitments at December 31, 20222023 and 2021.2022. See “Net Investment Income” and “Net Investment Gains (Losses)” in Note 710 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments and the liability for credit loss for unfunded mortgage loan commitments. See also “— Fixed Maturity Securities AFS,” “— Mortgage Loans,” “— Real Estate and Real Estate Joint Ventures” and “— Other Limited Partnership Interests.”
Derivatives
Overview
We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives, such as market standard purchased and written credit default swap contracts. See Note 811 of the Notes to the Consolidated Financial Statements for:
•A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks.
•Information about the primary underlying risk exposure, gross notional amount, and estimated fair value of our derivatives by type of hedge designation, excluding embedded derivatives held at December 31, 20222023 and 2021.2022.
•The statement of operations effects of derivatives in cash flow, fair value, or nonqualifying hedge relationships for the years ended December 31, 2023, 2022 2021 and 2020.2021.
We enter into market standard purchasedSee “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and written credit default swap contracts. Payout under such contracts is triggered by certain credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typicallyassumptions that affect derivatives. See also include involuntary restructuring. With respect to credit default contracts on sovereign debt, credit events typically include failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives Determinations Committee, determines that a credit event has occurred.
We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments they are hedging, which gives us more flexibility in managing our credit exposures. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.
See “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures — Hedging Activities” for more information about our use of derivatives by major hedge program.
Net Derivative Gains (Losses)
Fair Value Hierarchy
See Note 9 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.
The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income.
Derivatives categorized as Level 3 at December 31, 2022 include: interest rate forwards with maturities which extend beyond the observableA portion of the yield curve and credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations. At December 31, 2022, 1% of the estimated fair value of our derivatives was priced through independent broker quotations.
See Note 9 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements forare designated and qualify as accounting hedges, which reduce volatility in earnings. For those derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect derivatives.
Credit Risk
See Note 8 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.
Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy appliesdesignated as accounting hedges, changes in market factors lead to the recognition of derivatives on the consolidated balance sheets and does not affect our legal right of offset.
Credit Derivatives
The following table presents the gross notional amount and estimated fair value of credit default swaps at:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Credit Default Swaps | | Gross
Notional
Amount | | Estimated
Fair Value | | Gross
Notional
Amount | | Estimated
Fair Value |
| | (In millions) |
| Purchased | | $ | 843 | | | $ | 16 | | | $ | 956 | | | $ | 4 | |
| Written | | 9,074 | | | 87 | | | 6,074 | | | 99 | |
| Total | | $ | 9,917 | | | $ | 103 | | | $ | 7,030 | | | $ | 103 | |
__________________
The following table presents the gross gains, gross losses and net gains (losses) recognizedchanges in net derivative gains (losses) for credit default swaps as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 |
| Credit Default Swaps | | Gross
Gains | | Gross
Losses | | Net
Gains
(Losses) | | Gross
Gains | | Gross
Losses | | Net
Gains
(Losses) |
| | (In millions) |
| Purchased (1) | | $ | 47 | | | $ | (3) | | | $ | 44 | | | $ | 8 | | | $ | (6) | | | $ | 2 | |
| Written (1) | | 40 | | | (106) | | | (66) | | | 34 | | | (11) | | | 23 | |
| Total | | $ | 87 | | | $ | (109) | | | $ | (22) | | | $ | 42 | | | $ | (17) | | | $ | 25 | |
__________________
(1)Gains (losses) do not include earned income (expense) on credit default swaps.
The unfavorable changegenerally without an offsetting gain or loss recognized in net gains (losses) on written credit default swaps was $89 millionearnings for the year ended December 31, 2022item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions.
Certain variable annuity products with guaranteed minimum benefits are accounted for as compared to the year ended December 31, 2021 due to certain credit spreads on certain credit default swaps used as replications widening in the current period and narrowing in the prior period.
The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAICMRBs and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long-dated corporate bond, we have more flexibility in managing our credit exposures.
Collateral for Derivatives
We enter into derivatives to manage various risks relating to our ongoing business operations. We receive non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not reflected on our consolidated balance sheets. The amounts of this non-cash collateral were $1.4 billion and $814 millionmeasured at estimated fair value, at December 31, 2022value. We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees.
We continuously review and 2021, respectively. See “— Liquidityrefine our hedging strategy in light of changing economic and Capital Resources — Liquidity and Capital Uses — Pledged Collateral” and Note 8 of the Notes to the Consolidated Financial Statements for information regarding the earned income onmarket conditions, evolving NAIC and the gross notional amount, estimated fair value of assetsNYDFS statutory requirements and liabilities and primary underlying risk exposureaccounting rule changes. As a part of our derivatives.
Embedded Derivatives
See Notes 8 and 9 ofcurrent hedging strategy, we maintain portfolio level derivatives in our macro hedge program. These macro hedge program derivatives mitigate the Notes to the Consolidated Financial Statements for information about embedded derivatives.potential deterioration in our capital positions from significant adverse economic conditions.
See “— SummaryResults of Critical Accounting EstimatesOperations — Derivatives”Consolidated Results” for further information onan analysis of the estimates and assumptions that affect embedded derivatives.year-over-year changes in net derivative gains (losses).
Liquidity and Capital Resources
Overview
This discussion should be read in conjunction with the following sections included elsewhere herein for additional information regarding the topics noted below:
•Notes to the Consolidated Financial Statements:
◦Note 4 (funding agreements, reported in policyholder account balances (“PABs”), and the related pledged collateral);
◦Note 14 (long-term debt, short-term debt, Credit Facility, and debt and facility covenants); and
◦Note 15 (restrictions on dividends and dividend payments).
•Risk Factors:
•“— Investment Risks — We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value”;
•“— Economic Environment and Capital Markets Risks — We May Lose Business Due to a Downgrade or a Potential Downgrade in Financial Strength or Credit Ratings”; and
•“— Economic Environment and Capital Markets Risks — We May Not Meet Our Liquidity Needs, Access Capital, or May Face Significantly Increased Cost of Capital Due to Adverse Capital and Credit Market Conditions.”
Our business and results of operations are materially affected by conditions in the global financial markets and the economy generally due to our large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors. Changing conditions in the global financial markets and the economy may affect our financing costs and market interest for our debt securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, see “— Investments — Current Environment.”
Liquidity Management
Based upon the strength of our franchise, diversification of our businesses, strong financial fundamentals and the substantial funding sources available to us as described herein, we continue to believe we have access to ample liquidity to meet business requirements under current market conditions and reasonably possible stress scenarios. We continuously monitor and adjust our liquidity and capital plans for Metropolitan Life Insurance Company and its subsidiaries in light of market conditions, as well as changing needs and opportunities.
Short-term Liquidity and Liquid Assets
We maintain a substantialAn integral part of our liquidity management includes managing our level of liquid assets. At December 31, 2023 and 2022, our short-term liquidity position which was $4.1 billion and $6.0 billion, respectively, and $1.8liquid assets were $67.1 billion at December 31, 2022 and 2021,$74.0 billion, respectively.
Short-term liquidity includes cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise committed, including amounts received in connection with securities lending, repurchase agreements, derivatives, and secured borrowings, as well as amounts held in the closed block.
Liquid Assets
An integral part of our liquidity management includes managing our level of liquid assets, which was $74.0 billion and $87.6 billion at December 31, 2022 and 2021, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, repurchase agreements, derivatives, regulatory deposits, funding agreements and secured borrowings, as well as amounts held in the closed block.
Liquidity
Liquidity refers to the ability to generate adequate amounts of cash to meet our needs. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which include various scenarios of the potential risk of early contractholder and policyholder withdrawal. We include provisions limiting withdrawal rights on many of our products, including general account pension products sold to employee benefit plan sponsors. Certain of these provisions prevent the customer from making withdrawals prior to the maturity date of the product. In the event of significant cash requirements beyond anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternatives include cash flows from operations, sales of liquid assets and global funding sources, including commercial paper and the Credit Facility.
Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. A downgrade in our insurer financial strength or credit ratings, or the credit ratings or insurer financial strength ratings of MetLife, Inc. or its other subsidiaries could also negatively affect our liquidity. See “— Rating Agencies.” If we require significant amounts of cash on short notice in excess of anticipated cash requirements or if we are required to post or return cash collateral in connection with derivatives or our securities lending program, we may have difficulty selling investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both. In addition, in the event of such forced sale, for securities in an unrealized loss position, realized losses would be incurred on securities sold and impairments would be incurred, if there is a need to sell securities prior to recovery, which may negatively impact our financial condition. See “Risk Factors — Investment Risks — We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value.”
All general account assets within a particular legal entity, — other than those which may have been pledged to a specific purpose, — are generally available to fund obligations of the general account of that legal entity.
Capital
We manage our capital position to maintain our financial strength and credit ratings. See “— Rating Agencies” for information regarding such ratings. Our capital position is supported by our ability to generate strong cash flows within our operating companies and borrow funds at competitive rates, as well as by our demonstrated ability to raise additional capital to meet operating and growth needs despite adverse market and economic conditions.
Statutory Capital and Dividends
Metropolitan Life Insurance Company has statutory surplus well above levels to meet current regulatory requirements.
RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These rules apply to Metropolitan Life Insurance Company. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statement filed with insurance regulators, the total adjusted capital of Metropolitan Life Insurance Company was in excess of each of those RBC levels.
The amount of dividends that Metropolitan Life Insurance Company can pay to MetLife, Inc. is constrained by the amount of surplus Metropolitan Life Insurance Company holds to maintain its ratings and provides an additional margin for risk protection and investment in its businesses. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions to MetLife, Inc. by Metropolitan Life Insurance Company is governed by insurance laws and regulations. See “Business — Regulation — State Insurance Regulation” and Note 12 of the Notes to the Consolidated Financial Statements.Regulation.”
Affiliated Captive Reinsurance Transactions
Metropolitan Life Insurance Company cedes specific policy classes, including ordinary life insurancecertain products to two affiliated U.S. captive reinsurers and participating whole life insurance, to a wholly-owned subsidiary, Missouri Reinsurance, Inc. (“MoRe”). The results of these transactions are eliminated within our consolidated results of operations. MetLife, Inc. has also provided a guarantee of MoRe’s payment obligations in a retrocession agreement entered into by MoRe. In addition, Metropolitan Life Insurance Company cedes specific policy classes, including term life insurance, universal life insurance and ordinary and industrial life insurance, to other affiliated captive reinsurers. MetLife, Inc. has committed to maintain the surplus of the other affiliated captive reinsurers, as well as provide a guarantee of one such captive reinsurer’s repayment obligations on letters of credit issued by unaffiliated financial institutions. The statutory reserves of such affiliated captive reinsurers are supported by a combination of funds withheld assets, investment assets and the letters of credit. We enter into reinsurance agreements with affiliated captive reinsurersnon-U.S. reinsurer for risk and capital management purposes, as well as to manage statutory reserve requirements relatedrequirements. The reinsurance ceded to universal life and term life insurance policies and other business.the wholly-owned non-U.S. reinsurer is eliminated within our consolidated results of operations.
The NYDFS continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any states other than New York implementing such a moratorium. While such a moratorium would not impact our existing reinsurance agreements withOur affiliated U.S. captive reinsurers a moratorium placed onare licensed under the useSpecial Purpose Financial Captive law adopted by their states of captives for new reserve financing transactions could impact our ability to write certain products and/or impact our RBC ratiodomicile, including Vermont and ability to deploy excess capital in the future. This could result in our need to increase prices, modify product features or limit the availability of those products to our customers. While this affects insurers across the industry, it could adversely impact our competitive position and our results of operations in the future. We continue to evaluate product modifications, pricing structure and alternative means of managing risks, capital andSouth Carolina. The statutory reserves of the affiliated ceding companies are supported by a combination of funds withheld assets, investment assets and we expectletters of credit issued by unaffiliated financial institutions. MetLife, Inc. has entered into various support agreements in connection with the discontinued useactivities of these U.S. captive reinsurance on new reserve financing transactions would not havereinsurers.
Our wholly-owned non-U.S. reinsurer is licensed as an insurance company under the laws of the Cayman Islands. MetLife, Inc. has agreed to guarantee certain of the obligations of this non-U.S. reinsurer under a material impact on our future consolidated financial results. retrocession agreement with a third party.
See Note 58 of the Notes to the Consolidated Financial Statements for further information on our reinsurance activities.
Rating Agencies
Rating agencies assign insurer financial strength and credit ratings to Metropolitan Life Insurance Company and MetLife, Inc.’s other insurance subsidiaries, as well as credit ratings to MetLife, Inc. Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms. Insurer financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated independently of any other rating.
Rating agencies use an “outlook statement” of “positive,” “stable,” ‘‘negative’’ or “developing” to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a “stable” outlook to indicate that the rating is not expected to change; however, a “stable” rating does not preclude a rating agency from changing a rating at any time, without notice. Certain rating agencies assign rating modifiers such as “CreditWatch” or “under review” to indicate their opinion regarding the potential direction of a rating. These ratings modifiers are generally assigned in connection with certain events such as potential mergers, acquisitions, dispositions or material changes in a company’s results, in order for the rating agency to perform its analysis to fully determine the rating implications of the event.
Our insurer financial strength ratings at the date of this filing are indicated in the following table. Outlook is stable unless otherwise indicated. Additional information about financial strength ratings can be found on the websites of the respective rating agencies.
| | | | | | | | | | | | | | | | | | | | | | | |
| A.M. Best | | Fitch | | Moody’s | | S&P |
| Ratings Structure | “A++ (Superior)” to “S (Suspended)” | | “AAA (Exceptionally Strong)” to “C (Distressed)” | | “Aaa (Highest Quality)” to “C (Lowest Rated)” | | “AAA (Extremely Strong)” to “SD (Selective Default)” or “D (Default)” |
| Metropolitan Life Insurance Company | A+ | | AA- | | Aa3 | | AA- |
| 2nd of 16 | | 4th of 19 | | 4th of 21 | | 4th of 21 |
Credit ratings indicate the rating agency’s opinion regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner. They are important factors in our overall funding profile and ability to access certain types of liquidity. The level and composition of regulatory capital of Metropolitan Life Insurance Company are among the many factors considered in determining our insurer financial strength ratings and credit ratings. Each agency has its own capital adequacy evaluation methodology, and assessments are generally based on a combination of factors. In addition to heightening the level of scrutiny that they apply to insurance companies, rating agencies have increased and may continue to increase the frequency and scope of their credit reviews, may request additional information from the companies that they rate and may change the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.
A downgrade in our insurer financial strength or credit ratings, or the credit ratings or insurer financial strength ratings of MetLife, Inc. or its other subsidiaries would likelycould adversely impact us in the following ways, including:
•impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our RIS business;
•impact the cost and availability of financing for MetLife, Inc. and its subsidiaries, including Metropolitan Life Insurance Company; and
•result in additional collateral requirements or other required payments under certain agreements, which are eligible to be satisfied in cash or by posting investments held by the entities subject to the agreements. See “— Liquidity and Capital Uses — Pledged Collateral.”
See also “Risk Factors — Economic Environment and Capital Markets Risks — We May Lose Business Due to a Downgrade or a Potential Downgrade in Financial Strength or Credit Ratings.”us.
Summary of Primary Sources and Uses of Liquidity and Capital
Our primary sources and uses of liquidity and capital are summarized as follows:
| | Years Ended December 31, |
| 2022 | | 2021 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 |
| (In millions) | | | (In millions) |
| Sources: | Sources: | |
| Operating activities, net | |
| Operating activities, net | |
| Operating activities, net | Operating activities, net | $ | 4,667 | | | $ | 3,257 | |
| Investing activities, net | Investing activities, net | 3,498 | | | — | |
| Net change in policyholder account balances | Net change in policyholder account balances | 5,266 | | | — | |
| Net change in payables for collateral under securities loaned and other transactions | — | | | 1,744 | |
| Long-term debt issued | Long-term debt issued | 64 | | | 35 | |
| Financing element on certain derivative instruments and other derivative related transactions, net | 308 | | | 173 | |
| Derivatives with certain financing elements and other derivative related transaction, net | |
| Effect of change in foreign currency exchange rates on cash and cash equivalents balances | |
| Total sources | Total sources | 13,803 | | | 5,209 | |
| Uses: | Uses: | | | |
| Investing activities, net | — | | | 875 | |
| Net change in policyholder account balances | |
| Net change in policyholder account balances | |
| Net change in policyholder account balances | Net change in policyholder account balances | — | | | 2,249 | |
| Net change in payables for collateral under securities loaned and other transactions | Net change in payables for collateral under securities loaned and other transactions | 10,695 | | | — | |
| Long-term debt repaid | Long-term debt repaid | 57 | | | 26 | |
| Dividends paid to MetLife, Inc. | Dividends paid to MetLife, Inc. | 3,539 | | | 3,393 | |
| Other, net | Other, net | 57 | | | 42 | |
| Effect of change in foreign currency exchange rates on cash and cash equivalents balances | Effect of change in foreign currency exchange rates on cash and cash equivalents balances | 7 | | | 4 | |
| Total uses | Total uses | 14,355 | | | 6,589 | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | $ | (552) | | | $ | (1,380) | |
Cash Flows from Operations
The principal cash inflows from our insurance activities come from insurance premiums, net investment income, annuity considerations and deposit funds. The principal cash outflows are the result of various life insurance, annuity and pension products, operating expenses and income tax, as well as interest expense.
Cash Flows from Investments
The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of investments and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. We typically have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process.
Cash Flows from Financing
The principal cash inflows from our financing activities come from issuances of debt, deposits of funds associated with policyholder account balancesPABs and lending of securities. The principal cash outflows come from repayments of debt, payments of dividends on Metropolitan Life Insurance Company’s common stock, withdrawals associated with policyholder account balancesPABs and the return of securities on loan.
Liquidity and Capital Sources
In addition to the general description of liquidityLiquidity and capital sources in “— Summary of Primary Sources and Uses of Liquidity and Capital,” the Company’s primary sources of liquidity and capital are set forth below.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, includingincluding: (i) short-term debt, which includes commercial paper; (ii) long-term debt; (iii) PABs, which includes funding agreements,agreements; and (iv) the Credit FacilityFacility. Additional details regarding certain of our primary sources of liquidity and commercial paper. Capital is provided by a variety of global funding sources, including short-termcapital are included in the Notes to the Consolidated Financial Statements referenced in “— Overview” and long-term debt. are discussed below.
The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:
Commercial Paper, Reported in Short-term Debt
MetLife Funding and MetLife, Inc. each have a commercial paper program that is supported by the Credit Facility (see “— Credit Facility”). MetLife Funding raises cash from its commercial paper program and uses the proceeds to extend loans through MetLife Credit Corp., another subsidiary of Metropolitan Life Insurance Company, to affiliates in order to enhance the financial flexibility and liquidity of these companies.
Policyholder Account Balances
See Notes 1 and 3 of the Notes to the Consolidated Financial Statements for a description of the components of policyholder account balances. See “— Liquidity and Capital Uses — Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations related to future policy benefits and policyholder account balances.
The sum of the estimated cash flows of $106.4 billion ($25.4 billion of which are estimated to occur in one year or less) exceeds the liability amount of $100.0 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.
The estimated cash flows represent cash payments undiscounted as to interest and including assumptions related to the receipt of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization; mortality; future interest credited; policy loans and other contingent events as appropriate for the respective product type. Such estimated cash payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For obligations denominated in foreign currencies, cash payments have been estimated using current spot foreign currency rates.
FHLBNY Funding Agreements, Reported in Policyholder Account Balances
Metropolitan Life Insurance Company is a member of FHLBNY. For the years ended December 31, 2022 and 2021, we issued $27.1 billion and $31.7 billion, respectively, and repaid $28.3 billion and $32.2 billion, respectively, of funding agreements with FHLBNY. At December 31, 2022 and 2021, total obligations outstanding under these funding agreements were $13.5 billion and $14.7 billion, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
Special Purpose Entity Funding Agreements, Reported in Policyholder Account Balances
We issue fixed and floating rate funding agreements which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. For the years ended December 31, 2022 and 2021, we issued $45.8 billion and $39.5 billion, respectively, and repaid $44.9 billion and $41.2 billion, respectively, under such funding agreements. At December 31, 2022 and 2021, total obligations outstanding under these funding agreements were $38.2 billion and $37.2 billion, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
Federal Agricultural Mortgage Corporation Funding Agreements, Reported in Policyholder Account Balances
We have issued funding agreements to a subsidiary of Federal Agricultural Mortgage Corporation, which are secured by a pledge of certain eligible agricultural mortgage loans. For the years ended December 31, 2022 and 2021, we issued $625 million and $425 million, respectively, and repaid $625 million and $750 million, respectively, under such funding agreements. At both December 31, 2022 and 2021, total obligations outstanding under these funding agreements were $2.1 billion. See Note 3 of the Notes to the Consolidated Financial Statements.
Credit Facility
See Note 11 of the Notes to the Consolidated Financial Statements for information on the Credit Facility.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under this facility.our Credit Facility. As commitments under the Credit Facilitythis facility may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.
Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt at:
| | December 31, |
| 2022 | | 2021 |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| (In millions) | | | (In millions) |
| Short-term debt | Short-term debt | $ | 99 | | | $ | 100 | |
| Long-term debt (1) | Long-term debt (1) | $ | 1,676 | | | $ | 1,659 | |
______________
(1)Includes $438$437 million and $482$438 million of long-term debt that is non-recourse to the Company, subject to customary exceptions, at December 31, 20222023 and 2021,2022, respectively. Certain investment subsidiaries have pledged assets to secure this debt.
Debt and Facility Covenants
Certain of our debt instruments and the Credit Facility contain various administrative, reporting, legal and financial covenants. We believe we were in compliance with all applicable financial covenants at December 31, 2022.2023.
Liquidity and Capital Uses
In addition to the general descriptionThe primary uses of liquidity and capital uses in “— Summaryinclude: (i) dividends on common stock to MetLife, Inc.; (ii) debt repayments; (iii) contractual obligations, including PABs and insurance liabilities; (iv) pledged collateral; and (v) securities lending transactions and repurchase agreements. Additional details regarding certain of Primary Sources and Uses of Liquidity and Capital,” the Company’sour primary uses of liquidity and capital are set forth below.
Dividends
For the years ended December 31, 2022 and 2021, Metropolitan Life Insurance Company paid cash dividends to MetLife, Inc. of $3.5 billion and $3.4 billion, respectively. See Note 12 of the Notes to the Consolidated Financial Statements.
Debt Repayments
See Note 11 ofincluded in the Notes to the Consolidated Financial Statements for information on long-termreferenced in “— Overview” and short-term debt.are discussed below.
Support Agreements
Metropolitan Life Insurance Company is a party to a capital support commitment with its subsidiary, MetLife Funding. Under the arrangement, Metropolitan Life Insurance Company has agreed to cause such entity to meet specified capital requirements. We anticipate that in the event this arrangement places demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands.
Pledged Collateral
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives and funding agreements. See Note 11 of the Notes to the Consolidated Financial Statements for information regarding derivatives.
Securities Lending Transactions and Repurchase Agreements
See “— Investments — Securities Lending Transactions and Repurchase Agreements.”
Contractual Obligations
Policyholder Account Balances
See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a description of the components of PABs, including obligations under funding agreements. See “— Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations related to FPBs and PABs.
The sum of the estimated cash flows of $146.7 billion ($32.8 billion of which are estimated to occur in one year or less) exceeds the liability amount of $103.9 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.
The estimated cash flows represent cash payments undiscounted as to interest and including assumptions related to the receipt of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization; mortality; future interest credited; policy loans and other contingent events as appropriate for the respective product type. Such estimated cash payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For obligations denominated in foreign currencies, cash payments have been estimated using current spot foreign currency rates.
Insurance Liabilities
Insurance liabilities include future policy benefits,FPBs, MRBs, at estimated fair value, other policy-related balances, and policyholder dividends payable, and the policyholder dividend obligation, which are all reported on the consolidated balance sheet and are more fully described in Notes 1, 3 and 35 of the Notes to the Consolidated Financial Statements. The sum of the estimated cash flows of $244.9$222.5 billion ($13.415.7 billion of which are estimated to occur in one year or less) exceeds the liability amounts of $141.8$140.6 billion included on the consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions, or which are not contractually due, which are excluded.
The estimated cash flows reflect future estimated cash payments and (i) are based on mortality, morbidity, lapse and other assumptions comparable with our experience and expectations of future payment patterns; and (ii) consider future premium receipts on current policies in-force. Estimated cash payments are undiscounted as to interest, net of estimated future premiums on in-force policies and gross of any reinsurance recoverable. Payment of amounts related to policyholder dividends left on deposit are projected based on assumptions of policyholder withdrawal activity.
Actual cash payments may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments.
For the majority of our insurance operations, estimated contractual obligations for future policy benefitsFPBs and policyholder account balancesPABs are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state regulatory purposes. These cash flows are materially representative of the cash flows under GAAP. See “— Liquidity and Capital Sources — Global Funding Sources — Policyholder Account Balances.”
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, annuity and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender or lapse behavior differs somewhat by segment. In the MetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. For the years ended December 31, 20222023 and 2021,2022, general account surrenders and withdrawals from annuity products were $1.5$1.9 billion and $1.3$1.5 billion, respectively. In the RIS business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the RIS business products that provide customers with limited rights to accelerate payments, at December 31, 2022,2023, there were funding agreements totaling $127$124 million that could be put back to the Company.
Pledged Collateral
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2022 and 2021, we had received pledged cash collateral from counterparties of $4.3 billion and $6.6 billion, respectively. At December 31, 2022 and 2021, we had pledged cash collateral to counterparties of $2 million and $0, respectively. See Note 8 of the Notes to the Consolidated Financial Statements.
We also pledge collateral from time to time in connection with funding agreements. See Note 3 of the Notes to the Consolidated Financial Statements.
Securities Lending Transactions and Repurchase Agreements
See “— Investments — Securities Lending Transactions and Repurchase Agreements.”
Litigation
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts accrued, when such an estimate can be made. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods. See Note 16 of the Notes to the Consolidated Financial Statements.
Adopted Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Future Adoption of Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business.
The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
| | | | | | | | | | | |
| Non-GAAP financial measures: | Comparable GAAP financial measures: |
| (i) | adjusted premiums, fees and other revenues | (i) | premiums, fees and other revenues |
| (ii) | adjusted earnings | (ii) | net income (loss) |
| (iii) | adjusted net investment income | (iii) | net investment income |
Reconciliations of these non-GAAP financial measures to the most directly comparable historical GAAP financial measures are included in “— Results of Operations” and “— Investments.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable effort to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income.
Our definitions of non-GAAP and other financial measures discussed in this report may differ from those used by other companies.
Adjusted earnings
This measure is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings allows analysis of our performance and facilitates comparisons to industry results.
The adoption of LDTI impacted the Company’s calculation of adjusted earnings. With the adoption of LDTI, the measurement model was simplified for DAC and VOBA, and most embedded derivatives were reclassified as MRBs. As a result, the Company updated its calculation of adjusted earnings to remove certain adjustments related to the amortization of DAC, VOBA and related intangibles and adjusted for changes in measurement of certain guarantees. Under LDTI, adjusted earnings excludes changes in fair value associated with MRBs, changes in discount rates on certain annuitization guarantees, losses at contract inception for certain single premium business, and asymmetrical accounting associated with in-force reinsurance. All periods presented herein reflect the updated calculation of adjusted earnings.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax. Adjusted loss is defined as negative adjusted earnings. For additional information relating to adjusted revenues and adjusted expenses,earnings, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.
The following additional information is relevant to an understanding of our performance results:
•We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity.
•Near-term represents one to three years.
•Allocated equity is the portion of common stockholders’stockholder’s equity that MetLife’s management allocates to each of its segments and sub-segments based on local capital requirements and economic capital. See “— Risk Management — Economic Capital.”
Risk Management
MetLife has an integrated process for managing risk, that is supported by a Risk Appetite Statement approved by the MetLife, Inc. Board of Directors (the “Board” or “Board of Directors”).Directors. Risk management is overseen and conducted through multiple Board and senior management risk committees (financial and non-financial). The risk committees are established at the enterprise and local levels, as needed, to oversee capital and risk positions, approve ALM strategies and limits, and establish certain corporate risk standards and policies. The risk committees are comprised of senior leaders from the lines of business and corporate functions which ensures comprehensive coverage and sharing of risk reporting. The Enterprise Risk Committee (“ERC”)ERC is responsible for reviewing all material risks impacting the enterprise and deciding on actions, if necessary, in the event risks exceed desired tolerances, taking into consideration industry best practices and the current environment to resolve or mitigate those risks.
Three Lines of Defense
MetLife operates under the “Three Lines of Defense” model. Under this model, the lines of business and corporate functions are the first and primary line of defense in identifying, measuring, monitoring, managing, and reporting risks. Global Risk Management forms the second line of defense providing strategic advisory services and effective challenge and oversight to the business and corporate functions in the first line of defense. Internal Audit serves as the third line of defense, providing independent assurance and testing over the risk and control environment and related processes and controls.
Global Risk Management
Independent from the lines of business, the centralized Global Risk Management department, led by the Chief Risk Officer (“CRO”),CRO, coordinates across all risk committees to ensure that all material risks are properly identified, measured, monitored, managed and reported across the Company. The CRO reports to the Chief Executive Officer (“CEO”) and is primarily responsible for maintaining and communicating the Company’s enterprise risk policies and for monitoring and analyzing all material risks.
Global Risk Management considers and monitors a full range of risks relating to the Company’s solvency, liquidity, earnings, business operations and reputation. Global Risk Management’s primary responsibilities consist of:
•implementing an enterprise risk framework, which outlines our enterprise approach for managing financial and non-financial risk;
•developing policies and procedures for identifying, measuring, monitoring, managing and reporting those risks identified in the enterprise risk framework;
•coordinating Own Risk Solvency Assessment for Board, senior management and regulator use;
•establishing appropriate corporate risk tolerance levels;
•measuring capital on an economic basis;
•mitigating compliance risk and establishing controls;
•integrating climate risk into MetLife’s risk management framework and developing impact assessment capabilities; and
•reporting to (i) the Finance and Risk Committee of MetLife, Inc.’s Board of Directors; (ii) the Compensation Committee of MetLife, Inc.’s Board of Directors; and (iii) the financial and non-financial senior management committees on various aspects of risk.
Key Risk Types
MetLife has defined each material risk to which it is exposed and has established individual frameworks to monitor, manage and report on the respective risk.
•Market Risk: is the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuations in financial market, real estate, and other economic factors. Market risk is comprised of interest rate risk, equity risk, foreign currency exchange rate risk, spread risk and inflation risk.
•Credit Risk: is the risk of loss or credit rating downgrade arising from an obligor or counterparty with a direct or contingent financial obligation to MetLife that is either unable or unwilling to meet its obligation in full and on a timely basis. These risks arise from public fixed income assets, private loans including real estate, derivative transactions, bank deposits, reinsurance treaties and other similar contracts.
•Insurance Risk: is the risk of loss or adverse change in insurance liabilities from changes in the level, trend, and volatility of insurance and policyholder behavior experience varying from best estimate assumptions. These variances can be driven by catastrophic events such as pandemics or can be the result of misestimating base assumptions. Insurance risks to MetLife generally arise from mortality, morbidity, longevity, and policyholder behavior.
•Non-Financial Risk: is the risk of failed or inadequate internal processes, human errors, system errors or external events that may result in financial loss, non-financial damage, and/or non-compliance with applicable laws and regulations. Non-Financial risk captures operational and compliance risks, including risks such as business interruption, customer protection, financial crime, privacy, fraud and theft, and information security risk.
•Liquidity Risk: refers to the risk that MetLife is unable to raise cash necessary to meet current obligations.
Economic Capital
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital can be deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in MetLife’s and the Company’s business. MetLife’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards. The adoption of LDTI resulted in changes to the economic capital model. The changes related to this adoption do not represent a change in the composition of the segments and in accordance with GAAP guidance for segment reporting, the Company will apply the changes to the economic capital model prospectively and did not update the economic capital model for 2022 and 2021. For further information, see “Financial Measures and Segment Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements.
Asset/Liability Management
MetLife actively manages our assets using an approach that is liability driven and balances quality, diversification, asset/liability matching, liquidity, concentration and investment return. The goals of the investment process are to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring that the assets and liabilities are reasonably aligned on a cash flow and duration basis. The ALM process is the shared responsibility of the ALM, Global Risk Management, and Investments departments, with the engagement of senior members of the business segments and Finance, and is governed by the ALM Committees. The ALM Committees’ duties include reviewing and approving investment guidelines and limits, approving significant portfolio and ALM strategies and providing oversight of the ALM process. The directives of the ALM Committees are carried out and monitored through ALM Working Groups which are set up to manage risk by geography, product or portfolio type. The ALM Steering Committee oversees the activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee reports to the ERC.
MetLife establishes portfolio guidelines that define ranges and limits related to asset allocation, interest rate risk, liquidity, concentration and other risks for each major business segment, legal entity or insurance product group. These guidelines support implementation of investment strategies used to adequately fund our liabilities within acceptable levels of risk. MetLife also establishes hedging programs and associated investment portfolios for different blocks of business. The ALM Working Groups monitor these strategies and programs through regular review of portfolio metrics, such as effective duration, yield curve sensitivity, convexity, value at risk, market sensitivities (to interest rates, equity market levels, equity volatility, foreign currency exchange rates and inflation), stress scenario payoffs, liquidity, asset sector concentration and credit quality.
MetLife manages credit risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. MetLife also manages credit, market valuation and liquidity risk through industry and issuer diversification and asset allocation limits. These risk limits, approved annually by the Investment Risk Committee, promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure, as measured by our economic capital framework. For real estate assets, MetLife manages credit and market risk through asset allocation limits and by diversifying by geography, property and product type.
Information Security Risk Management
MetLife managesFor details on information security risk through MetLife’s Information Security Program (the “Program”), which is overseen by our enterprise Chief Information Security Officer (“CISO”), with collaboration across lines of businesses and corporate functions. The CISO is a senior-level executive responsible for establishing and executing the company’s information security strategy; the CISO regularly reports about information security risk to the ERC, the Audit Committee of MetLife, Inc. (“Audit Committee”) and the Board. The primary goal of the Program is to protect information and technology assets through physical, technical, and administrative safeguards. This includes monitoring, reporting, managing and remediating cyber threats. The Program aims to prevent data exfiltration, manipulation, and destruction, as well as system and transactional disruption. The Program’s threat-centric and risk-based approach for securing the MetLife environment is based on the cybersecurity framework developed by the U.S. Government’s National Institute of Standards and Technology.management see “Cybersecurity.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following discussion on market risk should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”
Market Risk Exposures
We regularly analyze our exposure to interest rate, foreign currency exchange rate and equity market price risk. As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are materially exposed to changes in interest rates, foreign currency exchange rates and equity markets. We have exposure to market risk through our insurance operations and investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuation in the financial marketmarkets and other economic factors.
Interest Rates
Our exposure to interest rate changes results most significantly from our holdings of fixed maturity securities AFS, mortgage loans, and derivatives, as well asand our interest rate sensitive liabilities. The fixedFixed maturity securities AFS include U.S. and foreign government bonds, securities issued by government agencies, corporate bonds, mortgage-backed securities and ABS & CLO, all of which are mainly exposed to changes in medium- and long-term interest rates. The interest rate sensitive liabilities for purposes of this disclosure include debt, policyholder account balancesFPBs, PABs related to certain investment type contracts, debt and embedded derivatives onMRBs primarily consisting of variable annuities with guaranteed minimum benefits which have the same type of interest rate exposure (medium- and long-term interest rates) as fixed maturity securities AFS. The interest rate sensitive liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. See “Risk Factors — Economic Environment and Capital Markets Risks — We May Face Difficult Economic Conditions.”
Foreign Currency Exchange Rates
Our exposure to fluctuations in foreign currency exchange rates against the U.S. dollar results most significantly from our holdings in non-U.S. dollar denominated fixed maturity and equity securities, mortgage loans, and certaininsurance liabilities. The foreign currency exchange rate liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. The principal currencies that create foreign currency exchange rate risk in our investment portfolios and insurance liabilities are the Japanese yen, the Euro and the British pound. We hedge foreign currency exchange rate risk with foreign currency swaps, forwards and options.
Equity Market
Along with investments in equity securities and FVO securities, we have exposure to equity market risk through certain liabilities that involve long-term guarantees on equity performance, such as embedded derivatives onMRBs for variable annuities with guaranteed minimum benefits and certain policyholder account balances.PABs. Equity exposures associated with real estate and limited partnership interests are excluded from this discussion as they are not considered financial instruments under GAAP.discussion.
Management of Market Risk Exposures
We use a variety of strategies to manage interest rate, foreign currency exchange rate and equity market risk, including the use of derivatives.
Interest Rate Risk Management
To managesupport management of interest rate risk, we analyze interest rate riskperform analysis using various models, including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivatives. These projections involve evaluating the potential gain or loss on most of our in-force business under various increasing and decreasing interest rate environments. The NYDFS regulations require that we perform some of these analyses annually as part of our review of the sufficiency of our regulatory reserves. We maintain segmented operating and surplus asset portfolios for the purpose of ALM and the allocation of investment income to product lines. In the U.S., for each segment, invested assets greater than or equal to the GAAP liabilities, net of certain non-invested assets allocated to the segment, are maintained, with any excess allocated to Corporate & Other. The business segments may reflect differences in legal entity, statutory line of business and any product market characteristic which may drive a distinct investment strategy with respect to duration, liquidity or credit quality of the invested assets.
We measure relative sensitivities of the value of our assets and liabilities to changes in key assumptions utilizing internal models. These models reflect specific product characteristics and include assumptions based on current and anticipated experience regarding lapse, mortality, morbidity and interest crediting rates. In addition, these models include asset cash flow projections reflecting interest payments, sinking fund payments, principal payments, bond calls, mortgage loan prepayments and defaults.
We employ product design, pricing and ALM strategies to reduce the potential effects of interest rate movements. Product design and pricing strategies include the use of surrender charges or restrictions on withdrawals in some products and the ability to reset crediting rates for certain products. ALM strategies include the use of derivatives. We also use reinsurance to mitigate interest rate risk.
We also use common industry metrics, such as duration and convexity, to measure the relative sensitivity of assets and liability values to changes in interest rates. In computing the duration of liabilities, we consider policyholder guarantees and how we intend to set indeterminate policy elements such as interest credits or dividends. Each asset portfolio or portfolio group has a duration target based on the liability duration and the investment objectives of that portfolio. Where a liability cash flow may exceed the maturity of available assets, we may support such liabilities with equity investments, derivatives or interest rate curve mismatch strategies.
Foreign Currency Exchange Rate Risk Management
MetLife has a well-established policy to manage foreign currency exchange rate exposures within its risk tolerance. In general, investments backing specific liabilities are currency matched. This is achieved through direct investments in matching currency or through the use of foreign currency exchange rate derivatives. Enterprise foreign currency exchange rate risk limits are established by the ERC. Management of each of the Company’s segments, with oversight from MetLife’s FX Working Group and the ALM committee for the respective segment, is responsible for managing any foreign currency exchange rate exposure. The general authorizations of the Investment Committee of the MLIC Board of Directors also set limits on unhedged foreign currency investment exposure.
We use foreign currency swaps, forwards and options to mitigate the liability exposure, risk of loss and financial statement volatility associated with foreign currency denominated fixed income investments and the sale of certainforeign currency insurance products.liabilities.
Equity Market Risk Management
We manage equity market risk on an integrated basis with other risks through our ALM strategies, including the dynamic hedging with derivatives of certain variable annuity guarantee benefits accounted for as MRBs, as well as reinsurance, in order to limit losses, minimize exposure to large risks, and provide additional capacity for future growth. We also manage equity market risk exposure in our investment portfolio through the use of derivatives. These derivatives include exchange-traded equity futures, equity index options contracts, TRRs and equity variance swaps.
Hedging Activities
We use derivative contracts primarily to hedge a wide range of risks including interest rate risk, foreign currency exchange rate risk, and equity market risk. Derivative hedges are designed to reduce risk on an economic basis while considering their impact on financial results under different accounting regimes, including GAAP and local statutory accounting. Our derivative hedge programs vary depending on the type of risk being hedged. Some hedge programs are asset or liability specific while others are portfolio hedges that reduce risk related to a group of liabilities or assets. Our use of derivatives by major hedge programs is as follows:
•Risks Related to Guarantee Benefits — We use a wide range of derivative contracts to mitigate the risk associated with living guarantee benefits.benefits accounted for as MRBs. These derivatives include equity and interest rate futures, interest rate swaps, currency futures/forwards, equity indexed options, TRRs, interest rate option contracts and equity variance swaps.
•Minimum Interest Rate Guarantees — For certain liability contracts, we provide the contractholder a guaranteed minimum interest rate. These contracts include certain fixed annuities and other insurance liabilities. We purchase interest rate caps and floors to reduce risk associated with these liability guarantees.
•Reinvestment Risk in Long-Duration Liability Contracts — Derivatives are used to hedge interest rate risk related to certain long-duration liability contracts. Hedges include interest rate swaps, swaptions and Treasury bond forwards.
•Foreign Currency Exchange Rate Risk — We use foreign currency swaps, futures, forwards and options to hedge foreign currency exchange rate risk. These hedges are generally used to swap foreign currency denominated bonds or equity market exposures to U.S. dollars.
•General ALM Hedging Strategies — In the ordinary course of managing our asset/liability risks, we use interest rate futures, interest rate swaps, interest rate caps, interest rate floors and inflation swaps. These hedges are designed to reduce interest rate risk or inflation risk related to the existing assets or liabilities or related to expected future cash flows.
•Macro Hedge Program — We use equity options, equity TRRs, interest rate swaptions, interest rate swaps and Treasury locks to mitigate the potential loss of legal entity statutory capital under stress scenarios.
Risk Measurement: Sensitivity Analysis
We measure market risk related to our market sensitive assets and liabilities based on changes in interest rates, foreign currency exchange rates and equity market prices utilizing a sensitivity analysis. For purposes of this disclosure, a significant portion of the liabilities relating to insurance contracts is excluded, as discussed further below. This analysis estimates the potential changes in estimated fair value based on a hypothetical 100 basis point change (increase or decrease) in interest rates, as well as a 10% change (increase or decrease) in foreign currency exchange rates and equity market prices. We believe these changes in market rates and prices are reasonably possible in the near term. In performing the analysis summarized below, we used market rates at December 31, 2022.2023. The sensitivity analysis separately calculates each of our market risk exposures (interest rate, foreign currency exchange rate and equity market) relating to our assets and liabilities. We modeled the impact of changes (increases and decreases) in market rates and prices on the estimated fair values of our market sensitive assets and liabilities and present the results with the most adverse level of market risk impact to the Company for each of these market risk exposures as follows:
•the net present values of our interest rate sensitive exposures resulting from a 100 basis100-basis point change (increase or decrease) in interest rates;
•estimated fair values of our foreign currency exchange rate sensitive exposures due to a 10% change (appreciation or depreciation) in the value of the U.S. dollar compared to all other currencies; and
•the estimated fair value of our equity market sensitive exposures due to a 10% change (increase or decrease) in equity market prices.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure that our actual losses in any particular period will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis include:
•interest sensitive and foreign currency exchange rate sensitive liabilities do not include $141.6$8.3 billion at carrying value, of insurance contracts. Management believes that other policy-related balances largely consisting of claims, unearned revenue liabilities and policyholder dividends;
•the changes in the economic value of those contracts under changing interest ratesanalysis excludes real estate holdings, private equity and changing foreign currency exchange rates would offset a significant portion of the fair value changes of interest sensitive and foreign currency exchange rate sensitive assets;hedge fund holdings;
•the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgage loans;
•sensitivities do not include the impact on asset or liability valuation of changes in market liquidity or changes in market credit spreads;
•foreign currency exchange rate risk is not isolated for certain embedded derivatives within host asset and liability contracts,MRBs for variable annuities with guaranteed minimum benefits, as the risk on these instruments is reflected as equity;
•for the derivatives that qualify as hedges, and for certain other assets such as mortgage loans, the impact on reported earnings may be materially different from the change in market values;
•the analysis excludes liabilities pursuant to insurance contracts, as well as real estate holdings, private equityvalues, most notably for fixed maturity securities AFS, mortgage loans, FPBs, and derivatives that qualify for hedge fund holdings;accounting; and
•the model assumes that the composition of assets and liabilities remains unchanged throughout the period.
Accordingly, we use such models as tools and not as substitutes for the experience and judgment of our management. Based on our analysis of the impact of a 100 basis100-basis point change (increase or decrease) in interest rates, as well as a 10% change (increase or decrease) in foreign currency exchange rates and equity market prices, we have determined that such a change could have a material adverse effect on the estimated fair value of certain assets and liabilities from interest rate, foreign currency exchange rate and equity market exposures.
The table below illustrates the potential loss in estimated fair value for each market risk exposure based on market sensitive assets and liabilities at:
| | | | | |
| December 31, 20222023 |
| (In millions) |
| |
| Interest rate risk | $ | 10,4163,812 | |
| Foreign currency exchange rate risk | $ | 24765 | |
| Equity market risk | $ | 10641 | |
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The risk sensitivities derived used a 100 basis100-basis point increase to interest rates, a 10% weakening of the U.S. dollar against foreign currencies, and a 10% increasedecrease in equity prices. The potential losses in estimated fair value presented are for non-trading securities.
The table below provides additional detail regarding the potential lossgain (loss) from changes in estimated fair value of our interest sensitive financial instruments due to a 100 basis point increase in interest rates at:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Notional Amount | | Estimated
Fair
Value (1) | | Assuming a
100 bps
Increase
in Interest Rates |
| (In millions) |
| Assets | | | | | |
| Fixed maturity securities AFS | | | $ | 145,576 | | | $ | (9,145) | |
| FVO Securities | | | $ | 844 | | | (9) | |
| Mortgage loans | | | $ | 58,858 | | | (1,896) | |
| Policy loans | | | $ | 6,143 | | | (159) | |
| Short-term investments | | | $ | 2,759 | | | (53) | |
| Other invested assets | | | $ | 2,317 | | | 4 | |
| Cash and cash equivalents | | | $ | 9,405 | | | (4) | |
| Accrued investment income | | | $ | 1,949 | | | — | |
| Premiums, reinsurance and other receivables | | | $ | 12,280 | | | (518) | |
| Embedded derivatives within asset host contracts (2) | | | $ | 149 | | | — | |
| Total assets | | | | | $ | (11,780) | |
| Liabilities (3) | | | | | |
| Policyholder account balances | | | $ | 78,938 | | | $ | 1,900 | |
| Payables for collateral under securities loaned and other transactions | | | $ | 14,171 | | | — | |
| Short-term debt | | | $ | 99 | | | — | |
| Long-term debt | | | $ | 1,758 | | | 74 | |
| Other liabilities | | | $ | 12,513 | | | 760 | |
| Embedded derivatives within liability host contracts (2) | | | $ | 140 | | | 152 | |
| Total liabilities | | | | | $ | 2,886 | |
| Derivative Instruments | | | | | |
| Interest rate swaps | $ | 23,133 | | | $ | 1,553 | | | $ | (1,186) | |
| Interest rate floors | $ | 23,371 | | | $ | 114 | | | (60) | |
| Interest rate caps | $ | 46,666 | | | $ | 903 | | | 293 | |
| Interest rate futures | $ | 414 | | | $ | (1) | | | (23) | |
| Interest rate options | $ | 39,712 | | | $ | 398 | | | (174) | |
| Interest rate forwards | $ | 2,227 | | | $ | (404) | | | (178) | |
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| Synthetic guaranteed interest contracts | $ | 13,044 | | | $ | — | | | — | |
| Foreign currency swaps | $ | 34,594 | | | $ | 1,878 | | | (142) | |
| Foreign currency forwards | $ | 1,328 | | | $ | (9) | | | — | |
| | | | | |
| Credit default swaps | $ | 9,917 | | | $ | 103 | | | — | |
| Equity futures | $ | 1,063 | | | $ | 2 | | | (2) | |
| Equity index options | $ | 14,143 | | | $ | 406 | | | (45) | |
| Equity variance swaps | $ | 90 | | | $ | 4 | | | — | |
| Equity total return swaps | $ | 1,922 | | | $ | (80) | | | (5) | |
| Total derivative instruments | | | | | $ | (1,522) | |
| Net Change | | | | | $ | (10,416) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| | | | | Interest Rate Risk | | Foreign Currency Exchange Rate Risk | | Equity Market Risk |
| Notional
Amount | | Estimated Fair Value (1) | | Assuming a 100 bps Increase in Interest Rates (2) | | Assuming a 10% Depreciation in the U.S. Dollar (3) | | Assuming a 10% Decrease in Equity Prices (4) |
| (In millions) |
| Assets | | | | | | | | | |
| Fixed maturity securities (5) | | | $ | 143,551 | | | $ | (8,834) | | | $ | 1,589 | | | $ | (68) | |
| Mortgage loans | | | $ | 59,511 | | | (1,783) | | | 247 | | | — | |
| Other | | | $ | 34,428 | | | (1,995) | | | 231 | | | (47) | |
| Total assets | | | | | $ | (12,612) | | | $ | 2,067 | | | $ | (115) | |
| Liabilities | | | | | | | | | |
| Future policy benefits | | | $ | 129,182 | | | $ | 6,493 | | | $ | — | | | $ | — | |
| Policyholder account balances | | | $ | 86,093 | | | 1,875 | | | (1,440) | | | — | |
| Market risk benefits | | | $ | 2,878 | | | 900 | | | — | | | (347) | |
| Short-term and long-term debt | | | $ | 1,958 | | | 68 | | | — | | | — | |
| Other | | | $ | 23,227 | | | 694 | | | — | | | 4 | |
| Total liabilities | | | | | $ | 10,030 | | | $ | (1,440) | | | $ | (343) | |
| Derivative Instruments | | | | | | | | | |
| Interest rate | $ | 112,925 | | | $ | 1,895 | | | $ | (1,091) | | | $ | — | | | $ | — | |
| Foreign currency exchange rate | $ | 37,281 | | | $ | 1,605 | | | (95) | | | (695) | | | — | |
| Credit | $ | 10,816 | | | $ | 178 | | | (6) | | | 3 | | | — | |
| Equity market | $ | 20,556 | | | $ | (69) | | | (38) | | | — | | | 417 | |
| | | | | | | | | |
| Total derivative instruments | | | | | $ | (1,230) | | | $ | (692) | | | $ | 417 | |
| Net Change | | | | | $ | (3,812) | | | $ | (65) | | | $ | (41) | |
| Prior Year Net Change | | | | | $ | (3,102) | | | $ | (261) | | | $ | (20) | |
| Increase/(Decrease) | | | | | $ | 710 | | | $ | (196) | | | $ | 21 | |
______________
______________(1)The carrying value for FPBs, as reported on the consolidated balance sheets, was used for these sensitivities. See Note 1 of the Notes to the Consolidated Financial Statements for additional details on FPBs.
(1)(2)Separate account assets and liabilities, which are interest rate sensitive, are not included herein as any interest rate risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.contractholder.
(3)Excludes $141.6 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments resulting from a 100 basis point increase in interest rates.
Sensitivity to interest rates decreased $4.6 billion to $10.4 billion at December 31, 2022 from $15.0 billion at December 31, 2021.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% depreciation in the U.S. dollar compared to all other currencies at:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Notional Amount | | Estimated
Fair
Value (1) | | Assuming a
10% Depreciation in the U.S. Dollar |
| (In millions) |
| Assets | | | | | |
| Fixed maturity securities AFS | | | $ | 145,576 | | | $ | 1,391 | |
| FVO Securities | | | $ | 844 | | | — | |
| Mortgage loans | | | $ | 58,858 | | | 290 | |
| Policy loans | | | $ | 6,143 | | | — | |
| Short-term investments | | | $ | 2,759 | | | 78 | |
| Other invested assets | | | $ | 2,317 | | | 122 | |
| Cash and cash equivalents | | | $ | 9,405 | | | 8 | |
| Accrued investment income | | | $ | 1,949 | | | 13 | |
| Premiums, reinsurance and other receivables | | | $ | 12,280 | | | — | |
| Embedded derivatives within asset host contracts (2) | | | $ | 149 | | | 15 | |
| Total assets | | | | | $ | 1,917 | |
| Liabilities (3) | | | | | |
| Policyholder account balances | | | $ | 78,938 | | | $ | (1,251) | |
| Payables for collateral under securities loaned and other transactions | | | $ | 14,171 | | | — | |
| Long-term debt | | | $ | 1,758 | | | — | |
| Other liabilities | | | $ | 12,513 | | | — | |
| Embedded derivatives within liability host contracts (2) | | | $ | 140 | | | — | |
| Total liabilities | | | | | $ | (1,251) | |
| Derivative Instruments | | | | | |
| Interest rate swaps | $ | 23,133 | | | $ | 1,553 | | | $ | — | |
| Interest rate floors | $ | 23,371 | | | $ | 114 | | | — | |
| Interest rate caps | $ | 46,666 | | | $ | 903 | | | — | |
| Interest rate futures | $ | 414 | | | $ | (1) | | | — | |
| Interest rate options | $ | 39,712 | | | $ | 398 | | | — | |
| Interest rate forwards | $ | 2,227 | | | $ | (404) | | | — | |
| | | | | |
| Synthetic guaranteed interest contracts | $ | 13,044 | | | $ | — | | | — | |
| Foreign currency swaps | $ | 34,594 | | | $ | 1,878 | | | (804) | |
| Foreign currency forwards | $ | 1,328 | | | $ | (9) | | | (109) | |
| | | | | |
| Credit default swaps | $ | 9,917 | | | $ | 103 | | | — | |
| Equity futures | $ | 1,063 | | | $ | 2 | | | — | |
| Equity index options | $ | 14,143 | | | $ | 406 | | | — | |
| Equity variance swaps | $ | 90 | | | $ | 4 | | | — | |
| Equity total return swaps | $ | 1,922 | | | $ | (80) | | | — | |
| Total derivative instruments | | | | | $ | (913) | |
| Net Change | | | | | $ | (247) | |
______________
(1)Does not necessarily represent those financial instruments solely subject to foreign currency exchange rate risk. Separate account assets and liabilities, which are foreign currency exchange rate sensitive, are not included herein as any foreign currency exchange rate risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).contractholder.
(2)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)Excludes $141.6 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments resulting from a 10% appreciation in the U.S. dollar compared to all other currencies.
Sensitivity to foreign currency exchange rates increased $22 million to $247 million at December 31, 2022 from $225 million at December 31, 2021.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% increase in equity prices at:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Notional Amount | | Estimated
Fair
Value (1) | | Assuming a
10% Increase
in Equity
Prices |
| (In millions) |
| Assets | | | | | |
| FVO Securities | | | $ | 844 | | | $ | 60 | |
| Other invested assets | | | $ | 2,317 | | | 47 | |
| | | | | |
| Total assets | | | | | $ | 107 | |
| Liabilities (3) | | | | | |
| Policyholder account balances | | | $ | 78,938 | | | $ | — | |
| Embedded derivatives within liability host contracts (2) | | | $ | 140 | | | 127 | |
| Total liabilities | | | | | $ | 127 | |
| Derivative Instruments | | | | | |
| Interest rate swaps | $ | 23,133 | | | $ | 1,553 | | | $ | — | |
| Interest rate floors | $ | 23,371 | | | $ | 114 | | | — | |
| Interest rate caps | $ | 46,666 | | | $ | 903 | | | — | |
| Interest rate futures | $ | 414 | | | $ | (1) | | | — | |
| Interest rate options | $ | 39,712 | | | $ | 398 | | | — | |
| Interest rate forwards | $ | 2,227 | | | $ | (404) | | | — | |
| | | | | |
| Synthetic guaranteed interest contracts | $ | 13,044 | | | $ | — | | | — | |
| Foreign currency swaps | $ | 34,594 | | | $ | 1,878 | | | — | |
| Foreign currency forwards | $ | 1,328 | | | $ | (9) | | | — | |
| | | | | |
| Credit default swaps | $ | 9,917 | | | $ | 103 | | | — | |
| Equity futures | $ | 1,063 | | | $ | 2 | | | (78) | |
| Equity index options | $ | 14,143 | | | $ | 406 | | | (68) | |
| Equity variance swaps | $ | 90 | | | $ | 4 | | | — | |
| Equity total return swaps | $ | 1,922 | | | $ | (80) | | | (194) | |
| Total derivative instruments | | | | | $ | (340) | |
| Net Change | | | | | $ | (106) | |
______________
(1)(4)Does not necessarily represent those financial instruments solely subject to equity price risk. Additionally, separate account assets and liabilities, which are equity market sensitive, are not included herein as any equity market risk is borne by the contractholder, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below).contractholder.
(2)(5)Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.Includes FVO securities.
(3)Excludes $141.6 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances.
Sensitivity to equity market prices decreased $43 million to $106 million at December 31, 2022 from $149 million at December 31, 2021.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules
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Financial Statement Schedules at December 31, 20222023 and 20212022 and for the Years Ended December 31, 2023, 2022 2021 and 2020:2021: | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholder and the Board of Directors of Metropolitan Life Insurance Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company"“Company”) as of December 31, 20222023 and 2021,2022, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2022,2023, and the related notes and the schedules listed in the Index to Consolidated Financial Statements, Notes and Schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022,2023, in conformity with accounting principles generally accepted in the United States of America.
Adoption of New Accounting Standard
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting and presentation related to long-duration insurance contracts and certain related balances effective January 1, 2023, due to the adoption of Accounting Standards Update No. 2018-12, Financial Services— Insurance (Topic 944):Targeted Improvements to the Accounting for Long-Duration Contracts, as amended (“ASU 2018-12”), with a transition date of January 1, 2021. Also see Critical Audit Matters section below.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fixed Maturity Securities Available-for-Sale – Fair Value of Level 3 Fixed Maturity Securities — Refer to Notes 1, 7,10, and 912 to the financial statements
Critical Audit Matter Description
The Company has investments in certain fixed maturity securities classified as available-for-sale whose fair values are based on unobservable inputs that are supported by little or no market activity. When a price is not available in the active market, from an independent pricing service, or from independent broker quotations, management values the security using internal matrix pricing or discounted cash flow techniques. These investments are categorized as Level 3 and had an estimated fair value of $5.2 billion as of December 31, 2022.3.
Given management uses considerable judgment when estimatingWe have determined that the fair value of Level 3 fixed maturity securities determinedvalued using internal matrix pricing or discounted cash flow techniques, is a critical audit matter because of the critical judgments made by management. This required complex auditor judgment and an increased extent of effort, including the use of fair value specialists in performing audit procedures to evaluate the estimate of fair value required a high degree of auditor judgment and an increased extent of effort. This audit effort included
the use of professionals with specialized skills and knowledge, including our fair value specialists, to assist in performing procedures and evaluating the audit evidence obtained.these securities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of Level 3 fixed maturity securities determined using internal matrix pricing or discounted cash flow techniques included, among others, the following:
•We tested the effectiveness of controls over the determination of fair value.
•We tested the accuracy and completeness of relevant security attributes, including credit ratings, maturity dates and coupon rates, used in the determination of Level 3 fair values.
•With the involvement of our fair value specialists, we developed independent fair value estimates for a sample of securities and compared our estimates to the Company’s estimates and evaluated differences. We developed our estimate by evaluating the observable and unobservable inputs used by management or developing independent inputs.
Insurance Liabilities – Valuation of Future Policy Benefits for Long-Term Care Insurance — Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company’s products include long-term care insurance. Liabilities for amounts payable under long-term care insurance are recorded in future policy benefits in the Company’s consolidated balance sheets. Such liabilities are established based on actuarial assumptions at the time policies are issued, which are intended to estimate the experience for the period the policy benefits are payable. Significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves, which are based on current assumptions. Management’s estimate of future policy benefits for long-term care insurance in the MetLife Holdings segment was $14.3 billion$15,240 million as of December 31, 2022.2023.
Management applies considerable judgment in evaluating actual experience and other information to determine whether a change in assumptions for long-term care insurance is warranted.current best estimate assumptions. Principal assumptions used in the valuation of future policy benefits for long-term care insurance include morbidity, policy lapse, investment returnsincidence, claim terminations, utilization, premium rate increases and mortality.
Given the inherent uncertainty in selecting assumptions, weWe have determined that management’s evaluation of actual experience when estimating future policy benefits for long-term care insurance policies is a critical audit matter whichbecause of the significant judgments made by management when estimating future policy benefits liability. This required a high degree ofsubjective auditor judgment and an increased extent of effort, including the involvement of actuarial specialists, when performing audit procedures to evaluate the judgments made and the reasonableness of the principal assumptions used in the valuation. The audit effort included the use of professionals with specialized skill and knowledge, including our actuarial specialists, to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assumptions used to determine the estimate of future policy benefits for long-term care insurance, included, among others, the following:
•We tested the effectiveness of the controlcontrols over the assumptions used in the valuation of future policy benefits and the effectiveness of the controls over the underlying data.
•With the involvement of our actuarial specialists, we:
◦evaluated judgments applied by management in setting principal assumptions, including evaluating the results of experience studies used as the basis for setting those assumptions.
◦evaluated management’s estimate of, or developed an independent estimate of, future policy benefits, on a sample basis, and evaluated differences.This included confirming that assumptions were applied as intended.
◦evaluated that principal assumptions were applied in the results of the Company’s annual premium deficiency tests.valuation model as intended, on a sample basis.
DerivativesMarket Risk Benefits – Valuation of Embedded Derivative LiabilitiesMarket Risk Benefits for MetLife Holdings — Refer to Notes 1, 3, 8,5, and 912 to the financial statements
Critical Audit Matter Description
The Company’s products include variable annuity contracts with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit adjusted for withdrawals. The guarantees on variable annuity contracts are accounted for as insurance liabilities or as embedded derivatives depending on how and when the benefit is paid. Guarantees accounted for as embedded derivatives include the non-life contingent portion of guaranteed minimum withdrawal benefits and certain non-life contingent portions of guaranteed minimum income benefits, and are recorded in policyholder account balances on the Company’s consolidated balance sheet. Embedded derivatives are measured at estimated fair value separately from the host variable annuity contract using actuarial and capital market assumptions that are updated at least annually. Management’s estimate of such embedded derivative liabilities was $0.4 billion as of December 31, 2022.
Management applies considerable judgment in selecting assumptions used to estimate embedded derivative liabilities and changes in market conditions or variations in certain assumptions could result in significant fluctuations in the estimate. Principal assumptions include mortality, lapse, dynamic lapse, withdrawal, utilization, and discount rates and implied volatilities. The valuation of the embedded derivative liabilities is also based on complex calculations which are data intensive.
Given the inherent uncertainty in selecting assumptions and the complexity of the calculations, we have determined that management’s valuation of the embedded derivative liabilities is a critical audit matter which required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the judgments made and the reasonableness of the models and assumptions used in the valuation. The audit effort included the use of professionals with specialized skill and knowledge, including our valuation and actuarial specialists, to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of embedded derivative liabilities included, among others, the following:
•We tested the effectiveness of controls over the assumptions, including controls over the underlying data used in the valuation of embedded derivative liabilities.
•We tested the effectiveness of controls over the methodologies and models used for determining the embedded derivative liabilities.
•With the involvement of our valuation and actuarial specialists, we:
◦evaluated the methods, models, and judgments applied by management in the determination of principal assumptions and the calculation of the embedded derivative liabilities
◦evaluated the results of underlying experience studies, capital market projections, and judgments applied by management in setting the assumptions
◦developed an independent estimate of the embedded derivative liabilities, on a sample basis, and evaluated differences.
Future Adoption of Accounting Pronouncements – Targeted Improvements to the Accounting for Long-Duration Contracts – Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company will adopt Accounting Standards Update No. 2018-12, Financial Services— Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended (“ASU 2018-12”), effective January 1, 2023. The modified retrospective transition method will be used, except in regard to market risk benefits where the Company will use the full retrospective method. Based upon these transition methods, the Company estimates that the January 1, 2021 transition date impact from adoption will include a decrease to retained earnings of approximately $4.0 billion, net of income tax, which includes the impact from the requirement to account for variable annuity guarantees as market risk benefits measured at fair value. Market risk benefits are contracts or contract features that guarantee benefits, such as guaranteed minimum benefits, in addition to an account balance which, expose insurance companies to other than nominal capital market risk and
protect the contractholder from the same risk. Certain contracts or contract features to be identified asThe Company adopted ASU 2018-12, effective January 1, 2023 with a transition date of January 1, 2021 (see Adoption of New Accounting Standard explanatory paragraph above).As part of the adoption, market risk benefits are currently accounted for as embedded derivatives andwere required to be measured at fair value, while others willusing a full retrospective transition to fair value measurement uponmethod.Management’s estimates of market risk benefits in the adoptionMetLife Holdings segment were $2,858 million in liabilities and $156 million in assets as of ASU 2018-12.December 31, 2023.
Management applies considerable judgment in estimatingdetermining the actuarial and capital market assumptions to be used in the valuation models to estimate the fair value of market risk benefits. In addition, at the transition date, impact ofmanagement judgment was involved in estimating the assumptions at contract inception for the market risk benefits under the full retrospective method of adoption due to the application of fair value measurement principles which use assumptions to estimate the impact of changes in market conditions and policyholder behavior since contract inception that could result in significant fluctuations in the estimate. Principal assumptions include mortality, lapse, dynamic lapse, withdrawal, utilization, discount rates and implied volatilities. Additionally, the valuation of market risk benefits is based on complex calculations.
Given the inherent uncertainty in selecting assumptions and the complexity of the calculations, we have determined that the estimated transition date impact of measuring market risk benefits on contracts or contract features not previously accounted for as embedded derivatives isderivatives. Principal assumptions include mortality, withdrawal, utilization, lapse and implied volatility.
We have identified the valuation of MetLife Holdings’ market risk benefits as a critical audit matter which required adue to the high degree of auditor judgment and an increased extent of effort, including the use of specialists, when performing audit procedures to evaluate the judgments made andby management to estimate the reasonablenessfair value of the methodologies, models and assumptions used in the valuation. The audit effort included the use of professionals with specialized skill and knowledge, including our valuation and actuarial specialists, to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.market risk benefits.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimated transition date impactvaluation of measuring market risk benefits not previously accounted for as embedded derivatives included, among others, the following:
•We tested the effectiveness of controls over the transition tovaluation of market risk benefit measurement principlesbenefits under ASU 2018-12, including the related methodologies, models and assumptions used for determining the fair value of market risk benefits not previously accounted for as embedded derivatives.value.
•With the involvement of our valuation and actuarial specialists, we:
◦evaluated the methods, models, and principal assumptions applied by management in the full retrospective application of market risk benefit measurement principles to estimate the transition date impact
◦evaluated the results of underlying experience studies, capital market projections, and judgments applied by management in setting the assumptions since contract inceptionprincipal assumptions.
◦developed an independent estimate, on a sample basis, of the market risk benefits not previously accounted for as embedded derivatives and evaluated differences.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 8, 20236, 2024
We have served as the Company’s auditor since at least 1968; however, an earlier year could not be reliably determined.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Balance Sheets
December 31, 20222023 and 20212022
(In millions, except share and per share data) | | 2022 | | 2021 |
| | 2023 | | | | 2023 | | 2022 |
| Assets | Assets | | | | |
| Investments: | Investments: | |
| Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $114 and $53, respectively); and amortized cost: $160,477 and $158,354, respectively | | $ | 145,576 | | | $ | 175,885 | |
| Mortgage loans (net of allowance for credit loss of $448 and $536, respectively; includes $144 and $224, respectively, relating to variable interest entities; includes $0 and $127, respectively, under the fair value option) | | 62,570 | | | 60,219 | |
| Investments: | |
| Investments: | |
| Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $132 and $114, respectively); and amortized cost: $152,080 and $160,477, respectively | |
| Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $132 and $114, respectively); and amortized cost: $152,080 and $160,477, respectively | |
| Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $132 and $114, respectively); and amortized cost: $152,080 and $160,477, respectively | |
| Mortgage loans (net of allowance for credit loss of $509 and $448, respectively; includes $166 and $144, respectively, relating to variable interest entities) | |
| Policy loans | Policy loans | | 5,729 | | | 5,816 | |
| Real estate and real estate joint ventures (includes $1,358 and $1,094, respectively, relating to variable interest entities, $299 and $240, respectively, under the fair value option and $0 and $175, respectively, of real estate held-for-sale) | | 8,416 | | | 7,873 | |
| Real estate and real estate joint ventures (includes $1,427 and $1,358, respectively, relating to variable interest entities, $317 and $299, respectively, under the fair value option) | |
| Other limited partnership interests | Other limited partnership interests | | 7,887 | | | 8,754 | |
| Short-term investments, at estimated fair value | Short-term investments, at estimated fair value | | 2,759 | | | 4,866 | |
| Other invested assets (net of allowance for credit loss of $19 and $32, respectively; includes $858 and $924, respectively, of leveraged and direct financing leases; $161 and $171, respectively, relating to variable interest entities) | | 19,148 | | | 19,860 | |
| Other invested assets (net of allowance for credit loss of $14 and $19, respectively; includes $805 and $858, respectively, of leveraged and direct financing leases; $117 and $161, respectively, relating to variable interest entities) | |
| Total investments | Total investments | | 252,085 | | | 283,273 | |
| Cash and cash equivalents, principally at estimated fair value | Cash and cash equivalents, principally at estimated fair value | | 9,405 | | | 9,957 | |
| Accrued investment income | Accrued investment income | | 1,949 | | | 1,767 | |
| Premiums, reinsurance and other receivables | Premiums, reinsurance and other receivables | | 20,704 | | | 20,505 | |
| Market risk benefits, at estimated fair value | |
| Deferred policy acquisition costs and value of business acquired | Deferred policy acquisition costs and value of business acquired | | 5,263 | | | 2,598 | |
| Current income tax recoverable | Current income tax recoverable | | 165 | | | 80 | |
| Deferred income tax asset | Deferred income tax asset | | 2,661 | | | — | |
| Other assets | Other assets | | 4,367 | | | 4,526 | |
| Separate account assets | Separate account assets | | 89,241 | | | 123,851 | |
| Total assets | Total assets | | $ | 385,840 | | | $ | 446,557 | |
| Liabilities and Equity | Liabilities and Equity | | | | |
| Liabilities | Liabilities | |
| Liabilities | |
| Liabilities | |
| Future policy benefits | |
| Future policy benefits | |
| Future policy benefits | Future policy benefits | | $ | 133,725 | | | $ | 132,274 | |
| Policyholder account balances | Policyholder account balances | | 99,967 | | | 94,459 | |
| Market risk benefits, at estimated fair value | |
| Other policy-related balances | Other policy-related balances | | 7,863 | | | 8,094 | |
| Policyholder dividends payable | Policyholder dividends payable | | 240 | | | 312 | |
| Policyholder dividend obligation | | — | | | 1,682 | |
| Payables for collateral under securities loaned and other transactions | Payables for collateral under securities loaned and other transactions | | 14,171 | | | 24,866 | |
| Short-term debt | Short-term debt | | 99 | | | 100 | |
| Long-term debt | Long-term debt | | 1,676 | | | 1,659 | |
| | Deferred income tax liability | | — | | | 2,036 | |
| Other liabilities | Other liabilities | | 24,489 | | | 23,796 | |
| Separate account liabilities | Separate account liabilities | | 89,241 | | | 123,851 | |
| Total liabilities | Total liabilities | | 371,471 | | | 413,129 | |
| Contingencies, Commitments and Guarantees (Note 16) | | | | |
| Contingencies, Commitments and Guarantees (Note 19) | | Contingencies, Commitments and Guarantees (Note 19) | | |
| Equity | Equity | |
| Metropolitan Life Insurance Company stockholder’s equity: | Metropolitan Life Insurance Company stockholder’s equity: | |
| Metropolitan Life Insurance Company stockholder’s equity: | |
| Metropolitan Life Insurance Company stockholder’s equity: | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | | 5 | | | 5 | |
| Additional paid-in capital | Additional paid-in capital | | 12,476 | | | 12,464 | |
| Retained earnings | Retained earnings | | 10,572 | | | 10,868 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (8,896) | | | 9,917 | |
| Total Metropolitan Life Insurance Company stockholder’s equity | Total Metropolitan Life Insurance Company stockholder’s equity | | 14,157 | | | 33,254 | |
| Noncontrolling interests | Noncontrolling interests | | 212 | | | 174 | |
| Total equity | Total equity | | 14,369 | | | 33,428 | |
| Total liabilities and equity | Total liabilities and equity | | $ | 385,840 | | | $ | 446,557 | |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Operations
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions)
| | 2022 | | 2021 | | 2020 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Revenues | Revenues | | | | | |
| Premiums | |
| Premiums | |
| Premiums | Premiums | $ | 31,198 | | | $ | 26,191 | | | $ | 20,741 | |
| Universal life and investment-type product policy fees | Universal life and investment-type product policy fees | 1,997 | | | 2,062 | | | 1,996 | |
| Net investment income | Net investment income | 10,122 | | | 12,486 | | | 10,250 | |
| Other revenues | Other revenues | 1,698 | | | 1,616 | | | 1,661 | |
| Net investment gains (losses) | Net investment gains (losses) | (127) | | | 652 | | | (73) | |
| Net derivative gains (losses) | Net derivative gains (losses) | 472 | | | (964) | | | 738 | |
| Total revenues | Total revenues | 45,360 | | | 42,043 | | | 35,313 | |
| Expenses | Expenses | | | | | |
| Policyholder benefits and claims | Policyholder benefits and claims | 32,954 | | | 29,423 | | | 23,074 | |
| Policyholder benefits and claims | |
| Policyholder benefits and claims | |
| Policyholder liability remeasurement (gains) losses | |
| Market risk benefit remeasurement (gains) losses | |
| Interest credited to policyholder account balances | Interest credited to policyholder account balances | 2,382 | | | 2,027 | | | 2,247 | |
| Policyholder dividends | Policyholder dividends | 559 | | | 728 | | | 901 | |
| Other expenses | Other expenses | 5,555 | | | 5,617 | | | 5,013 | |
| Total expenses | Total expenses | 41,450 | | | 37,795 | | | 31,235 | |
| Income (loss) before provision for income tax | Income (loss) before provision for income tax | 3,910 | | | 4,248 | | | 4,078 | |
| Provision for income tax expense (benefit) | Provision for income tax expense (benefit) | 639 | | | 530 | | | 534 | |
| | Net income (loss) | Net income (loss) | 3,271 | | | 3,718 | | | 3,544 | |
| Net income (loss) | |
| Net income (loss) | |
| Less: Net income (loss) attributable to noncontrolling interests | Less: Net income (loss) attributable to noncontrolling interests | 28 | | | 5 | | | (6) | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | Net income (loss) attributable to Metropolitan Life Insurance Company | $ | 3,243 | | | $ | 3,713 | | | $ | 3,550 | |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions)
| | 2022 | | 2021 | | 2020 |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| Net income (loss) | Net income (loss) | | $ | 3,271 | | | $ | 3,718 | | | $ | 3,544 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | |
| Unrealized investment gains (losses), net of related offsets | Unrealized investment gains (losses), net of related offsets | | (23,566) | | | (2,462) | | | 1,911 | |
| Unrealized gains (losses) on derivatives | | (399) | | | 111 | | | 216 | |
| Unrealized investment gains (losses), net of related offsets | |
| Unrealized investment gains (losses), net of related offsets | |
| Deferred gains (losses) on derivatives | |
| Future policy benefits discount rate remeasurement gains (losses) | |
| Market risk benefit instrument-specific credit risk remeasurement gains (losses) | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | | (177) | | | 9 | | | 54 | |
| Defined benefit plans adjustment | Defined benefit plans adjustment | | 325 | | | 82 | | | (108) | |
| Other comprehensive income (loss), before income tax | Other comprehensive income (loss), before income tax | | (23,817) | | | (2,260) | | | 2,073 | |
| Income tax (expense) benefit related to items of other comprehensive income (loss) | Income tax (expense) benefit related to items of other comprehensive income (loss) | | 5,004 | | | 515 | | | (436) | |
| Other comprehensive income (loss), net of income tax | Other comprehensive income (loss), net of income tax | | (18,813) | | | (1,745) | | | 1,637 | |
| Comprehensive income (loss) | Comprehensive income (loss) | | (15,542) | | | 1,973 | | | 5,181 | |
| Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax | Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax | | 28 | | | 5 | | | (6) | |
| Comprehensive income (loss) attributable to Metropolitan Life Insurance Company | Comprehensive income (loss) attributable to Metropolitan Life Insurance Company | | $ | (15,570) | | | $ | 1,968 | | | $ | 5,187 | |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Equity
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions)
| | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Metropolitan Life
Insurance Company
Stockholder’s Equity | | Noncontrolling
Interests | | Total
Equity |
| Balance at December 31, 2019 | $ | 5 | | | $ | 12,455 | | | $ | 9,943 | | | $ | 10,025 | | | $ | 32,428 | | | $ | 184 | | | $ | 32,612 | |
| Common
Stock | | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Metropolitan Life
Insurance Company
Stockholder’s Equity | | Noncontrolling
Interests | | Total
Equity |
| Balance at December 31, 2020 | |
| Cumulative effects of changes in accounting principles, net of income tax | Cumulative effects of changes in accounting principles, net of income tax | | (113) | | | (113) | | | (113) | |
| Capital contributions from MetLife, Inc. | | 5 | | | 5 | | | 5 | |
| | Dividends to MetLife, Inc. | | (2,832) | | | (2,832) | | | (2,832) | |
| Change in equity of noncontrolling interests | | — | | | 5 | | | 5 | |
| Net income (loss) | | 3,550 | | | 3,550 | | | (6) | | | 3,544 | |
Other comprehensive income (loss), net of income tax | | 1,637 | | | 1,637 | | | 1,637 | |
| Balance at December 31, 2020 | 5 | | | 12,460 | | | 10,548 | | | 11,662 | | | 34,675 | | | 183 | | | 34,858 | |
| Capital contributions from MetLife, Inc. | Capital contributions from MetLife, Inc. | | 4 | | 4 | | | 4 | |
| Dividends to MetLife, Inc. | Dividends to MetLife, Inc. | | (3,393) | | | (3,393) | | | (3,393) | |
| Change in equity of noncontrolling interests | Change in equity of noncontrolling interests | | — | | | (14) | | | (14) | |
| Net income (loss) | Net income (loss) | | 3,713 | | | 3,713 | | | 5 | | | 3,718 | |
Other comprehensive income (loss), net of income tax | Other comprehensive income (loss), net of income tax | | (1,745) | | | (1,745) | | | (1,745) | |
| Balance at December 31, 2021 | Balance at December 31, 2021 | 5 | | | 12,464 | | | 10,868 | | | 9,917 | | | 33,254 | | | 174 | | | 33,428 | |
| Capital contributions from MetLife, Inc. | Capital contributions from MetLife, Inc. | | 12 | | | 12 | | | 12 | |
| Dividends to MetLife, Inc. | Dividends to MetLife, Inc. | | (3,539) | | | (3,539) | | | (3,539) | |
| Change in equity of noncontrolling interests | Change in equity of noncontrolling interests | | — | | | 10 | | | 10 | |
| Net income (loss) | Net income (loss) | | 3,243 | | | 3,243 | | | 28 | | | 3,271 | |
Other comprehensive income (loss), net of income tax | Other comprehensive income (loss), net of income tax | | (18,813) | | | (18,813) | | | (18,813) | |
| Balance at December 31, 2022 | Balance at December 31, 2022 | $ | 5 | | | $ | 12,476 | | | $ | 10,572 | | | $ | (8,896) | | | $ | 14,157 | | | $ | 212 | | | $ | 14,369 | |
| Returns of capital | |
| Dividends to MetLife, Inc. | |
| Change in equity of noncontrolling interests | |
| Net income (loss) | |
Other comprehensive income (loss), net of income tax | |
| Balance at December 31, 2023 | |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions) | | 2022 | | 2021 | | 2020 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities | Cash flows from operating activities | | | | | |
| Net income (loss) | Net income (loss) | $ | 3,271 | | | $ | 3,718 | | | $ | 3,544 | |
| Net income (loss) | |
| Net income (loss) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
| Depreciation and amortization expenses | |
| Depreciation and amortization expenses | |
| Depreciation and amortization expenses | Depreciation and amortization expenses | 127 | | | 136 | | | 125 | |
| Amortization of premiums and accretion of discounts associated with investments, net | Amortization of premiums and accretion of discounts associated with investments, net | (595) | | | (656) | | | (651) | |
| (Gains) losses on investments and from sales of businesses, net | (Gains) losses on investments and from sales of businesses, net | 127 | | | (652) | | | 73 | |
| (Gains) losses on derivatives, net | (Gains) losses on derivatives, net | 1,122 | | | 2,480 | | | (299) | |
| (Income) loss from equity method investments, net of dividends or distributions | (Income) loss from equity method investments, net of dividends or distributions | 890 | | | (1,873) | | | 238 | |
| Interest credited to policyholder account balances | Interest credited to policyholder account balances | 2,344 | | | 1,988 | | | 2,213 | |
| Universal life and investment-type product policy fees | Universal life and investment-type product policy fees | (1,162) | | | (1,070) | | | (1,130) | |
| Change in fair value option and trading securities | Change in fair value option and trading securities | 123 | | | (125) | | | (171) | |
| Change in accrued investment income | Change in accrued investment income | (230) | | | 69 | | | 72 | |
| Change in premiums, reinsurance and other receivables | Change in premiums, reinsurance and other receivables | 146 | | | 752 | | | 826 | |
| Change in market risk benefits | |
| Change in deferred policy acquisition costs and value of business acquired, net | Change in deferred policy acquisition costs and value of business acquired, net | (39) | | | 194 | | | 355 | |
| Change in income tax | Change in income tax | 219 | | | 5 | | | 104 | |
| Change in other assets | Change in other assets | 201 | | | (308) | | | 90 | |
| Change in insurance-related liabilities and policy-related balances | Change in insurance-related liabilities and policy-related balances | (1,958) | | | (957) | | | (1,256) | |
| Change in other liabilities | Change in other liabilities | (67) | | | (370) | | | (1,372) | |
| Other, net | Other, net | 148 | | | (74) | | | 176 | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 4,667 | | | 3,257 | | | 2,937 | |
| Cash flows from investing activities | Cash flows from investing activities | | | | | |
| Sales, maturities and repayments of: | Sales, maturities and repayments of: | |
| Sales, maturities and repayments of: | |
| Sales, maturities and repayments of: | |
| Fixed maturity securities available-for-sale | |
| Fixed maturity securities available-for-sale | |
| Fixed maturity securities available-for-sale | Fixed maturity securities available-for-sale | 54,515 | | | 51,010 | | | 46,700 | |
| Equity securities | Equity securities | 213 | | | 565 | | | 310 | |
| Mortgage loans | Mortgage loans | 8,912 | | | 16,790 | | | 9,963 | |
| Real estate and real estate joint ventures | Real estate and real estate joint ventures | 925 | | | 1,329 | | | 81 | |
| Other limited partnership interests | Other limited partnership interests | 992 | | | 541 | | | 464 | |
| Short-term investments | Short-term investments | 8,914 | | | 10,309 | | | 7,850 | |
| Purchases and originations of: | Purchases and originations of: | |
| Fixed maturity securities available-for-sale | |
| Fixed maturity securities available-for-sale | |
| Fixed maturity securities available-for-sale | Fixed maturity securities available-for-sale | (49,620) | | | (52,513) | | | (48,561) | |
| Equity securities | Equity securities | (127) | | | (48) | | | (106) | |
| Mortgage loans | Mortgage loans | (12,083) | | | (10,502) | | | (10,931) | |
| Real estate and real estate joint ventures | Real estate and real estate joint ventures | (589) | | | (1,042) | | | (768) | |
| Other limited partnership interests | Other limited partnership interests | (1,036) | | | (1,896) | | | (1,071) | |
| Short-term investments | Short-term investments | (6,727) | | | (12,604) | | | (8,564) | |
| Cash received in connection with freestanding derivatives | Cash received in connection with freestanding derivatives | 2,967 | | | 1,720 | | | 3,823 | |
| Cash paid in connection with freestanding derivatives | Cash paid in connection with freestanding derivatives | (3,971) | | | (5,181) | | | (2,886) | |
| Cash received from the redemption of an investment in affiliated preferred stock | Cash received from the redemption of an investment in affiliated preferred stock | — | | | 315 | | | — | |
| Receipts on loans to affiliates | Receipts on loans to affiliates | — | | | 87 | | | 251 | |
| | Purchases of loans to affiliates | Purchases of loans to affiliates | (19) | | | (15) | | | — | |
| Purchases of loans to affiliates | |
| Purchases of loans to affiliates | |
| Net change in policy loans | Net change in policy loans | 87 | | | 157 | | | 127 | |
| | Net change in other invested assets | |
| Net change in other invested assets | |
| Net change in other invested assets | Net change in other invested assets | 114 | | | 74 | | | 44 | |
| Net change in property, equipment and leasehold improvements | Net change in property, equipment and leasehold improvements | 12 | | | 15 | | | 18 | |
| Other, net | Other, net | 19 | | | 14 | | | 21 | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | $ | 3,498 | | | $ | (875) | | | $ | (3,235) | |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Cash Flows — (continued)
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions)
| | 2022 | | 2021 | | 2020 |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Cash flows from financing activities | Cash flows from financing activities | | | | | |
| Policyholder account balances: | Policyholder account balances: | |
| Policyholder account balances: | |
| Policyholder account balances: | |
| Deposits | |
| Deposits | |
| Deposits | Deposits | $ | 85,294 | | | $ | 78,129 | | | $ | 77,446 | |
| Withdrawals | Withdrawals | (80,028) | | | (80,378) | | | (74,655) | |
| Net change in payables for collateral under securities loaned and other transactions | Net change in payables for collateral under securities loaned and other transactions | (10,695) | | | 1,744 | | | 2,757 | |
| | Long-term debt issued | Long-term debt issued | 64 | | | 35 | | | 128 | |
| Long-term debt issued | |
| Long-term debt issued | |
| Long-term debt repaid | Long-term debt repaid | (57) | | | (26) | | | (97) | |
| | Financing element on certain derivative instruments and other derivative related transactions, net | 308 | | | 173 | | | (40) | |
| Derivatives with certain financing elements and other derivative related transactions, net | |
| Derivatives with certain financing elements and other derivative related transactions, net | |
| Derivatives with certain financing elements and other derivative related transactions, net | |
| | Dividends paid to MetLife, Inc. | Dividends paid to MetLife, Inc. | (3,539) | | | (3,393) | | | (2,832) | |
| | Dividends paid to MetLife, Inc. | |
| | Dividends paid to MetLife, Inc. | |
| | Other, net | |
| | Other, net | |
| | Other, net | Other, net | (57) | | | (42) | | | (3) | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (8,710) | | | (3,758) | | | 2,704 | |
| Effect of change in foreign currency exchange rates on cash and cash equivalents balances | Effect of change in foreign currency exchange rates on cash and cash equivalents balances | (7) | | | (4) | | | 4 | |
| Change in cash and cash equivalents | Change in cash and cash equivalents | (552) | | | (1,380) | | | 2,410 | |
| Cash and cash equivalents, beginning of year | Cash and cash equivalents, beginning of year | 9,957 | | | 11,337 | | | 8,927 | |
| Cash and cash equivalents, end of year | Cash and cash equivalents, end of year | $ | 9,405 | | | $ | 9,957 | | | $ | 11,337 | |
| Supplemental disclosures of cash flow information | Supplemental disclosures of cash flow information | | | | | |
| Net cash paid (received) for: | Net cash paid (received) for: | |
| Net cash paid (received) for: | |
| Net cash paid (received) for: | |
| Interest | |
| Interest | |
| Interest | Interest | $ | 102 | | | $ | 95 | | | $ | 99 | |
| Income tax | Income tax | $ | 344 | | | $ | 388 | | | $ | 45 | |
| Non-cash transactions: | Non-cash transactions: | | | | | |
| Capital contributions from MetLife, Inc. | $ | 12 | | | $ | 4 | | | $ | 5 | |
| | | Fixed maturity securities available-for-sale disposed of in connection with a reinsurance transaction | |
| | Fixed maturity securities available-for-sale disposed of in connection with a reinsurance transaction | |
| | Fixed maturity securities available-for-sale disposed of in connection with a reinsurance transaction | |
| Fixed maturity securities available-for-sale received in connection with pension risk transfer transactions | |
| Fixed maturity securities available-for-sale received from an affiliate | |
| Policyholder account balances received in connection with affiliated reinsurance transactions | |
| Mortgage loans disposed of in connection with a reinsurance transaction | |
| Equity securities received due to in-kind distributions from other limited partnership interests | |
| Real estate and real estate joint ventures acquired in satisfaction of debt | Real estate and real estate joint ventures acquired in satisfaction of debt | $ | 313 | | | $ | 174 | | | $ | 10 | |
| Fixed maturity securities available-for-sale received in connection with pension risk transfer transactions | $ | 7,450 | | | $ | — | | | $ | — | |
| Increase in equity securities due to in-kind distributions received from other limited partnership interests | $ | 84 | | | $ | 337 | | | $ | 100 | |
| Transfer of fixed maturity securities available-for-sale from an affiliate | $ | 139 | | | $ | — | | | $ | — | |
| Transfer of fixed maturity securities available-for-sale to an affiliate | $ | 328 | | | $ | — | | | $ | 296 | |
| Transfer of fair value option securities from an affiliate | $ | 186 | | | $ | — | | | $ | — | |
| Transfer of real estate and real estate joint ventures from an affiliate | $ | 144 | | | $ | — | | | $ | 380 | |
| Transfer of real estate and real estate joint ventures to an affiliate | $ | 144 | | | $ | — | | | $ | — | |
| Increase in other invested assets in connection with affiliated reinsurance transactions | $ | — | | | $ | 3,140 | | | $ | — | |
| | Transfer of mortgage loans to an affiliate | $ | — | | | $ | — | | | $ | 84 | |
| Fixed maturity securities available-for-sale transferred to an affiliate | |
| Fair value option securities received from an affiliate | |
| Real estate and real estate joint ventures received from an affiliate | |
| Real estate and real estate joint ventures transferred to an affiliate | |
| Other invested assets received in connection with an affiliated reinsurance transaction | |
| |
See accompanying notes to the consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Metropolitan Life Insurance Company and its subsidiaries (collectively, “MLIC” or the “Company”) is a provider of insurance, annuities, employee benefits and asset managementmanagement. In the fourth quarter of 2023, MLIC reorganized from two segments into the following three segments to reflect changes in management’s responsibilities: Group Benefits; Retirement and is organized into two segments: U.S.Income Solutions (“RIS”); and MetLife Holdings. The Group Benefits and RIS businesses were previously reported as the U.S. segment. In addition, the Company continues to report certain of its results of operations in Corporate & Other. See Note 2 for further information on the Company’s segments and Corporate & Other. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”).
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
Effective January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services—Insurance (Topic 944): Effective Date; ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application; and ASU 2022-05, Financial Services—Insurance (Topic 944): Transition for Sold Contracts (“LDTI”), with a transition date of January 1, 2021 (the “Transition Date”). Adoption of LDTI impacted the Company’s accounting and presentation related to long-duration insurance contracts and certain related balances for the years ended December 31, 2022 and 2021. Amounts within these consolidated financial statements which were previously presented, have been revised to conform with the current year accounting and presentation under LDTI. Disclosures as of the Transition Date are reflected in summary within “— Recent Accounting Pronouncements — Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts,” and in further detail (at the disaggregated level) within Notes 3, 4, 5 and 7.
Consolidation
The accompanying consolidated financial statements include the accounts of Metropolitan Life Insurance Company and its subsidiaries, as well as partnerships and joint ventures in which the Company has a controlling financial interest, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting, unless the fair value option (“FVO”) is applied, for real estate joint ventures and other limited partnership interests (“investee”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings in net investment income on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Separate Accounts
Separate accounts are established in conformity with insurance laws. Generally, the assets of the separate accounts cannot be used to settle the liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. The Company reports separately, as separate account assets and liabilities, investments held in separate accounts and corresponding policyholder liabilities of the separate accounts if:same amount if all of the following criteria are met:
•such separate accounts are legally recognized;
•assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities;
•investment objectives are directed by the contractholder; and
•all investment performance, net of contract fees and assessments, is passed through to the contractholder.
The Company reports separate account assets at their fair value, which is based on the estimated fair values of the underlying assets comprising the individual separate account portfolios. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line on the statements of operations. Separate accounts credited with a contractual investment return are not reported as separate account assets and liabilities and are combined on a line-by-line basis with the Company’s general account assets, liabilities, revenues and expenses and the accounting for these investments is consistent with the methodologies described herein for similar financial instruments held within the general account.
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. Such fees are included in universal life and investment-type product policy fees on the statements of operations.
ReclassificationsSummary of Significant Accounting Policies
Cash flows from short term investments inThe following table presents the prior years’ Consolidated Statement of Cash Flows, which were previously presented net, have been revised to gross presentation to conformCompany’s significant accounting policies with the current year presentation. The revision in presentation was not materialcross-references to the previously presented financial statements.notes which provide additional information on such policies.
| | | | | |
| Accounting Policy | Note |
| Future Policy Benefit Liabilities | 3 |
| Policyholder Account Balances | 4 |
| Market Risk Benefits | 5 |
| Deferred Policy Acquisition Costs, Value of Business Acquired, Unearned Revenue and Other Intangibles | 7 |
| Reinsurance | 8 |
| Investments | 10 |
| Derivatives | 11 |
| Fair Value | 12 |
| Employee Benefit Plans | 17 |
| Income Tax | 18 |
| Litigation Contingencies | 19 |
Future Policy Benefit Liabilities
Traditional Non-participating and Limited-payment Long-duration products
The Company establishes future policy benefit liabilities (“FPBs”) for amounts payable under traditional non-participating and limited-payment long-duration insurance and reinsurance policies which include, but are not limited to, pension risk transfers, structured settlements, institutional income annuities, long-term care, individual disability, as well as whole and term life products. Generally, amounts are payable over an extended period of time and the related liabilities are calculated as the present value of future expected benefits and claim settlement expenses to be paid, reduced by the present value of future expected net premiums.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Summary of Significant Accounting Policies
The following are the Company’s significant accounting policies with references to notes providing additional information on such policies and critical accounting estimates relating to such policies.
| | | | | |
Accounting Policy | Note |
Insurance | 3 |
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles | 4 |
Reinsurance | 5 |
Investments | 7 |
Derivatives | 8 |
Fair Value | 9 |
Employee Benefit Plans | 14 |
Income Tax | 15 |
Litigation Contingencies | 16 |
Insurance
Future Policy Benefit Liabilities and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. PrincipalA net premium ratio (“NPR”) approach is utilized, where net premiums (i.e., the portion of gross premiums required to fund expected insurance benefits and claim settlement expenses) are accrued each period as FPBs. The NPR used to accrue the FPB in each period is determined by using the historical and present value of expected future benefits and claim settlement expenses for the cohort divided by the historical and present value of expected future gross premiumsfor the cohort.
Cash flow assumptions are incorporated into the calculation of a cohort's NPR and FPB reserve. These assumptions are used to project the amount and timing of expected benefits and claim settlement expenses to be paid and the expected amount of premiums to be collected for a cohort. The principal inputs and assumptions used in the establishment of liabilities forFPBs are actual premiums, actual benefits, in-force policies, and best estimate cash flow assumptions to project future policy benefits arepremium and benefit amounts. The Company’s primary best estimate cash flow assumptions include expectations related to mortality, morbidity, termination, claim settlement expense, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation expenses and other contingent events as appropriate to the respective product type. Thesetype and geographical area. Generally, the NPR and FPB reserve are updated retrospectively on a quarterly basis for actual experience and at least once a year for any changes in future cash flow assumptions, except for claim settlement expenses, for which the Company has elected to lock in assumptions at the Transition Date or inception (for contracts sold after the Transition Date), as allowed by LDTI. The resulting remeasurement (gain) loss is recorded through net income and reflects the impact of the change in the NPR based on experience at the end of the quarter applied to the cumulative premiums received from the inception of the cohort (or from the Transition Date for contracts issued prior to the Transition Date) to the beginning of the quarter. The total contractual profit pattern is recognized over the expected life of the cohort by retrospectively updating the NPR. If net premiums exceed gross premiums (i.e., expected benefits exceed expected gross premiums), the FPB is increased, and a corresponding adjustment is recognized immediately in net income.
The change in FPB reflected in the statement of operations is calculated using a locked-in discount rate. For products issued prior to the Transition Date, a cohort level locked-in discount rate was developed that reflected the interest accretion rates that were locked in at inception of the underlying contracts (unless there was a historical premium deficiency event that resulted in updating the interest accretion rate prior to the Transition Date), or the acquisition date for contracts acquired through an assumed in-force reinsurance transaction or a business combination. For contracts issued subsequent to the Transition Date, the upper-medium grade discount rate used for interest accretion is locked in for the cohort and represents the original upper-medium grade discount rate at the issue date of the underlying contracts. The FPB for all cohorts is remeasured to a current upper-medium grade discount rate at each reporting date through other comprehensive income (loss) (“OCI”).
The Company generally interprets the upper-medium grade discount rate to be a rate comparable to that of a corporate single A rate that reflects the duration characteristics of the liability. The upper-medium grade discount rate for the products that are included in the disaggregated rollforwards in Note 3 which are issued in the U.S. is determined by using observable market data, including published single A base curves. The last liquid point on the upper-medium grade discount curve grades to an ultimate forward rate, which is derived using assumptions of economic growth, inflation, and a long-term upper-medium grade spread.
For limited-payment long-duration contracts, the collection of premiums does not represent the completion of the earnings process, therefore, any gross premiums received in excess of net premiums is deferred and amortized as a deferred profit liability (“DPL”). The DPL is presented within FPBs and is amortized in proportion to either the present value of expected benefit payments or insurance in-force of each cohort to ensure that profits are recognized over the life of the underlying policies in that cohort, regardless of when premiums are received. This amortization of the DPL is recorded through net income within policyholder benefits and claims. Consistent with the Company’s measurement of traditional long-duration products, management also recognizes a FPB reserve for limited-payment contracts that is representative of the difference between the present value of expected future benefits and the present value of expected
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
future net premiums, subject to retrospective remeasurement through net income and OCI, as described above. The DPL is also subject to retrospective remeasurement through net income, however, it is not remeasured for changes in discount rates.
When a cohort’s present value of future net premiums exceeds the present value of future benefits, a “flooring” adjustment is required. The flooring adjustment ensures that the liability for future policy benefits for each cohort is not less than zero, and is reported in net income or OCI, depending on whether the flooring relates to the FPB discounted at the locked-in discount rate versus the current upper-medium grade discount rate, respectively.
Traditional Participating Products
The Company establishes FPBs for traditional participating contracts in the U.S., which include whole and term life participating contracts in both the open and closed block using a net premium approach, similar to traditional non-participating contracts. However, for participating contracts, the discount rate and actuarial assumptions are establishedlocked in at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. For long-duration insurance contracts, assumptions such as mortality, morbidity and interest rates are “locked in” upon the issuance of new business. However, significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves. Such reserves are determined based on the then current assumptions and do notinception, include a provision for adverse deviation.deviation, and all changes in the associated FPBs are reported within policyholder benefits and claims. See Note 9 for additional information on the closed block. For traditional participating contracts, the Company reviews its estimates of actuarial liabilities for future benefits and compares them with current best estimate assumptions. The Company revises estimates, to increase FPBs, if the Company determines that the liabilities previously established for future benefit payments less future expected net premiums in the aggregate for this line of business prove inadequate.
Additional Insurance Liabilities
Liabilities for universal and variable universal life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the life of the contract based on total expected assessments. The additional insurance liabilities are updated retrospectively on a quarterly basis for actual experience and at least once a year for any changes in future cash flow assumptions. The assumptions used in estimating the secondary and paid-up guarantee liabilities are investment income, mortality, lapse, and premium payment pattern and persistency. The assumptions of investment performance and volatility for variable products are consistent with historical experience of appropriate underlying equity indices, such as the S&P Global Ratings (“S&P”) 500 Index. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
The resulting adjustments are recorded as policyholder liability remeasurement (gains) losses in the statement of operations reflecting the impact on the change in the ratio of benefits payable to total assessments over the life of the contract based on experience at the end of the quarter applied to the cumulative assessments received as of the beginning of the quarter.
Premium Deficiency Reserves
Premium deficiency reserves may also be established for short-duration contracts to provide for expected future losses.losses and certain expenses that exceed unearned premiums. These reserves are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred for which claims have not been reported. The provisions for unreported claims are calculated using studies that measure the historical length of time between the incurred date of a claim and its eventual reporting to the Company. For universal life-type and certain participating contracts, a premium deficiency reserve may be established when existing contract liabilities together with the present value of future fees and/or premiums are not sufficient to cover the present value of future benefits and settlement costs.Anticipated investment income is also considered in the calculationcalculations of premium deficiency lossesreserves for short-duration contracts, as well as universal life-type and certain participating contracts.
Liabilities for universal and variable life policies with secondary guarantees and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the life of the contract based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing deferred policy acquisition costs (“DAC”), and are thus subject to the same variability and risk as further discussed herein. The assumptions of investment performance and volatility for variable products are consistent with historical experience of appropriate underlying equity indices, such as the S&P Global Ratings (“S&P”) 500 Index. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
The Company regularly reviews its estimates of liabilities for future policy benefits and compares them with its actual experience. Differences result in changes to the liability balances with related charges or credits to benefit expenses in the period in which the changes occur.Policyholder Account Balances
Policyholder account balances relate to contracts or contract features where(“PABs”) represent the amount held by the Company has noon behalf of the policyholder at each reporting date. This amount includes deposits received from the policyholder, interest credited to the policyholder’s account balance, net of charges assessed against the account balance, and any policyholder withdrawals. This balance also includes liabilities for structured settlement and institutional income annuities, and certain other contracts, that do not contain significant insurance risk.risk, as well as the estimated fair value of embedded derivatives associated with indexed annuity products.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company issues directly and assumes through reinsurance variable annuity products withMarket Risk Benefits
As defined by LDTI, market risk benefits (“MRBs”) are contracts or contract features that guarantee benefits, such as guaranteed minimum benefits, that providein addition to an account balance, which expose insurance companies to other than nominal capital market risk (e.g., equity price, interest rate, and/or foreign currency exchange risk) and subsequently protect the policyholder a minimum return based on their initial deposit adjusted for withdrawals.contractholder from the same risk. These guarantees are accounted for as insurance liabilities orcontracts and contract features were generally recorded as embedded derivatives depending on howor additional insurance liabilities prior to the Transition Date. Certain contracts may have multiple contract features or guarantees. In these cases, each feature is separately evaluated to determine whether it meets the definition of an MRB at contract inception. If a contract includes multiple benefits that meet the definition of an MRB, those benefits are aggregated and whenmeasured as a single compound MRB.
All identified MRBs are required to be measured at estimated fair value, whether the benefit is paid. Specifically,contract or contract feature represents a guarantee is accounted fordirect, assumed or ceded capital market risk. All MRBs in an asset position are aggregated and presented as an embedded derivative ifasset, and all MRBs in a guarantee is paid without requiring (i)liability position are aggregated and presented as a liability. Changes in the occurrenceestimated fair value of a specific insurable event, or (ii)MRBs are recognized in net income, except for the policyholder to annuitize. Alternatively, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models.
Guarantees accounted for as insurance liabilities in future policy benefits include guaranteed minimum death benefits (“GMDBs”), the life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”), elective annuitizations of guaranteed minimum income benefits (“GMIBs”), and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero.
Guarantees accounted for as embedded derivatives in policyholder account balances include guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equalfair value change attributable to the presentchange in nonperformance risk of the Company which is recorded as a separate component of OCI.
The Company generally uses an attributed fee approach to value MRBs, where the attributed fee is determined at contract inception by estimating the fair value of projectedexpected future guaranteedbenefits and the expected future fees. The attributed fee percentage is the portion of the expected future fees due from contractholders deemed necessary at contract inception to fund all future expected benefits. Any additionalThis typically results in a zero fair value for the MRB at inception. The estimated fair value of the expected future benefits is estimated using a stochastically-generated set of risk-neutral scenarios. Once calculated, the attributed fee percentage is fixed and does not change over the life of the contract. All fees represent “excess”due from contractholders in excess of the attributed fees and are reported in universal life and investment-type product policy fees.
Other Policy-Related Balances
Other policy-related balances include policy and contract claims, premiums received in advance, unearned revenue (“UREV”) liabilities, obligations assumed under structured settlement assignments, policyholder dividends due and unpaid and policyholder dividends left on deposit.
The liability for policy and contract claims generally relates to incurred but not reported (“IBNR”) death, disability, and dental claims. In addition, generally included in other policy-related balances are claims which have been reported but not yet settled for death, disability, and dental. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of IBNR claims principally from analyses of historical patterns of claims by business line. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made.
The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premiums received in advance. These amounts are then recognized in premiums when due.
The unearned revenueUREV liability relates to universal life and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenueUREV and amortized usingon a basis consistent with the product’s estimated gross profitsmethodologies and margins, similar to DAC as discussed further herein. Such amortization is recordedassumptions used for amortizing deferred policy acquisition costs (“DAC”) for the related contracts. Changes in the UREV liability for each period (representing deferrals less amortization) are reported in universal life and investment-type product policy fees.
Recognition of Insurance Revenues and Deposits
Premiums related to traditionallong-duration individual and group fixed annuities (including pension risk transfers, certain structured settlements and certain income annuities), long-term care, individual disability, whole and term life, and annuity contracts with life contingenciesparticipating products are recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated lives of the insurance policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred as a DPL and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the amountpresent value of expected future policy benefit payments.
Premiums related to short-duration non-medical health, disability and accident & health contracts are recognized on a pro rata basis over the applicable contract term.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Premiums related to short-duration group term life, dental, disability, and legal plan contracts are recognized on a pro rata basis over the applicable contract term. Unearned premiums, representing the portion of premium written related to the unexpired coverage, are reflected as liabilities until earned.
Deposits related to universal life and investment-type products are credited to policyholder account balances.PABs. Revenues from such contracts consist of fees for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which services are provided. All fees due from contractholders in excess of the attributed fees on contracts with MRBs are reported in universal life and investment-type product policy fees. Amounts that are charged to earnings include interest credited and benefit claims incurred in excess of related policyholder account balances.PABs.
All revenues and expenses are presented net of reinsurance, as applicable.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
•incremental direct costs of contract acquisition, such as commissions;
•the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed; and
•other essential direct costs that would not have been incurred had a policy not been acquired or renewed.
All other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
Value of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience with the purchased business may vary from these projections. VOBA is subject to periodic recoverability testing for traditional life and limited-payment contracts, as well as universal life type contracts.
DAC and VOBA for most long-duration products are amortized on a constant-level basis that approximates straight-line amortization on an individual contract basis. The DAC and VOBA related to RIS annuities are amortized over expected benefit payments, and for all other long-duration products are generally amortized in proportion to policy count. For short-duration products, DAC and VOBA are amortized as follows:in proportion to actual and expected future earned premiums.
| | | | | | | | | | | | | | | | | |
Products: | | In proportion to the following over estimated lives of the contracts: |
• | Nonparticipating and non-dividend-paying traditional contracts: | Actual and expected future gross premiums |
| • | Term insurance | | | |
| • | Nonparticipating whole life insurance | | | |
| • | Traditional group life insurance | | | |
| • | Non-medical health insurance | | | |
• | Participating, dividend-paying traditional contracts | Actual and expected future gross margins |
• | Fixed and variable universal life contracts | | Actual and expected future gross profits |
• | Fixed and variable deferred annuity contracts | | |
See Note 4 for additional information on DAC and VOBA amortization. Amortization of DAC and VOBA is included in other expenses.
The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated on the financial statements for reporting purposes.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of PresentationDAC and Summary of Significant Accounting Policies (continued)
VOBA is included in other expenses.The Company generally has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus whereby the policyholder’s initial account balance is increased by an amount equal to a specified percentage of the customer’s deposit; and (ii) the policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodologymethodologies and assumptions used to amortize DAC.DAC for the related contracts. The amortization of deferred sales inducements (“DSI”) is included in policyholder benefits and claims. Each year, or more frequently if circumstances indicate a potential recoverability issue exists,DSI assets were $45 million and $49 million at December 31, 2023 and 2022, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Company reviews deferred sales inducements (“DSI”) to determine the recoverabilityConsolidated Financial Statements — (continued)
1. Business, Basis of the asset.Presentation and Summary of Significant Accounting Policies (continued)
Value of distribution agreements acquired (“VODA”) is reported in other assets and represents the present value of expected future profits associated with the expected future business derived from the distribution agreements acquired as part of a business combination. Value of customer relationships acquired (“VOCRA”) is also reported in other assets and represents the present value of the expected future profits associated with the expected future business acquired through existing customers of the acquired company or business. The VODA and VOCRA associated with past business combinations are amortized over the assets’ useful lives ranging from 10 to 30 years and such amortization is included in other expenses. Each year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews VODA and VOCRA to determine whether the asset is impaired.
Reinsurance
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer. The Company reviews all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying reinsured contracts is considered the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is amortized on a basis consistent with the methodologies and assumptions used for amortizing DAC related to the underlying reinsured contracts. Subsequent amounts paid (received) on the reinsurance ofaccounting for in-force blocks as well as amounts paid (received) related toand new business are recordedassumed is the same as ceded (assumed) premiums; and ceded (assumed) premiums, reinsurance and other receivables (future policy benefits) are established.if the business was directly sold by the Company.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums. Ceded (assumed) unearned premiums are reflected as a component of premiums, reinsurance and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of insurance protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) in excess of the related insurance liabilities ceded (assumed) are recognized immediately as a loss and are reported in the appropriate line item within the statement of operations. Any gain on such retroactive agreement is deferred and is amortized as part of DAC, primarily using the recovery method.
The reinsurance recoverable for traditional non-participating and limited-payment contracts is generally measured using a net premium methodology to accrue the projected net gain or loss on reinsurance in proportion to the gross premiums of the underlying reinsured cohorts; and is updated retrospectively on a quarterly basis for actual experience and at least once a year for any changes in cash flow assumptions. The locked-in discount rate used to measure changes in the reinsurance recoverable recorded in net income was established at the Transition Date, or at the inception of the reinsurance coverage for new reinsurance agreements entered into subsequent to the Transition Date. The reinsurance recoverable is remeasured to an upper-medium grade discount rate through OCI at each reporting date, similar to the underlying reinsured contracts. The reinsurance recoverable for other long-duration contracts and associated contract features is measured using assumptions and methods generally consistent with the underlying direct policies.
Amounts currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts currently payable are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, or when events or changes in circumstances indicate that its carrying amount may not be recoverable, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, consistent with credit loss guidance which requires recording an allowance for credit loss (“ACL”).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The funds withheld liability represents amounts withheld by the Company in accordance with the terms of the reinsurance agreements. The Company withholds the funds rather than transferring the underlying investments and, as a result, records funds withheld liability within other liabilities. The Company recognizes interest on funds withheld, included in other expenses, at rates defined by the terms of the agreement which may be contractually specified or directly related to the investment portfolio. See “— Investments — Other Invested Assets” for information on funds withheld assets.
Premiums, fees, policyholder liability remeasurement (gains) losses, and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other expenses.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate.
Investments
Net Investment Income
Net investment income includes primarily interest income, including amortization of premium and accretion of discount, prepayment fees, dividend income, rental income and equity method income and is net of related investment expenses. Net investment income also includes, to a lesser extent, (i) realized gains (losses) on investments sold or disposed and (ii) unrealized gains (losses) recognized in earnings, representing changes in estimated fair value, primarily for fair value option (“FVO”) securities (“FVO Securities”).securities.
Net Investment Gains (Losses)
Net investment gains (losses) include primarily (i) realized gains (losses) from sales and disposals of investments, which are determined by specific identification, (ii) intent-to-sell impairment losses on fixed maturity securities available-for-sale (“AFS”) and impairment losses on all other asset classes and, to a lesser extent, (iii) recognized gains (losses). Recognized gains (losses) are primarily comprised of the change in the ACL and unrealized gains (losses) for certain investments for which changes in estimated fair value are recognized in earnings. Changes in the ACL includes both (i) provisions for credit loss on fixed maturity securities AFS, mortgage loans and leveraged and direct financing leases, and (ii) subsequent changes in the ACL. Unrealized gains (losses), representing changes in estimated fair value recognized in earnings, primarily relate to equity securities and certain other limited partnership interests and real estate joint ventures.
Net investment gains (losses) also include non-investment portfolio gains (losses) which do not relate to the performance of the investment portfolio, including gains (losses) from sales and divestitures of businesses and impairment of property, equipment, leasehold improvements and right-of-use (“ROU”) lease assets.
Accrued Investment Income
Accrued investment income is presented separately on the consolidated balance sheet and excluded from the carrying value of the related investments, primarily fixed maturity securities and mortgage loans.
Fixed Maturity Securities
The majority of the Company’s fixed maturity securities are classified as AFS and are reported at their estimated fair value. Changes in the estimated fair value of these securities not recognized in earnings representing unrecognized unrealized investment gains (losses) are recorded as a separate component of other comprehensive income (loss) (“OCI”),OCI, net of policy-related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Sales of securities are determined on a specific identification basis.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premium and accretion of discount, and is based on the estimated economic life of the securities, which for mortgage-backed and asset-backed securities considers the estimated timing and amount of prepayments of the underlying loans. See Note 710 “— Fixed Maturity Securities AFS — Methodology for Amortization of Premium and Accretion of Discount on Structured Products.” The amortization of premium and accretion of discount also take into consideration call and maturity dates. Generally, the accrual of income is ceased and accrued investment income that is considered uncollectible is recognized as a charge within net investment gains (losses) when securities are impaired.
The Company periodically evaluates these securities for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value as described in Note 710 “— Fixed Maturity Securities AFS — Evaluation of Fixed Maturity Securities AFS for Credit Loss.”
For securities in an unrealized loss position, a credit loss is recognized in earnings within net investment gains (losses) when it is anticipated that the amortized cost, excluding accrued investment income, will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized in earnings as a credit loss by establishing an ACL with a corresponding charge recorded in net investment gains (losses). However, the ACL is limited by the amount that the fair value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI as an unrecognized loss.
For purchased credit deteriorated (“PCD”) fixed maturity securities AFS and financing receivables, an ACL is established at acquisition, which is added to the purchase price to establish the initial amortized cost of the investment and is not recognized in earnings.
Mortgage Loans
The Company recognizes an ACL in earnings within net investment gains (losses) at time of purchase based on expected lifetime credit loss on financing receivables carried at amortized cost, including, but not limited to,may originate or acquire mortgage loans and leveragedin certain cases transfer an interest under participation agreements. The Company accounts for transfers of an interest in a mortgage loan as sales if the transfers meet both the conditions of a participating interest and direct financing leases, inthe conditions for sale accounting. The Company also acquires mortgage loans through an amount that represents the portion of the amortized cost basis of such financing receivables thataffiliate. The affiliate originates and acquires mortgage loans and the Company doessimultaneously purchases participation interests under a participation agreement. Mortgage loans acquired from affiliates that do not expect to collect, resulting in financing receivables being presented atmeet the net amount expected to be collected.conditions for sale accounting are treated as mortgage secured loans and reported within mortgage loans on the balance sheet.
The Company disaggregates its mortgage loan investments into three portfolio segments: commercial, agricultural and residential. Also included in commercial mortgage loans are revolving line of credit loans collateralized by commercial properties. The accounting policies that are applicable to all portfolio segments are presented below and the accounting policies related to each of the portfolio segments are included in Note 7.10.
MortgageThe Company recognizes an ACL in earnings within net investment gains (losses) at time of purchase or origination based on expected lifetime credit loss on financing receivables carried at amortized cost, including, but not limited to, mortgage loans, are statedin an amount that represents the portion of the amortized cost basis of such financing receivables that the Company does not expect to collect, resulting in financing receivables being presented at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and arethe net of ACL. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effectamount expected to amortization of premium and deferred expenses and accretion of discount and deferred fees.be collected.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company ceases to accrue interest when the collection of interest is not considered probable, which is based on a current evaluation of the status of the borrower, including the number of days past due. When a loan is placed on non-accrual status, uncollected past due accrued interest income that is considered uncollectible is charged-off against net investment income. Generally, the accrual of interest income resumes after all delinquent amounts are paid and management believes all future principal and interest payments will be collected. The Company records cash receipts on non-accruing loans in accordance with the loan agreement. The Company records charge-offs of mortgage loan balances not considered collectible upon the realization of a credit loss, for commercial and agricultural mortgage loans typically through foreclosure or after a decision is made to sell a loan, and for residential mortgage loans, typically after considering the individual consumer’s financial status. The charge-off is recorded in net investment gains (losses), net of amounts recognized in ACL. Cash recoveries on principal amounts previously charged-off are generally reported in net investment gains (losses).
Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of ACL. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premium and deferred expenses and accretion of discount and deferred fees.
Also included in mortgage loans are residential mortgage loans for which the FVO was elected, and which are stated at estimated fair value. Changes in estimated fair value are recognized in net investment income.
Mortgage loans that are designated as held-for-sale are carried at the lower of amortized cost or estimated fair value.
Policy Loans
Policy loans are stated at unpaid principal balances. Interest income is recognized as earned using the contractual interest rate. Generally, accrued interest is capitalized on the policy’s anniversary date. Valuation allowances are not established for policy loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal and accrued interest are deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy.
Real Estate
Real estate is stated at cost less accumulated depreciation. Depreciation is recognized on a straight-line basis, without any provision for salvage value, over the estimated useful life of the asset (typically up to 55 years). Rental income is recognized on a straight-line basis over the term of the respective leases. The Company periodically reviews its real estate for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. Properties whose carrying values are greater than their estimated undiscounted cash flows are written down to their estimated fair value, which is generally computed using the present value of expected future cash flows discounted at a rate commensurate with the underlying risks.
Real estate for which the Company commits to a plan to sell within one year and actively markets in its current condition for a reasonable price in comparison to its estimated fair value is classified as held-for-sale and is not depreciated. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs.
Real Estate Joint Ventures and Other Limited Partnership Interests
The Company uses the equity method of accounting or the FVO for real estate joint ventures and other limited partnership interests (“investee”)an investee when it has more than a minor ownership interest or more than a minor influence over the investee’s operations but does not hold a controlling financial interest, including when the Company is not deemed the primary beneficiary of a VIE. Under the equity method, the Company recognizes inits share of the investee's earnings within net investment income its share of the investee’s earnings.income. Contributions paid by the Company increase carrying value and distributions received by the Company reduce carrying value. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company accounts for its interest in real estate joint ventures and other limited partnership interests in which it has virtually no influence over the investee’s operations at estimated fair value. Unrealized gains (losses), representing changes in estimated fair value of these investments, are recognized in earnings within net investment gains (losses). Due to the nature and structure of these investments, they do not meet the characteristics of an equity security in accordance with applicable accounting guidance.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Company consolidates real estate joint ventures and other limited partnership interests of which it holds a controlling financial interest, or it is deemed the primary beneficiary of a VIE. Assets of certain consolidated real estate joint ventures and other limited partnership interests are initially recorded at estimated fair value. The Company elects the FVO for certain real estate joint ventures that are managed on a total return basis. Unrealized gains (losses) representing changes in estimated fair value for real estate joint ventures and other limited partnership interests recorded at estimated fair value are recognized in net investment income.
The Company routinely evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount is not recoverable and exceeds its estimated fair value. When it is determined an equity method investment has had a loss in value that is other than temporary, an impairment is recognized. Such an impairment is charged to net investment gains (losses).
Short-term Investments
Short-term investments include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments included within short-term investments are stated at amortized cost less ACL, which approximates estimated fair value.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Other Invested Assets
Other invested assets consist principally of the following:
•Freestanding derivatives with positive estimated fair values which are described in “— Derivatives” below.
•Funds withheld represent a receivable for amounts contractually withheld by ceding companies in accordance with reinsurance agreements. The Company recognizes interest on funds withheld at rates defined by the terms of the agreement which may be contractually specified or directly related to the underlying investments.
•Tax credit and renewable energy partnerships which derive a significant source of investment return in the form of income tax credits or other tax incentives. Where tax credits are guaranteed by a creditworthy third party, the investment is accounted for under the effective yield method. Otherwise, the investment is accounted for under the equity method. See Note 15.
•Affiliated investments are comprised of affiliated loans which are stated at unpaid principal balance, adjusted for any unamortized premium or discount. Interest income is recognized using an effective yield method giving effect to amortization of premium and accretion of discount.
•Annuities funding structured settlement claims represent annuities funding claims assumed by the Company in its capacity as a structured settlements assignment company. The annuities are stated at their contract value, which represents the present value of the future periodic claim payments to be provided. The net investment income recognized reflects the amortization of discount of the annuity at its implied effective interest rate.
•Affiliated investments are comprised of affiliated loans which are stated at unpaid principal balance, adjusted for any unamortized premium or discount. Interest income is recognized using an effective yield method giving effect to amortization of premium and accretion of discount.
•Tax credit and renewable energy partnerships which derive a significant source of investment return in the form of income tax credits or other tax incentives. The Company accounts for its tax credit and renewable energy investments under the equity method. See Note 3.18.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
•FVO Securitiessecurities are primarily investments in fixed maturity securities held-for-investment that are managed on a total return basis where the FVO has been elected, with changes in estimated fair value included in net investment income.
•LeveragedNet investment in leveraged leases net investment is equal to the minimum lease payment receivables plus the unguaranteed residual value, less the unearned income, less ACL and is reported net of non-recourse debt. Income is recognized by applying the leveraged lease’s estimated rate of return to the net investment in the lease in those periods in which the net investment at the beginning of the period is positive. Leveraged leases derive investment returns in part from their income tax benefit. The Company regularly reviews its minimum lease payment receivables for credit loss and residual value for impairments.
•Investments in Federal Home Loan Bank of New York (“FHLBNY”) common stock are carried at redemption value and are considered restricted investments until redeemed by FHLBNY. Dividends are recognized in net investment income when declared.
•Investment in an operating joint venture that engages in insurance underwriting activities is accounted for under the equity method.
•Company-owned life insurance policies (“COLI”) are carried at cash surrender value.
•Equity securities are reported at their estimated fair value, with changes in estimated fair value included in net investment gains (losses). Sales of securities are determined on a specific identification basis. Dividends are recognized in net investment income when declared.
•DirectNet investment in direct financing leases net investment is equal to the minimum lease payment receivables plus the unguaranteed residual value, less the unearned income, less ACL. Income is recognized by applying the pre-tax internal rate of return to the investment balance. The Company regularly reviews its minimum lease payment receivables for credit loss and residual value for impairments.
Securities Lending Transactions and Repurchase Agreements
The Company accounts for securities lending transactions and repurchase agreements as financing arrangements and the associated liability is recorded at the amount of cash received. The securities loaned or sold under these agreements are included in invested assets. Income and expenses associated with securities lending transactions and repurchase agreements are recognized as investment income and investment expense, respectively, within net investment income.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Securities Lending Transactions
The Company enters into securities lending transactions, whereby securities are loaned to unaffiliated financial institutions. The Company obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, and maintains it at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the Company’s consolidated financial statements. The Company monitors the ratio of the collateral held to the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained as necessary throughout the duration of the loan.
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these agreements, the Company sells securities and receives cash in an amount generally equal to 85% to 100% of the estimated fair value of the securities sold at the inception of the transaction, with a simultaneous agreement to repurchase such securities at a future date or on demand in an amount equal to the cash initially received plus interest. The Company monitors the ratio of the cash held to the estimated fair value of the securities sold throughout the duration of the transaction and additional cash or securities are obtained as necessary. Securities sold under such transactions may be sold or re-pledged by the transferee.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivative’s carrying value in other invested assets or other liabilities.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in net derivative gains (losses) except as follows:
| | | | | | | | |
| Statement of Operations Presentation: | Derivative: |
Policyholder benefits and claims | • | Economic hedges of variable annuity guarantees included in future policy benefits |
| Net investment income | • | Economic hedges of equity method investments in joint ventures |
| • | Economic hedges of FVO Securitiessecurities which are linked to equity indices |
Hedge Accounting
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement presentation of changes in estimated fair value of the hedging derivatives are as follows:
•Fair value hedge - a hedge of the estimated fair value of a recognized asset or liability - in the same line item as the earnings effect of the hedged item. The carrying value of the hedged recognized asset or liability is adjusted for changes in its estimated fair value due to the hedged risk.
•Cash flow hedge - a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability - in OCI and reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item.
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. The changes in estimated fair value of derivatives related to discontinued cash flow hedges remain in OCI unless it is probable that the hedged forecasted transaction will not occur.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in OCI pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable of occurring are recognized immediately in net investment gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company issues certain products which include variable annuities, and investment contracts and is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
•the contract or contract feature does not meet the definition of a MRB;
•the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
•the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
•a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Subsequent to initial recognition, fair values are based on unadjusted quoted prices for identical assets or liabilities in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment are used to determine the estimated fair value of assets and liabilities. These unobservable inputs can be based on management’s judgment, assumptions or estimation and may not be observable in market activity. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing the assets.
Employee Benefit Plans
The Company sponsors a U.S. nonqualified defined benefit pension plan covering eligible MetLife employees. A December 31 measurement date is used for the Company’s defined benefit pension plan.
The Company recognizes the funded status of its defined benefit pension plan, measured as the difference between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation (“PBO”) for pension benefits, in other liabilities.
Actuarial gains and losses result from differences between the plan’s actual experience and the assumed experience on PBO during a particular period and are recorded in accumulated OCI (“AOCI”). To the extent such gains and losses exceed 10% of the PBO, the excess is amortized into net periodic benefit costs, generally over the average projected future service years of the active employees. In addition, prior service costs (credit) are recognized in AOCI at the time of the amendment and then amortized to net periodic benefit costs over the average projected future service years of the active employees.
Net periodic benefit costs are determined using management’s estimates and actuarial assumptions and are comprised of service cost, interest cost, settlement and curtailment costs, amortization of net actuarial (gains) losses, and amortization of prior service costs (credit).
The Company sponsors a nonqualified defined contribution plan for all MetLife employees who qualify. This nonqualified defined contribution plan provides supplemental benefits in excess of limits applicable to a qualified plan which is sponsored by an affiliate.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Income Tax
Metropolitan Life Insurance Company and its includable subsidiaries join with MetLife, Inc. and its includable subsidiaries in filing a consolidated U.S. life insurance and non-life insurance federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. Current taxes (and the benefits of tax attributes such as losses) are allocated to Metropolitan Life Insurance Company and its includable subsidiaries under the consolidated tax return regulations and a tax sharing agreement. Under the consolidated tax return regulations, MetLife, Inc. has elected the “percentage method” (and 100% under such method) of reimbursing companies for tax attributes, e.g., net operating losses. As a result, 100% of tax attributes are reimbursed by MetLife, Inc. to the extent that consolidated federal income tax of the consolidated federal tax return group is reduced in a year by tax attributes. On an annual basis, each of the profitable subsidiaries pays to MetLife, Inc. the federal income tax which it would have paid based upon that year’s taxable income. If Metropolitan Life Insurance Company or its includable subsidiaries have current or prior deductions and credits (including but not limited to losses) which reduce the consolidated tax liability of the consolidated federal tax return group, the deductions and credits are characterized as realized (or realizable) by Metropolitan Life Insurance Company and its includable subsidiaries when those tax attributes are realized (or realizable) by the consolidated federal tax return group, even if Metropolitan Life Insurance Company or its includable subsidiaries would not have realized the attributes on a stand-alone basis under a “wait and see” method.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established against deferred tax assets when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including:
•the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
•the jurisdiction in which the deferred tax asset was generated;
•the length of time that carryforward can be utilized in the various taxing jurisdictions;
•future taxable income exclusive of reversing temporary differences and carryforwards;
•future reversals of existing taxable temporary differences;
•taxable income in prior carryback years; and
•tax planning strategies, including the intent and ability to hold certain AFS debt securities until they recover in value.
The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period of change.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Litigation Contingencies
The Company is a defendant in a large number of litigation matters and is involved in a number of regulatory investigations. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Except as otherwise disclosed in Note 16,19, legal costs are recognized as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected on the Company’s consolidated financial statements.
Other Accounting Policies
Stock-Based Compensation
The Company does not issue any awards payable in its common stock or options to purchase its common stock. MetLife, Inc. grants certain employees stock-based compensation awards under various plans, subject to vesting conditions. In accordance with a services agreement with an affiliate, the Company bears a proportionate share of stock-based compensation expense. The Company’s expense related to stock-based compensation included in other expenses was $67 million, $59$67 million and $44$59 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
Cash and Cash Equivalents
The Company considers highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Securities included within cash equivalents are stated at estimated fair value, while other investments included within cash equivalents are stated at amortized cost, which approximates estimated fair value.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation isand amortization on property and equipment are determined using the straight-line method over the estimated useful lives of the assets, as appropriate. The estimated life is generally ranging from four to 40 years for company occupied real estate property,years. Leasehold improvements are amortized over the shorter of the useful life or remaining lease term up to 10 years for leasehold improvements, and from three20 to seven years for all other property and equipment. years. The cost basis of the property, equipment and leasehold improvements was $840$826 million and $852$840 million at December 31, 20222023 and 2021,2022, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $719$727 million and $695$719 million at December 31, 20222023 and 2021,2022, respectively.
Leases
The Company, as lessee, has entered into various lease and sublease agreements for office space and equipment. At contract inception, the Company determines that an arrangement contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For contracts that contain a lease, the Company recognizes the ROU asset in other assets and the lease liability in other liabilities. The Company evaluates whether a ROU asset is impaired when events or changes in circumstances indicate that its carrying amount may not be recoverable. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the associated lease costs are recorded as an expense on a straight-line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are determined using the Company’s incremental borrowing rate based upon information available at commencement date to recognize the present value of lease payments over the lease term. ROU assets also include lease payments and exclude lease incentives. Lease terms may include options to extend or terminate the lease and are included in the lease measurement when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components. The Company does not separate lease and non-lease components and accounts for these items as a single lease component for all asset classes.
The majority of the Company’s leases and subleases are operating leases related to office space. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Other Revenues
Other revenues primarily include fees related to service contracts from customers for prepaid legal plans, administrative services-only contracts, and recordkeeping and related services. Substantially all of the revenue from the services is recognized over time as the applicable services are provided or are made available to the customers. The revenue recognized includes variable consideration to the extent it is probable that a significant reversal will not occur. In addition to the service fees, other revenues also include certain stable value fees and interest on ceded reinsurance ceded.deposit assets. These feesamounts are recognized as earned.
Policyholder Dividends
Policyholder dividends are approved annually by Metropolitan Life Insurance Company’s Board 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 Metropolitan Life Insurance Company.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Foreign Currency
Assets, liabilities and operations of foreign affiliates and subsidiaries, as well as investments accounted for under the equity method, are recorded based on the functional currency of each entity. The determination of the functional currency is made based on the appropriate economic and management indicators. For most of the Company’s foreign operations, the local currency is the functional currency. Assets and liabilities of foreign affiliates and subsidiaries are translated from the functional currency to U.S. dollars at the exchange rates in effect at each year-end and revenues and expenses are translated at the average exchange rates during the year. The resulting translation adjustments are charged or credited directly to OCI, net of applicable taxes. Gains and losses from foreign currency transactions, including the effect of re-measurement of monetary assets and liabilities to the appropriate functional currency, are reported as part of net investment gains (losses) in the period in which they occur.
Goodwill
Goodwill represents the future economic benefits arising from net assets acquired in a business combination that are not individually identified and recognized. Goodwill is calculated as the excess of the cost of the acquired entity over the estimated fair value of such assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter based upon data as of the close of the second quarter. Goodwill associated with a business acquisition is not tested for impairment during the year the business is acquired unless there is a significant identified impairment event.
The impairment test is performed at the reporting unit level, which is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company will consider income tax effects from any tax deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if applicable.
On an ongoing basis, the Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse economic, industry and market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill.
For the 20222023 annual goodwill impairment tests, the Company concluded that goodwill was not impaired. The goodwill balance was $86$84 million, $2 million and $31 million in the U.S. segmentGroup Benefits, RIS and MetLife Holdings segments, respectively, at both December 31, 20222023 and 2021. The goodwill balance was $31 million in the MetLife Holdings segment at both December 31, 2022 and 2021.2022.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”)ASUs to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. The following tables provide a description of ASUs recently issued by the FASB and the impact of their adoption on the Company’s consolidated financial statements.
Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
The Company adopted LDTI effective January 1, 2023 with a Transition Date of January 1, 2021. The standard required a full retrospective transition approach for MRBs, and allowed for a transition method election for FPBs and DAC, as well as other balances that have historically been amortized in a manner consistent with DAC. The Company has elected the modified retrospective transition approach for all FPBs, DAC, and related balances on all long-duration contracts, subject to the transition provisions. Additionally, an amendment in LDTI allowed entities to make an accounting policy election to exclude certain sold or disposed contracts or legal entities from application of the transition guidance. The Company did not make such an election.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Under the modified retrospective approach, the Company was required to establish LDTI-compliant FPBs, DAC and related balances for the Company’s Transition Date opening balance sheet by utilizing the Company’s December 31, 2020 balances with certain adjustments as described below.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The following table presents a summary of the Transition Date impacts associated with the implementation of LDTI to the consolidated balance sheet:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Premiums, Reinsurance and Other Receivables | | | | Deferred Policy Acquisition Costs and Value of Business Acquired | | Deferred Tax Asset | | Other
Assets | | Future Policy Benefits | | Policyholder Account Balances | | Market Risk Benefit Liabilities | | Deferred Income Tax Liability | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) |
| | (In millions) |
| Balances as reported, December 31, 2020 | | $ | 21,478 | | | | | $ | 2,649 | | | $ | — | | | $ | 4,276 | | | $ | 133,921 | | | $ | 96,635 | | | $ | — | | | $ | 1,980 | | | $ | 10,548 | | | $ | 11,662 | |
| Reclassification of carrying amounts of contracts and contract features that are market risk benefits | | (59) | | | | | — | | | — | | | — | | | (1,447) | | | (495) | | | 1,883 | | | — | | | — | | | — | |
| Adjustments for the difference between previous carrying amounts and fair value measurements for market risk benefits | | — | | | | | — | | | — | | | — | | | — | | | — | | | 4,906 | | | (1,030) | | | (3,897) | | | 21 | |
| Removal of related amounts in accumulated other comprehensive income | | — | | | | | 1,482 | | | — | | | 29 | | | (6,835) | | | — | | | — | | | 1,751 | | | — | | | 6,595 | |
| Adjustment of future policy benefits to remeasure cohorts where net premiums exceed gross premiums under the modified retrospective approach | | 32 | | | | | — | | | — | | | — | | | 89 | | | — | | | — | | | (12) | | | (45) | | | — | |
| Effect of remeasurement of future policy benefits to an upper-medium grade discount rate | | 403 | | | | | — | | | — | | | — | | | 25,208 | | | — | | | — | | | (5,209) | | | — | | | (19,596) | |
| Adjustments for the cumulative effect of adoption on additional insurance assets and liabilities | | 29 | | | | | — | | | — | | | — | | | 36 | | | — | | | — | | | — | | | — | | | (7) | |
| Other balance sheet reclassifications and adjustments upon adoption of the LDTI standard | | 2 | | | | | 12 | | | 2,518 | | | — | | | (4,794) | | | 4,794 | | | — | | | 2,520 | | | 10 | | | — | |
| Balances as adjusted, January 1, 2021 | | $ | 21,885 | | | | | $ | 4,143 | | | $ | 2,518 | | | $ | 4,305 | | | $ | 146,178 | | | $ | 100,934 | | | $ | 6,789 | | | $ | — | | | $ | 6,616 | | | $ | (1,325) | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The Transition Date impacts associated with the implementation of LDTI were applied as follows:
Market Risk Benefits (See Note 5)
The full retrospective transition approach for MRBs required assessing products to determine whether contract or contract features expose the Company to other than nominal capital market risk. The population of MRBs identified was then reviewed to determine the historical measurement model prior to adoption of LDTI. If the MRB was a bifurcated embedded derivative prior to the adoption of LDTI, the existing measurement approach was retained, except that the fair value of the MRB at inception was recalculated to isolate the contract issue date nonperformance risk of the Company.
If, prior to the adoption of LDTI, the MRB was partially a bifurcated embedded derivative (e.g., a contract with multiple features where one was a bifurcated embedded derivative and one was an additional insurance liability), or was accounted for under a different model, the at-inception attributed fee ratio was calculated for every identified MRB, and using the at inception attributed fee ratio, the fair value of the MRB at the contract issue date was calculated to isolate the contract issue date nonperformance risk of the Company.
At the Transition Date, the impacts to the financial statements of the full retrospective approach for MRBs include the following:
•The amounts previously recorded for these contracts within additional insurance liabilities, embedded derivatives, and other insurance liabilities were reclassified to MRB liabilities;
•The difference between the fair value of the MRBs and the previously recorded carrying value at the Transition Date, excluding the cumulative effect of changes in nonperformance risk of the Company, was recorded as an adjustment to the opening balance of retained earnings; and
•The cumulative effect of changes in nonperformance risk between the contract issue date and the Transition Date was recorded as an adjustment to opening AOCI as of the Transition Date.
Future Policy Benefits (See Note 3)
Traditional Non-participating Long-duration products
•Loss recognition balances related to unrealized investment gains associated with certain long-duration products previously recorded in AOCI were removed;
•Contracts in-force as of the Transition Date were grouped into cohorts; a revised NPR was calculated for each cohort using the existing Transition Date balance, best estimate cash flow assumptions without a provision for adverse deviation, and the historical discount rates used for the contracts within the cohort prior to the adoption of LDTI (the “locked-in” discount rate). For any cohorts where the net premiums exceeded gross premiums (NPR exceeded 100%), the FPB was increased for the excess of net premiums over gross premiums, with a corresponding adjustment recorded to opening retained earnings as of the Transition Date;
•The difference between the FPB balance calculated at the current upper-medium grade discount rate and the FPB balance calculated at the locked-in discount rate was recorded as an adjustment to opening AOCI as of the Transition Date; and
•Corresponding adjustments were made to ceded reinsurance balances.
Limited-payment Long-duration products
Limited-payment long-duration products transition to LDTI follows a similar approach to traditional non-participating products, except that these product cohorts may have a DPL which is adjusted at the Transition Date. If an increase to FPB depleted the DPL, the remaining adjustment was recorded to opening retained earnings as of the Transition Date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Additional insurance liabilities
•The contracts and contract features that met the definition of a MRB were reclassified;
•The impact of updating assessments used in the calculation of the additional insurance liabilities to reflect the constant margin amortization basis for UREV liabilities was recorded as an adjustment to opening retained earnings and AOCI; and
•Corresponding adjustments were made to ceded reinsurance balances.
DAC and other balances to be amortized in a manner consistent with DAC (VOBA, DSI and UREV) (See Note 7 for information on DAC, VOBA and UREV)
The opening balances of these accounts were adjusted for removal of the related amounts in AOCI, as these balances are no longer amortized using expected future gross premiums, margins, profits or earned premiums.
Other balance sheet reclassifications and adjustments at LDTI adoption (See Notes 3, 4 and 7)
Individual income annuities reclassification
Prior to the Transition Date, the Company classified all structured settlement and institutional income annuity products within FPBs. While the pre-LDTI GAAP reserving model was the same for these products, upon transition to LDTI, the reserving model for a subset of these products changed, requiring the Company to reclassify $4.7 billion of FPBs to PABs at the Transition Date.
Other reclassifications and adjustments
Other minor reclassifications and adjustments were made to conform to LDTI presentation requirements.
The following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s previously reported consolidated balance sheet:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | As Previously Reported | | Adoption
Adjustment | | Post
Adoption |
| | (In millions) |
| Assets | | | | | | |
| Premiums, reinsurance and other receivables | | $ | 20,704 | | | $ | 87 | | | $ | 20,791 | |
| Market risk benefits | | $ | — | | | $ | 174 | | | $ | 174 | |
| Deferred policy acquisition costs and value of business acquired | | $ | 5,263 | | | $ | (1,506) | | | $ | 3,757 | |
| Deferred income tax asset | | $ | 2,661 | | | $ | 259 | | | $ | 2,920 | |
| Other assets | | $ | 4,367 | | | $ | (15) | | | $ | 4,352 | |
| Total assets | | $ | 385,840 | | | $ | (1,001) | | | $ | 384,839 | |
| | | | | | |
| Liabilities | | | | | | |
| Future policy benefits | | $ | 133,725 | | | $ | (6,811) | | | $ | 126,914 | |
| Policyholder account balances | | $ | 99,967 | | | $ | 3,440 | | | $ | 103,407 | |
| Market risk benefits | | $ | — | | | $ | 3,270 | | | $ | 3,270 | |
| Other policy-related balances | | $ | 7,863 | | | $ | 68 | | | $ | 7,931 | |
| Other liabilities | | $ | 24,489 | | | $ | 6 | | | $ | 24,495 | |
| Total liabilities | | $ | 371,471 | | | $ | (27) | | | $ | 371,444 | |
| | | | | | |
| Equity | | | | | | |
| Retained earnings | | $ | 10,572 | | | $ | (1,550) | | | $ | 9,022 | |
| Accumulated other comprehensive income (loss) | | $ | (8,896) | | | $ | 576 | | | $ | (8,320) | |
| Total Metropolitan Life Insurance Company stockholder’s equity | | $ | 14,157 | | | $ | (974) | | | $ | 13,183 | |
| | | | | | |
| Total equity | | $ | 14,369 | | | $ | (974) | | | $ | 13,395 | |
| Total liabilities and equity | | $ | 385,840 | | | $ | (1,001) | | | $ | 384,839 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s previously reported consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| | 2022 | | 2021 |
| | As Previously Reported | | Adoption
Adjustment | | Post
Adoption | | As Previously Reported | | Adoption
Adjustment | | Post
Adoption |
| (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 31,198 | | | $ | (9) | | | $ | 31,189 | | | $ | 26,191 | | | $ | (3) | | | $ | 26,188 | |
| Universal life and investment-type product policy fees | | $ | 1,997 | | | $ | (180) | | | $ | 1,817 | | | $ | 2,062 | | | $ | (188) | | | $ | 1,874 | |
| Other revenues | | $ | 1,698 | | | $ | (4) | | | $ | 1,694 | | | $ | 1,616 | | | $ | — | | | $ | 1,616 | |
| Net derivative gains (losses) | | $ | 472 | | | $ | 280 | | | $ | 752 | | | $ | (964) | | | $ | (665) | | | $ | (1,629) | |
| Total revenues | | $ | 45,360 | | | $ | 87 | | | $ | 45,447 | | | $ | 42,043 | | | $ | (856) | | | $ | 41,187 | |
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims | | $ | 32,954 | | | $ | 179 | | | $ | 33,133 | | | $ | 29,423 | | | $ | (339) | | | $ | 29,084 | |
| Policyholder liability remeasurement (gains) losses | | $ | — | | | $ | (11) | | | $ | (11) | | | $ | — | | | $ | — | | | $ | — | |
| Market risk benefits remeasurement (gains) losses | | $ | — | | | $ | (3,379) | | | $ | (3,379) | | | $ | — | | | $ | (758) | | | $ | (758) | |
| Interest credited to policyholder account balances | | $ | 2,382 | | | $ | 127 | | | $ | 2,509 | | | $ | 2,027 | | | $ | 158 | | | $ | 2,185 | |
| Policyholder dividends | | $ | 559 | | | $ | 4 | | | $ | 563 | | | $ | 728 | | | $ | 4 | | | $ | 732 | |
| Other expenses | | $ | 5,555 | | | $ | 148 | | | $ | 5,703 | | | $ | 5,617 | | | $ | 83 | | | $ | 5,700 | |
| Total expenses | | $ | 41,450 | | | $ | (2,932) | | | $ | 38,518 | | | $ | 37,795 | | | $ | (852) | | | $ | 36,943 | |
| Income (loss) before provision for income tax | | $ | 3,910 | | | $ | 3,019 | | | $ | 6,929 | | | $ | 4,248 | | | $ | (4) | | | $ | 4,244 | |
| Provision for income tax expense (benefit) | | $ | 639 | | | $ | 634 | | | $ | 1,273 | | | $ | 530 | | | $ | (1) | | | $ | 529 | |
| Net income (loss) | | $ | 3,271 | | | $ | 2,385 | | | $ | 5,656 | | | $ | 3,718 | | | $ | (3) | | | $ | 3,715 | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | | $ | 3,243 | | | $ | 2,385 | | | $ | 5,628 | | | $ | 3,713 | | | $ | (3) | | | $ | 3,710 | |
The following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s previously reported consolidated statements of comprehensive income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | As Previously Reported | | Adoption
Adjustment | | Post
Adoption | | As Previously Reported | | Adoption
Adjustment | | Post
Adoption |
| | (In millions) |
| Net income (loss) | | $ | 3,271 | | | $ | 2,385 | | | $ | 5,656 | | | $ | 3,718 | | | $ | (3) | | | $ | 3,715 | |
| Unrealized investment gains (losses), net of related offsets | | $ | (23,566) | | | $ | (6,769) | | | $ | (30,335) | | | $ | (2,462) | | | $ | (2,879) | | | $ | (5,341) | |
| Future policy benefits discount rate remeasurement gains (losses) | | $ | — | | | $ | 21,623 | | | $ | 21,623 | | | $ | — | | | $ | 5,118 | | | $ | 5,118 | |
| Market risk benefits instrument-specific credit risk remeasurement gains (losses) | | $ | — | | | $ | (236) | | | $ | (236) | | | $ | — | | | $ | 311 | | | $ | 311 | |
| Other comprehensive income (loss), before income tax | | $ | (23,817) | | | $ | 14,618 | | | $ | (9,199) | | | $ | (2,260) | | | $ | 2,550 | | | $ | 290 | |
| Income tax (expense) benefit related to items of other comprehensive income (loss) | | $ | 5,004 | | | $ | (3,070) | | | $ | 1,934 | | | $ | 515 | | | $ | (535) | | | $ | (20) | |
| Other comprehensive income (loss), net of income tax | | $ | (18,813) | | | $ | 11,548 | | | $ | (7,265) | | | $ | (1,745) | | | $ | 2,015 | | | $ | 270 | |
| Comprehensive income (loss) | | $ | (15,542) | | | $ | 13,933 | | | $ | (1,609) | | | $ | 1,973 | | | $ | 2,012 | | | $ | 3,985 | |
| Comprehensive income (loss) attributable to Metropolitan Life Insurance Company | | $ | (15,570) | | | $ | 13,933 | | | $ | (1,637) | | | $ | 1,968 | | | $ | 2,012 | | | $ | 3,980 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s previously reported consolidated statements of equity:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | As Previously Reported | | Adoption
Adjustment | | Post
Adoption |
| | | | | | | | (In millions) |
| Retained Earnings | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | | | | $ | 10,548 | | | $ | — | | | $ | 10,548 | |
| Cumulative effects of changes in accounting principles, net of income tax | | | | | | | | $ | — | | | $ | (3,932) | | | $ | (3,932) | |
| Net income (loss) | | | | | | | | $ | 3,713 | | | $ | (3) | | | $ | 3,710 | |
| Balance at December 31, 2021 | | | | | | | | $ | 10,868 | | | $ | (3,935) | | | $ | 6,933 | |
| Net income (loss) | | | | | | | | $ | 3,243 | | | $ | 2,385 | | | $ | 5,628 | |
| Balance at December 31, 2022 | | | | | | | | $ | 10,572 | | | $ | (1,550) | | | $ | 9,022 | |
| Accumulated Other Comprehensive Income (Loss) | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | | | | $ | 11,662 | | | $ | — | | | $ | 11,662 | |
| Cumulative effects of changes in accounting principles, net of income tax | | | | | | | | $ | — | | | $ | (12,987) | | | $ | (12,987) | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (1,745) | | | $ | 2,015 | | | $ | 270 | |
| Balance at December 31, 2021 | | | | | | | | $ | 9,917 | | | $ | (10,972) | | | $ | (1,055) | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (18,813) | | | $ | 11,548 | | | $ | (7,265) | |
| Balance at December 31, 2022 | | | | | | | | $ | (8,896) | | | $ | 576 | | | $ | (8,320) | |
| Total Metropolitan Life Insurance Company Stockholder’s Equity | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | | | | $ | 34,675 | | | $ | — | | | $ | 34,675 | |
| Cumulative effects of changes in accounting principles, net of income tax | | | | | | | | $ | — | | | $ | (16,919) | | | $ | (16,919) | |
| Net income (loss) | | | | | | | | $ | 3,713 | | | $ | (3) | | | $ | 3,710 | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (1,745) | | | $ | 2,015 | | | $ | 270 | |
| Balance at December 31, 2021 | | | | | | | | $ | 33,254 | | | $ | (14,907) | | | $ | 18,347 | |
| Net income (loss) | | | | | | | | $ | 3,243 | | | $ | 2,385 | | | $ | 5,628 | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (18,813) | | | $ | 11,548 | | | $ | (7,265) | |
| Balance at December 31, 2022 | | | | | | | | $ | 14,157 | | | $ | (974) | | | $ | 13,183 | |
| Total Equity | | | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | | | | $ | 34,858 | | | $ | — | | | $ | 34,858 | |
| Cumulative effects of changes in accounting principles, net of income tax | | | | | | | | $ | — | | | $ | (16,919) | | | $ | (16,919) | |
| Net income (loss) | | | | | | | | $ | 3,718 | | | $ | (3) | | | $ | 3,715 | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (1,745) | | | $ | 2,015 | | | $ | 270 | |
| Balance at December 31, 2021 | | | | | | | | $ | 33,428 | | | $ | (14,907) | | | $ | 18,521 | |
| Change in equity of noncontrolling interests | | | | | | | | $ | 10 | | | $ | — | | | $ | 10 | |
| Net income (loss) | | | | | | | | $ | 3,271 | | | $ | 2,385 | | | $ | 5,656 | |
| Other comprehensive income (loss), net of income tax | | | | | | | | $ | (18,813) | | | $ | 11,548 | | | $ | (7,265) | |
| Balance at December 31, 2022 | | | | | | | | $ | 14,369 | | | $ | (974) | | | $ | 13,395 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s previously reported consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | As Previously Reported | | Adoption
Adjustment | | Post
Adoption | | As Previously Reported | | Adoption
Adjustment | | Post
Adoption |
| | (In millions) |
| Cash flows from operating activities | | | | | | | | | | | | |
| Net income (loss) | | $ | 3,271 | | | $ | 2,385 | | | $ | 5,656 | | | $ | 3,718 | | | $ | (3) | | | $ | 3,715 | |
| (Gains) losses on derivatives, net | | $ | 1,122 | | | $ | (187) | | | $ | 935 | | | $ | 2,480 | | | $ | 232 | | | $ | 2,712 | |
| Interest credited to policyholder account balances | | $ | 2,344 | | | $ | (51) | | | $ | 2,293 | | | $ | 1,988 | | | $ | 116 | | | $ | 2,104 | |
| Universal life and investment-type product policy fees | | $ | (1,162) | | | $ | (1) | | | $ | (1,163) | | | $ | (1,070) | | | $ | (21) | | | $ | (1,091) | |
| Change in premiums, reinsurance and other receivables | | $ | 146 | | | $ | 69 | | | $ | 215 | | | $ | 752 | | | $ | (162) | | | $ | 590 | |
| Change in market risk benefits | | $ | — | | | $ | (3,141) | | | $ | (3,141) | | | $ | — | | | $ | (476) | | | $ | (476) | |
| Change in deferred policy acquisition costs and value of business acquired, net | | $ | (39) | | | $ | 147 | | | $ | 108 | | | $ | 194 | | | $ | 84 | | | $ | 278 | |
| Change in income tax | | $ | 219 | | | $ | 634 | | | $ | 853 | | | $ | 5 | | | $ | (1) | | | $ | 4 | |
| Change in other assets | | $ | 201 | | | $ | (14) | | | $ | 187 | | | $ | (308) | | | $ | 5 | | | $ | (303) | |
| Change in insurance-related liabilities and policy-related balances | | $ | (1,958) | | | $ | 628 | | | $ | (1,330) | | | $ | (957) | | | $ | 700 | | | $ | (257) | |
| Change in other liabilities | | $ | (67) | | | $ | 4 | | | $ | (63) | | | $ | (370) | | | $ | (2) | | | $ | (372) | |
| Net cash provided by (used in) operating activities | | $ | 4,667 | | | $ | 473 | | | $ | 5,140 | | | $ | 3,257 | | | $ | 472 | | | $ | 3,729 | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Policyholder account balances - deposits | | $ | 85,294 | | | $ | (9) | | | $ | 85,285 | | | $ | 78,129 | | | $ | — | | | $ | 78,129 | |
| Policyholder account balances - withdrawals | | $ | (80,028) | | | $ | (464) | | | $ | (80,492) | | | $ | (80,378) | | | $ | (472) | | | $ | (80,850) | |
| Net cash provided by (used in) financing activities | | $ | (8,710) | | | $ | (473) | | | $ | (9,183) | | | $ | (3,758) | | | $ | (472) | | | $ | (4,230) | |
Other Adopted Accounting Pronouncements
The table below describes the impacts of the other ASUs adopted by the Company, effective January 1, 2022.Company.
| | | | | | | | | | | |
| Standard | Description | Effective Date and Method of Adoption | Impact on Financial Statements |
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
| The amendments in the new ASU eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit loss guidance while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. | January 1, 2023, the Company adopted, using a prospective approach. | The new guidance has reduced the complexity involved with evaluating and accounting for certain loan modifications. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements, other than expanded disclosures in Note 10. |
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting; as clarified and amended by ASU 2021-01,Reference Rate Reform (Topic 848): Scope; as amended by ASU 2022-06, Reference Rate Reform (Topic 848)-Deferral—Deferral of the Sunset Date of Topic 848
| The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with certain exceptions. ASU 2021-01 amends the scope of the recent reference rate reform guidance. New optional expedients allow derivative instruments impacted by changes in the interest rate used for margining, discounting, or contract price alignment to qualify for certain optional relief. The amendments in ASU 2022-06 extend the sunset date of the reference rate reform optional expedients and exceptions to December 31, 2024.
| Effective for contract modifications made between March 12, 2020 and December 31, 2024. | The guidance has reduced the operational and financial impacts of contract modifications that replace a reference rate, such as London Interbank Offered Rate, (“LIBOR”), affected by reference rate reform.
Contract modifications for invested assets and derivative instrumentsto replace reference rates affected by the reform occurred during 2021, and 2022 and will continue into 2023. Based on actions taken to date, theThe adoption of the guidance hasdid not hadhave a material impact on the Company’s consolidated financial statements. The Company does not expect the adoption of this guidance to have a material ongoing impact on its consolidated financial statements. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Future Adoption of Accounting Pronouncements
ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s consolidated financial statements or disclosures. ASUs issued but not yet adopted as of December 31, 20222023 that are currently being assessed and may or may not have a material impact on the Company’s consolidated financial statements or disclosures are summarized in the table below.
| | | | | | | | | | | |
| Standard | Description | Effective Date and Method of Adoption | Impact on Financial Statements |
ASU 2018-12,2023-09, Financial Services—InsuranceIncome Taxes (Topic 944)740): Targeted Improvements to the Accounting for Long-Duration Contracts, as amended by ASU 2019-09, Financial Services—Insurance (Topic 944): Effective Date, as amended by ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application; as amended by ASU 2022-05, Financial Services—Insurance (Topic 944): Transition for Sold ContractsIncome Tax Disclosures | The guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees (“market risk benefits”) on certain separate account andAmong other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures.
Market risk benefits are contracts or contract features that guarantee benefits, such as guaranteed minimum benefits, in addition to an account balance which expose insurance companies to other than nominal capital market risk and protect the contractholder from the same risk. Certain contracts or contract features to be identified as “market risk benefits” are currently accounted for as embedded derivatives and measured at fair value, while others will transition to fair value measurement upon the adoption of ASU 2018-12. The methods for determining the fair value of contract features considered to be market risk benefits are similar to the approaches used if it was previously accounted for as an embedded derivative; except that changes in fair value attributable to nonperformance risk now will be recognized directly in OCI.
The amendments in ASU 2019-09 defer the effective date of ASU 2018-12 to January 1, 2022 for all entities, andthings, the amendments in ASU 2020-11 further deferthis update require that public business entities, on an annual basis: (i) disclose specific categories in the effective daterate reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount of ASU 2018-12income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). | Effective for an additional year toannual periods beginning January 1, 2023 for all entities. The amendments in ASU 2022-05 allow entities to make an accounting policy election to exclude certain sold or disposed contracts or legal entities from application of the transition guidance. The Company does not intend to make such an election. | January 1, 2023,2025, to be applied retrospectively to January 1, 2021prospectively with an option for retrospective application (with early adoption permitted). Estimated impacts from adoption as of | The Company is evaluating the transition date of January 1, 2021 are measured using market assumptions appropriate as of that date. Such estimates do not reflect changes in market assumptions subsequent to January 1, 2021. | The Company’s implementation efforts and the evaluation of the impactsimpact of the guidance on its consolidated financial statements, as well as its systems, processes, and controls, continue to progress. Given the nature and extent of the required changes to a significant portion of the Company’s operations, the adoption of this guidance is expected to have a material impact on its financial position, results of operations, and disclosures.
The Company will adopt the guidance effective January 1, 2023. The modified retrospective approach will be used, except in regard to market risk benefits where the Company will use the full retrospective approach. Based upon these transition methods, the Company currently estimates that the January 1, 2021 transition date impact from adoption is expected to result in a decrease to total equity of approximately $17.0 billion, net of income tax.
The expected decrease in total equity includes the estimated impact to AOCI which, as of the transition date, is expected to result in a decrease of approximately $13.0 billion, net of income tax. The most significant drivers of the expected decrease in AOCI are the anticipated impacts of the changes in the discount rates as of the transition date to be used in measuring the liability for future policy benefits for traditional and limited payment contracts and the non-performance risk in the valuation of the Company’s market risk benefits. The expected decrease in AOCI is expected to be partially offset by the removal of loss recognition balances recorded in AOCI related to unrealized investment gains associated with certain long-duration products.
The expected decrease in total equity also includes the estimated impact to retained earnings which, from adoption, is expected to result in a decrease of approximately $4.0 billion, net of income tax. This decrease results from the requirement to account for variable annuity guarantees as market risk benefits measured at fair value (except for the changes in fair value already recognized under an existing accounting model) and other valuation impacts to the liability for future policy benefits.
As of December 31, 2022, primarily as a result of increases in market interest rates from the January 1, 2021 transition date to December 31, 2022, we estimate that the transition date reduction to retained earnings will significantly reverse, and that the transition date reduction to AOCI will fully reverse.
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
| | | | | | | | | | | |
Standard | Description | Effective Date and Method of Adoption | Impact on Financial Statementsstatements. |
ASU 2022-03,2023-07, Fair Value MeasurementSegment Reporting (Topic 820)280): Fair Value MeasurementImprovements to Reportable Segment Disclosures | The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments include: (i) disclosures on significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of Equity Securities Subjectsegment profit or loss on an annual and interim basis; (ii) disclosures on an amount for other segment items by reportable segment and a description of its composition on an annual and interim basis. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss; (iii) providing all annual disclosures on a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting in interim periods; and (iv) specifying the title and position of the CODM. | Effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025, to be applied on a retrospective basis unless it is impracticable (with early adoption permitted).
Contractual Sale Restrictions
| The Company is evaluating the impact of the guidance on its annual disclosures to be included in its 2024 consolidated financial statements and interim condensed consolidated financial statements to be issued thereafter. |
ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
| The amendments in this update clarify that a contractual restriction on the sale of anpermit reporting entities to elect to account for their tax equity security is not considered partinvestments, regardless of the unit of accounttax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. In addition, disclosures describing the nature of the equity securityinvestments and therefore, is not considered in measuring fair value. In addition, the amendments clarify that an entity cannot, as a separate unit of account, recognizerelated income tax credits and measure a contractual sale restriction. The amendments also require entities that hold equity securities subject to contractual sale restrictions to make disclosures about the fair value of such equity securities, the nature and remaining duration of the restriction(s) and the circumstances that could cause a lapse in the restriction(s).benefits will be required. | January 1, 2024, to be applied prospectively with any adjustments from the adoption of the amendments
recognized in earnings and disclosed on the date of adoptioneither a modified retrospective or a retrospective basis subject to certain exceptions (with early adoption permitted). | TheEffective January 1, 2024, the Company is continuingwill elect to evaluateaccount for its tax equity investments using the impact of the guidance, and it does not expect theproportional amortization method if certain criteria are met. The adoption of the guidance to have a material impactproportional amortization method will be applied on its consolidated financial statements. |
ASU 2022-02, Financial Instruments—Credit Losses
(Topic 326): Troubled Debt Restructurings and Vintage Disclosures
| The amendments in the new ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the current expected credit loss guidance while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the amendments require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. | January 1, 2023, to be applied prospectively; however, for the transition method related to the recognition and measurement of TDRs, an entity can apply a modified retrospective transition method (with early adoption permitted). | Thebasis and the Company will adoptestimates that the ASU effective January 1, 2023 and it does not expect the2024 transition date impact from adoption of the guidance to have a material impact on its consolidated financial statements. |
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
| The guidance indicates how to determine whether a contract liability is recognized by the acquirerwill result in a business combination and provides specific guidance on howdecrease to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. | January 1, 2023,total equity not to be applied prospectively (with early adoption permitted). | The Company does not expect the adoptionexceed $250 million, net of the guidance to have a material impact on its consolidated financial statements.income tax. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information
The Company is organizedIn the fourth quarter of 2023, MLIC reorganized from two segments into two segments: U.S.the following three segments to reflect changes in management’s responsibilities: Group Benefits, RIS and MetLife Holdings. The Group Benefits and RIS businesses were previously reported as the U.S. segment. These changes were applied retrospectively and did not have an impact on prior period total consolidated net income (loss) or adjusted earnings. In addition, the Company reportscontinues to report certain of its results of operations in Corporate & Other.
U.S.Group Benefits
The Group Benefits segment, based in the U.S. segment, offers a broad range of protection products and services aimed at serving the financial needs of customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. The U.S. segment is organized into two businesses: Group Benefits and Retirement and Income Solutions (“RIS”).
•The Group Benefits business offersThese products such asinclude term, variable and universal life insurance, dental, group and individual disability and accident & health insurance.
•RIS
The RIS businesssegment, based in the U.S., offers a broad range of life and annuity-based insurance and investment products includingto corporations and their respective employees, other institutions and their respective members, as well as individuals. These products include stable value and pension risk transfer products, institutional income annuities, structured settlements, benefit funding solutions and capital markets investment products.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses that the Company no longer actively markets.markets in the United States. These include variable, universal, term and whole life insurance, variable, fixed and index-linked annuities and long-term care insurance.
Corporate & Other
Corporate & Other contains various start-up, developing and run-off businesses, including the Company’s ancillary non-U.S. operations. Also included in Corporate & Other are: the excess capital, as well as certain charges and activities, not allocated to the segments (including enterprise-wide strategic initiatives), interest expense related to the majority of the Company’s outstanding debt, expenses associated with certain legal proceedings and income tax audit issues, and the elimination of intersegment amounts (which generally relate to affiliated reinsurance and intersegment loans bearing interest rates commensurate with related borrowings).
Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. Adjusted earnings should not be viewed as a substitute for net income (loss). The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.
The adoption of LDTI impacted the Company’s calculation of adjusted earnings. With the adoption of LDTI, the measurement model was simplified for DAC and VOBA, and most embedded derivatives were reclassified as MRBs. As a result, the Company updated its calculation of adjusted earnings to remove certain adjustments related to the amortization of DAC, VOBA and related intangibles and adjusted for changes in measurement of certain guarantees. Under LDTI, adjusted earnings excludes changes in fair value associated with MRBs, changes in discount rates on certain annuitization guarantees, losses at contract inception for certain single premium business, and asymmetrical accounting associated with in-force reinsurance. All periods presented herein reflect the updated calculation of adjusted earnings.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax.
TheThese financial measures of adjusted revenues and adjusted expenses focus on the Company’s primary businesses principally by excluding the impact of (i) market volatility which could distort trends, (ii) asymmetrical and non-economic accounting, and (iii) revenues and costs related to divested businesses, non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAPGAAP.
Market volatility can have a significant impact on the Company’s financial results. Adjusted earnings excludes net investment gains (losses), net derivative gains (losses), MRB remeasurement gains (losses) and goodwill impairments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Further, policyholder benefits and claims exclude (i) changes in the discount rate on certain annuitization guarantees accounted for as additional liabilities and (ii) market value adjustments.
Asymmetrical and non-economic accounting adjustments are made to the line items indicated in calculating adjusted earnings:
•Net investment income includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment.
•Other revenues include settlements of foreign currency earnings hedges and exclude asymmetrical accounting associated with in-force reinsurance.
•Policyholder benefits and claims excludes (i) amortization of basis adjustments associated with de-designated fair value hedges of future policy benefits, (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments, (iii) asymmetrical accounting associated with in-force reinsurance, and (iv) non-economic losses incurred at contract inception for certain single premium annuity business. These losses are amortized into adjusted earnings within policyholder benefits and claims over the estimated lives of the contracts.
•Interest credited to PABs excludes amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass-through adjustments and asymmetrical accounting associated with in-force reinsurance.
Divested businesses are those that have been or will be sold or exited by MLIC but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses.GAAP. Divested businesses also include the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MLIC that do not meet the criteria to be included in results of discontinued operations under GAAP. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
The following additionalOther adjustments are made to revenues, in the line items indicated in calculating adjusted revenues:
•Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB fees”); andearnings:
•Net investment income: (i) includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are usedinterest credited to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iii)PABs excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (iv) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP.
The following additional adjustments are made to expenses, in the line items indicated, in calculating adjusted expenses:
•Policyholder benefits and claims and policyholder dividends excludes: (i) amortization of basis adjustments associated with de-designated fair value hedges of future policy benefits, (ii) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (iii) amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass-through adjustments, (iv) benefits and hedging costs related to GMIBs (“GMIB costs”) and (v) market value adjustments associated with surrenders or terminations of contracts (“Market value adjustments”);contractholder-directed equity securities.
•Interest credited to policyholder account balances includes adjustmentsOther revenues include fee revenue on synthetic guaranteed interest contracts (“GICs”) accounted for earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment;as freestanding derivatives.
•Amortization of DACOther revenues exclude and VOBA excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIBother expenses include fees and GMIB costs and (iii) Market value adjustments;
•Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidatedreceived in connection with services provided under GAAP; andtransition service agreements.
•Other expenses excludes:exclude (i) noncontrolling interests,implementation of new insurance regulatory requirements and other costs, and (ii) acquisition, integration and other costs,related costs. Other expenses include (i) deductions for net income attributable to noncontrolling interests, and (iii) goodwill impairments.(ii) benefits accrued on synthetic GICs accounted for as freestanding derivatives.
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the years ended December 31, 2023, 2022 2021 and 20202021 and at December 31, 20222023 and 2021.2022. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for adjusted earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in MetLife’s and the Company’s businesses.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
MetLife’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.The adoption of LDTI resulted in changes to the economic capital model. The changes related to this adoption do not represent a change in the composition of the segments and, in accordance with GAAP guidance for segment reporting, the Company will apply the changes to the economic capital model prospectively and did not update the economic capital model for 2022 and 2021.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, net income (loss) or adjusted earnings.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. With the adoption of LDTI, net investment income was reallocated for certain segments to reflect the impact of the change to certain liability balances, with no impact to consolidated net investment income. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | U.S. | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 28,703 | | | $ | 2,495 | | | $ | — | | | $ | 31,198 | | | $ | — | | | $ | 31,198 | |
| Universal life and investment-type product policy fees | | 1,122 | | | 800 | | | — | | | 1,922 | | | 75 | | | 1,997 | |
| Net investment income (1) | | 6,362 | | | 4,449 | | | (101) | | | 10,710 | | | (588) | | | 10,122 | |
| Other revenues | | 1,064 | | | 149 | | | 485 | | | 1,698 | | | — | | | 1,698 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | (127) | | | (127) | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | 472 | | | 472 | |
| Total revenues | | 37,251 | | | 7,893 | | | 384 | | | 45,528 | | | (168) | | | 45,360 | |
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 28,830 | | | 5,128 | | | — | | | 33,958 | | | (445) | | | 33,513 | |
| Interest credited to policyholder account balances | | 1,672 | | | 643 | | | 67 | | | 2,382 | | | — | | | 2,382 | |
| Capitalization of DAC | | (65) | | | 1 | | | (120) | | | (184) | | | — | | | (184) | |
| Amortization of DAC and VOBA | | 55 | | | 144 | | | 4 | | | 203 | | | (59) | | | 144 | |
| Interest expense on debt | | 9 | | | 8 | | | 87 | | | 104 | | | — | | | 104 | |
| Other expenses | | 3,464 | | | 801 | | | 1,249 | | | 5,514 | | | (23) | | | 5,491 | |
| Total expenses | | 33,965 | | | 6,725 | | | 1,287 | | | 41,977 | | | (527) | | | 41,450 | |
| Provision for income tax expense (benefit) | | 684 | | | 229 | | | (352) | | | 561 | | | 78 | | | 639 | |
| Adjusted earnings | | $ | 2,602 | | | $ | 939 | | | $ | (551) | | | 2,990 | | | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | (168) | | | | | |
| Total expenses | | | | | | | | 527 | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | (78) | | | | | |
| Net income (loss) | | $ | 3,271 | | | | | $ | 3,271 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 | | U.S. | | MetLife Holdings | | Corporate
& Other | | Total |
| | (In millions) |
| Total assets | | $ | 220,649 | | | $ | 134,379 | | | $ | 30,812 | | | $ | 385,840 | |
| Separate account assets | | $ | 56,010 | | | $ | 33,231 | | | $ | — | | | $ | 89,241 | |
| Separate account liabilities | | $ | 56,010 | | | $ | 33,231 | | | $ | — | | | $ | 89,241 | |
__________________
(1)Net investment income from equity method investments represents 5% and 7% of segment net investment income for the U.S. and MetLife Holdings segments, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 | | Group Benefits | | RIS | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | | | |
| Premiums | | $ | 20,593 | | | $ | 1,776 | | | $ | 2,346 | | | $ | 3 | | | $ | 24,718 | | | $ | — | | | $ | 24,718 | |
| Universal life and investment-type product policy fees | | 878 | | | 264 | | | 519 | | | 3 | | | 1,664 | | | — | | | 1,664 | |
| Net investment income (1) | | 1,272 | | | 6,508 | | | 3,991 | | | 224 | | | 11,995 | | | (789) | | | 11,206 | |
| Other revenues | | 711 | | | 256 | | | 197 | | | 499 | | | 1,663 | | | 10 | | | 1,673 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | — | | | (1,375) | | | (1,375) | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | — | | | (1,537) | | | (1,537) | |
| Total revenues | | 23,454 | | | 8,804 | | | 7,053 | | | 729 | | | 40,040 | | | (3,691) | | | 36,349 | |
| Expenses | | | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 17,976 | | | 4,163 | | | 4,462 | | | 1 | | | 26,602 | | | 18 | | | 26,620 | |
| Policyholder liability remeasurement (gains) losses | | (26) | | | (158) | | | 34 | | | — | | | (150) | | | — | | | (150) | |
| Market risk benefit remeasurement (gains) losses | | — | | | — | | | — | | | — | | | — | | | (703) | | | (703) | |
| Interest credited to policyholder account balances | | 193 | | | 2,492 | | | 582 | | | 317 | | | 3,584 | | | 18 | | | 3,602 | |
| Capitalization of DAC | | (18) | | | (46) | | | 1 | | | (55) | | | (118) | | | — | | | (118) | |
| Amortization of DAC and VOBA | | 26 | | | 31 | | | 224 | | | 17 | | | 298 | | | — | | | 298 | |
| Interest expense on debt | | 2 | | | 14 | | | 13 | | | 103 | | | 132 | | | — | | | 132 | |
| Other expenses | | 3,318 | | | 559 | | | 794 | | | 852 | | | 5,523 | | | (50) | | | 5,473 | |
| Total expenses | | 21,471 | | | 7,055 | | | 6,110 | | | 1,235 | | | 35,871 | | | (717) | | | 35,154 | |
| Provision for income tax expense (benefit) | | 416 | | | 365 | | | 182 | | | (283) | | | 680 | | | (620) | | | 60 | |
| Adjusted earnings | | $ | 1,567 | | | $ | 1,384 | | | $ | 761 | | | $ | (223) | | | 3,489 | | | | | |
| Adjustments to: | | | | | | | | | | | | | | |
| Total revenues | | | | | | | | | | (3,691) | | | | | |
| Total expenses | | | | | | | | | | 717 | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | | | 620 | | | | | |
| Net income (loss) | | $ | 1,135 | | | | | $ | 1,135 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | U.S. | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 23,466 | | | $ | 2,725 | | | $ | — | | | $ | 26,191 | | | $ | — | | | $ | 26,191 | |
| Universal life and investment-type product policy fees | | 1,101 | | | 881 | | | — | | | 1,982 | | | 80 | | | 2,062 | |
| Net investment income (1) | | 7,249 | | | 5,833 | | | (17) | | | 13,065 | | | (579) | | | 12,486 | |
| Other revenues | | 861 | | | 243 | | | 512 | | | 1,616 | | | — | | | 1,616 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | 652 | | | 652 | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | (964) | | | (964) | |
| Total revenues | | 32,677 | | | 9,682 | | | 495 | | | 42,854 | | | (811) | | | 42,043 | |
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 24,504 | | | 5,281 | | | — | | | 29,785 | | | 366 | | | 30,151 | |
| Interest credited to policyholder account balances | | 1,362 | | | 666 | | | 1 | | | 2,029 | | | (2) | | | 2,027 | |
| Capitalization of DAC | | (59) | | | 1 | | | (6) | | | (64) | | | — | | | (64) | |
| Amortization of DAC and VOBA | | 56 | | | 171 | | | — | | | 227 | | | 32 | | | 259 | |
| Interest expense on debt | | 6 | | | 5 | | | 85 | | | 96 | | | — | | | 96 | |
| Other expenses | | 3,266 | | | 839 | | | 1,230 | | | 5,335 | | | (9) | | | 5,326 | |
| Total expenses | | 29,135 | | | 6,963 | | | 1,310 | | | 37,408 | | | 387 | | | 37,795 | |
| Provision for income tax expense (benefit) | | 738 | | | 551 | | | (518) | | | 771 | | | (241) | | | 530 | |
| Adjusted earnings | | $ | 2,804 | | | $ | 2,168 | | | $ | (297) | | | 4,675 | | | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | (811) | | | | | |
| Total expenses | | | | | | | | (387) | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | 241 | | | | | |
| Net income (loss) | | $ | 3,718 | | | | | $ | 3,718 | |
| | At December 31, 2021 | | U.S. | | MetLife Holdings | | Corporate
& Other | | Total |
| | (In millions) |
| At December 31, 2023 | | At December 31, 2023 | | Group Benefits | | RIS | | MetLife Holdings | | Corporate
& Other | | Total |
| | (In millions) | | | | (In millions) |
| Total assets | Total assets | | $ | 256,381 | | | $ | 161,614 | | | $ | 28,562 | | | $ | 446,557 | |
| Separate account assets | Separate account assets | | $ | 77,130 | | | $ | 46,721 | | | $ | — | | | $ | 123,851 | |
| Separate account liabilities | Separate account liabilities | | $ | 77,130 | | | $ | 46,721 | | | $ | — | | | $ | 123,851 | |
__________________
(1)Net investment income from equity method investmentsinvested assets represents 22%0%, 1% and 27%2% of segment net investment income, and equity method invested assets represent 1%, 3% and 4% of segment total assets for the Group Benefits, RIS and MetLife Holdings segments, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Group Benefits | | RIS | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | | | |
| Premiums | | $ | 20,269 | | | $ | 8,425 | | | $ | 2,495 | | | $ | — | | | $ | 31,189 | | | $ | — | | | $ | 31,189 | |
| Universal life and investment-type product policy fees | | 855 | | | 267 | | | 695 | | | — | | | 1,817 | | | — | | | 1,817 | |
| Net investment income (1) | | 1,126 | | | 5,236 | | | 4,393 | | | (45) | | | 10,710 | | | (588) | | | 10,122 | |
| Other revenues | | 653 | | | 407 | | | 149 | | | 485 | | | 1,694 | | | — | | | 1,694 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | — | | | (127) | | | (127) | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | — | | | 752 | | | 752 | |
| Total revenues | | 22,903 | | | 14,335 | | | 7,732 | | | 440 | | | 45,410 | | | 37 | | | 45,447 | |
| Expenses | | | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 18,157 | | | 10,666 | | | 4,757 | | | — | | | 33,580 | | | 116 | | | 33,696 | |
| Policyholder liability remeasurement (gains) losses | | 7 | | | (85) | | | 67 | | | — | | | (11) | | | — | | | (11) | |
| Market risk benefit remeasurement (gains) losses | | — | | | — | | | — | | | — | | | — | | | (3,379) | | | (3,379) | |
| Interest credited to policyholder account balances | | 143 | | | 1,687 | | | 643 | | | 67 | | | 2,540 | | | (31) | | | 2,509 | |
| Capitalization of DAC | | (18) | | | (51) | | | — | | | (120) | | | (189) | | | — | | | (189) | |
| Amortization of DAC and VOBA | | 26 | | | 28 | | | 237 | | | 6 | | | 297 | | | — | | | 297 | |
| Interest expense on debt | | 1 | | | 8 | | | 8 | | | 87 | | | 104 | | | — | | | 104 | |
| Other expenses | | 3,073 | | | 391 | | | 801 | | | 1,249 | | | 5,514 | | | (23) | | | 5,491 | |
| Total expenses | | 21,389 | | | 12,644 | | | 6,513 | | | 1,289 | | | 41,835 | | | (3,317) | | | 38,518 | |
| Provision for income tax expense (benefit) | | 318 | | | 350 | | | 240 | | | (339) | | | 569 | | | 704 | | | 1,273 | |
| Adjusted earnings | | $ | 1,196 | | | $ | 1,341 | | | $ | 979 | | | $ | (510) | | | 3,006 | | | | | |
| Adjustments to: | | | | | | | | | | | | | | |
| Total revenues | | | | | | | | | | 37 | | | | | |
| Total expenses | | | | | | | | | | 3,317 | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | | | (704) | | | | | |
| Net income (loss) | | $ | 5,656 | | | | | $ | 5,656 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 | | Group Benefits | | RIS | | MetLife Holdings | | Corporate
& Other | | Total |
| | (In millions) |
| Total assets | | $ | 33,179 | | | $ | 187,479 | | | $ | 133,393 | | | $ | 30,788 | | | $ | 384,839 | |
| Separate account assets | | $ | 990 | | | $ | 55,020 | | | $ | 33,231 | | | $ | — | | | $ | 89,241 | |
| Separate account liabilities | | $ | 990 | | | $ | 55,020 | | | $ | 33,231 | | | $ | — | | | $ | 89,241 | |
__________________
(1)Net investment income from equity method invested assets represents 1%, 5% and 7% of segment net investment income for the U.S.Group Benefits, RIS and MetLife Holdings segments, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
| | Year Ended December 31, 2020 | | U.S. | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) |
| Year Ended December 31, 2021 | | Year Ended December 31, 2021 | | Group Benefits | | RIS | | MetLife Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | (In millions) | | | | (In millions) |
| Revenues | Revenues | |
| Premiums | |
| Premiums | |
| Premiums | Premiums | | $ | 17,778 | | | $ | 2,962 | | | $ | 1 | | | $ | 20,741 | | | $ | — | | | $ | 20,741 | |
| Universal life and investment-type product policy fees | Universal life and investment-type product policy fees | | 1,044 | | | 868 | | | — | | | 1,912 | | | 84 | | | 1,996 | |
| Net investment income (1) | Net investment income (1) | | 6,348 | | | 4,616 | | | (136) | | | 10,828 | | | (578) | | | 10,250 | |
| Other revenues | Other revenues | | 857 | | | 224 | | | 580 | | | 1,661 | | | — | | | 1,661 | |
| Net investment gains (losses) | Net investment gains (losses) | | — | | | — | | | — | | | — | | | (73) | | | (73) | |
| Net derivative gains (losses) | Net derivative gains (losses) | | — | | | — | | | — | | | — | | | 738 | | | 738 | |
| Total revenues | Total revenues | | 26,027 | | | 8,670 | | | 445 | | | 35,142 | | | 171 | | | 35,313 | |
| Expenses | Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | Policyholder benefits and claims and policyholder dividends | | 17,821 | | | 5,669 | | | — | | | 23,490 | | | 485 | | | 23,975 | |
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder liability remeasurement (gains) losses | |
| Market risk benefit remeasurement (gains) losses | |
| Interest credited to policyholder account balances | Interest credited to policyholder account balances | | 1,569 | | | 687 | | | — | | | 2,256 | | | (9) | | | 2,247 | |
| Capitalization of DAC | Capitalization of DAC | | (49) | | | (2) | | | — | | | (51) | | | — | | | (51) | |
| Amortization of DAC and VOBA | Amortization of DAC and VOBA | | 56 | | | 290 | | | — | | | 346 | | | 60 | | | 406 | |
| Interest expense on debt | Interest expense on debt | | 7 | | | 6 | | | 86 | | | 99 | | | — | | | 99 | |
| Other expenses | Other expenses | | 3,085 | | | 801 | | | 666 | | | 4,552 | | | 7 | | | 4,559 | |
| Total expenses | Total expenses | | 22,489 | | | 7,451 | | | 752 | | | 30,692 | | | 543 | | | 31,235 | |
| Provision for income tax expense (benefit) | Provision for income tax expense (benefit) | | 752 | | | 236 | | | (376) | | | 612 | | | (78) | | | 534 | |
| Adjusted earnings | Adjusted earnings | | $ | 2,786 | | | $ | 983 | | | $ | 69 | | | 3,838 | | | |
| Adjustments to: | Adjustments to: | | | | | | | |
| Adjustments to: | |
| Adjustments to: | |
| Total revenues | |
| Total revenues | |
| Total revenues | Total revenues | | | 171 | | |
| Total expenses | Total expenses | | (543) | | |
| Total expenses | |
| Total expenses | |
| Provision for income tax (expense) benefit | |
| Provision for income tax (expense) benefit | |
| Provision for income tax (expense) benefit | Provision for income tax (expense) benefit | | | 78 | | |
| Net income (loss) | Net income (loss) | | $ | 3,544 | | | $ | 3,544 | |
| Net income (loss) | |
| Net income (loss) | |
__________________
(1)Net investment income from equity method investmentsinvested assets represents 5%, 26% and 6%28% of segment net investment income for the U.S.Group Benefits, RIS and MetLife Holdings segments, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
The following table presents total premiums, universal life and investment-type product policy fees and other revenues by major product groups of the Company’s segments, as well as Corporate & Other:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Life insurance | Life insurance | $ | 14,839 | | | $ | 15,432 | | | $ | 14,018 | |
| Accident & health insurance | Accident & health insurance | 10,111 | | | 9,493 | | | 8,650 | |
| Annuities | Annuities | 9,509 | | | 4,541 | | | 1,352 | |
| Other | Other | 434 | | | 403 | | | 378 | |
| Total | Total | $ | 34,893 | | | $ | 29,869 | | | $ | 24,398 | |
Substantially all of the Company’s consolidated premiums, universal life and investment-type product policy fees and other revenues originated in the U.S.
Revenues derived from one U.S. segmentRIS customer were $8.1 billion for the year ended December 31, 2022, which represented 23%, of consolidated premiums, universal life and investment-type product policy fees and other revenues. The revenue was from a single premium received for a pension risk transfer. Revenues derived from another U.S. segmentone Group Benefits customer were $3.6 billion, $3.8 billion $3.9 billion and $3.3$3.9 billion for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively, which represented 11%13%, 13%11% and 14%13% of the consolidated premiums, universal life and investment-type product policy fees and other revenues, respectively. Revenues derived from any other customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2023, 2022 2021 or 2020.2021.
3. InsuranceFuture Policy Benefits
Insurance Liabilities
InsuranceThe Company establishes liabilities including affiliatedfor amounts payable under insurance policies. These liabilities on reinsurance assumed and ceded, are comprised of future policy benefits, policyholder account balancestraditional and other policy-related balances. Information regardinglimited-payment contracts and associated DPLs, additional insurance liabilities, by segment,participating life and short-duration contracts.
The LDTI transition adjustments related to traditional and limited-payment contracts, DPLs, and additional insurance liabilities, as well as Corporate & Other, wasthe associated ceded recoverables, as described in Note 1, were as follows at:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In millions) |
| U.S. | $ | 148,060 | | | $ | 145,463 | |
| MetLife Holdings | 87,284 | | | 88,991 | |
| Corporate & Other | 6,211 | | | 373 | |
| Total | $ | 241,555 | | | $ | 234,827 | |
See Note 5 for discussion of affiliated reinsurance liabilities included inat the table above.Transition Date:
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RIS Annuities | | MetLife Holdings
Long-Term Care | | MetLife
Holdings
Participating
Life | | Other Long-Duration | | Short-Duration and Other | | Total |
| | (In millions) |
| Balance, future policy benefits, at December 31, 2020 | | $ | 54,535 | | | $ | 14,281 | | | $ | 45,349 | | | $ | 9,625 | | | $ | 10,131 | | | $ | 133,921 | |
| Removal of additional insurance liabilities for separate presentation (1) | | (4) | | | — | | | — | | | (2,925) | | | — | | | (2,929) | |
| Subtotal - pre-adoption balance, excluding additional liabilities | | 54,531 | | | 14,281 | | | 45,349 | | | 6,700 | | | 10,131 | | | 130,992 | |
| Removal of related amounts in AOCI | | (5,571) | | | (1,210) | | | — | | | (54) | | | — | | | (6,835) | |
| Adjustment of future policy benefits to remeasure cohorts where net premiums exceed gross premiums under the modified retrospective approach | | 41 | | | — | | | — | | | 48 | | | — | | | 89 | |
| Effect of remeasurement of future policy benefits to an upper-medium grade discount rate | | 15,011 | | | 8,270 | | | — | | | 1,927 | | | — | | | 25,208 | |
| Other balance sheet reclassifications and adjustments upon adoption of the LDTI standard | | (4,747) | | | — | | | — | | | (47) | | | — | | | (4,794) | |
| Removal of remeasured deferred profit liabilities for separate presentation (1) | | (2,413) | | | — | | | — | | | (250) | | | — | | | (2,663) | |
| Balance, traditional and limited-payment contracts, at January 1, 2021 | | $ | 56,852 | | | $ | 21,341 | | | $ | 45,349 | | | $ | 8,324 | | | $ | 10,131 | | | $ | 141,997 | |
| | | | | | | | | | | | |
| Balance, deferred profit liabilities at January 1, 2021 | | $ | 2,413 | | | $ | — | | | $ | — | | | $ | 250 | | | $ | — | | | $ | 2,663 | |
| | | | | | | | | | | | |
| Balance, ceded recoverables on traditional and limited-payment contracts at December 31, 2020 | | $ | 203 | | | $ | — | | | | | $ | 752 | | | | | $ | 955 | |
| Effect of remeasurement of the ceded recoverable to an upper-medium grade discount rate | | 135 | | | — | | | | | 268 | | | | | 403 | |
| Adjustments for loss contracts (with net premiums in excess of gross premiums) under the modified retrospective approach | | — | | | — | | | | | 32 | | | | | 32 | |
| Adjustments for the cumulative effect of adoption on ceded recoverables on traditional and limited-payment contract | | 6 | | | — | | | | | 20 | | | | | 26 | |
| Balance ceded recoverables on traditional and limited-payment contracts at January 1, 2021 | | $ | 344 | | | $ | — | | | | | $ | 1,072 | | | | | $ | 1,416 | |
__________________
Future policy benefits are measured as follows:
| | | | | |
Product Type: | Measurement Assumptions: |
Participating life | Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends. |
Nonparticipating life | Aggregate of the present value of future expected benefit payments and related expenses less the present value of future expected net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 2% to 11%. |
Individual and group
traditional fixed annuities
after annuitization | Present value of future expected payments. Interest rate assumptions used in establishing such liabilities range from 1% to 11%. |
Non-medical health
insurance | The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 1% to 7%. |
Disabled lives | Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 2% to 8%. |
Participating business represented 3%LDTI requires separate disaggregated rollforwards of the Company’s lifeadditional insurance in-forceliabilities balance and the traditional and limited-payment FPBs. Therefore, the additional insurance liabilities and DPL amounts that are recorded in the FPB financial statement line item are removed to derive the opening balance of traditional and limited-payment contracts at both December 31, 2022 and 2021. Participating policies represented 13%, 14% and 17% of gross traditional life insurance premiums for the years ended December 31, 2022, 2021 and 2020, respectively.
Policyholder account balances are equal to: (i) policy account values, which consist of an accumulation of gross premium payments; and (ii) credited interest, ranging from less than 1% to 8%, less expenses, mortality charges and withdrawals.Transition Date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
Guarantees | | | | | | | | | | | | | | | | | | | | |
| | MetLife Holdings
Universal and Variable
Universal Life | | Other
Long-Duration | | Total |
| | (In millions) |
| Additional insurance liabilities at December 31, 2020 | | $ | 1,478 | | | $ | 1,451 | | | $ | 2,929 | |
| Reclassification of carrying amount of contracts and contract features that are market risk benefits | | — | | | (1,447) | | | (1,447) | |
| Adjustments for the cumulative effect of adoption on additional insurance liabilities | | 36 | | | — | | | 36 | |
| Additional insurance liabilities at January 1, 2021 | | $ | 1,514 | | | $ | 4 | | | $ | 1,518 | |
| | | | | | |
| Ceded recoverables on additional insurance liabilities at December 31, 2020 | | $ | 554 | | | $ | — | | | $ | 554 | |
| Adjustments for the cumulative effect of adoption on ceded recoverables on additional insurance liabilities | | 9 | | | — | | | 9 | |
| Ceded recoverables on additional insurance liabilities at January 1, 2021 | | $ | 563 | | | $ | — | | | $ | 563 | |
| | | | | | |
| Balance, traditional and limited-payment contracts, at January 1, 2021 | | | | | | $ | 141,997 | |
| Balance, deferred profit liabilities at January 1, 2021 | | | | | | 2,663 | |
| Balance, additional insurance liabilities at January 1, 2021 | | | | | | 1,518 | |
| Total future policy benefits at January 1, 2021 | | | | | | $ | 146,178 | |
The Company issues directlyCompany’s future policy benefits on the consolidated balance sheets was as follows at:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| | (In millions) |
| Traditional and Limited-Payment Contracts: | | | | |
| RIS - Annuities | | $ | 48,695 | | | $ | 47,990 | |
| MetLife Holdings - Long-term care | | 15,240 | | | 13,845 | |
| Deferred Profit Liabilities: | | | | |
| RIS - Annuities | | 3,000 | | | 2,699 | |
| Additional Insurance Liabilities: | | | | |
| MetLife Holdings - Universal and variable universal life | | 1,841 | | | 1,641 | |
| MetLife Holdings - Participating life | | 43,586 | | | 44,434 | |
| Other long-duration (1) | | 6,605 | | | 6,297 | |
| Short-duration and other | | 10,215 | | | 10,008 | |
| Total | | $ | 129,182 | | | $ | 126,914 | |
__________________
(1) This balance represents liabilities for various smaller product lines across all segments.
Rollforwards - Traditional and assumes through reinsurance variable annuity products with guaranteed minimum benefits. GMABs, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 8. Guarantees accounted for as insurance liabilities include:
| | | | | | | | | | | | | | | | | |
Guarantee: | | | Measurement Assumptions: |
GMDBs | •
| A return of purchase payment upon death even if the account value is reduced to zero. | | •
| Present value of expected death benefits in excess of the projected account balance recognizing the excess ratably over the accumulation period based on the present value of total expected assessments. |
| •
| An enhanced death benefit may be available for an additional fee. | | •
| Assumptions are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. |
| | | | •
| Investment performance and volatility assumptions are consistent with the historical experience of the appropriate underlying equity index, such as the S&P 500 Index. |
| | | | •
| Benefit assumptions are based on the average benefits payable over a range of scenarios. |
GMIBs | •
| After a specified period of time determined at the time of issuance of the variable annuity contract, a minimum accumulation of purchase payments, even if the account value is reduced to zero, that can be annuitized to receive a monthly income stream that is not less than a specified amount. | | •
| Present value of expected income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on present value of total expected assessments. |
| •
| Certain contracts also provide for a guaranteed lump sum return of purchase premium in lieu of the annuitization benefit. | | •
| Assumptions are consistent with those used for estimating GMDB liabilities. |
| | | | •
| Calculation incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder. |
GMWBs | •
| A return of purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that cumulative withdrawals in a contract year do not exceed a certain limit. | | •
| Expected value of the life contingent payments and expected assessments using assumptions consistent with those used for estimating the GMDB liabilities. |
| •
| Certain contracts include guaranteed withdrawals that are life contingent. | | | |
Limited-Payment ContractsThe Company also issues other annuity contracts that applyfollowing information about the direct and assumed liability for future policy benefits includes disaggregated rollforwards of expected future net premiums and expected future benefits. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a lower rate on funds deposited ifparticular segment of the contractholder elects to surrenderbusiness. The adjusted balance in each disaggregated rollforward reflects the contract for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payableremeasurement (gains) losses. All amounts presented in the eventrollforwards and accompanying financial information do not include a reduction for amounts ceded to reinsurers, except with respect to ending net liability for future policy benefits balances where applicable. See Note 8 for further information regarding the impact of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided byreinsurance on the current account valueconsolidated balance sheets and the consolidated statements of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.operations.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
RIS - Annuities
The RIS segment’s annuity products include pension risk transfers, certain structured settlements and certain institutional income annuities, which are mainly single premium spread-based products. Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal and variable life contractsthese products was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Annuity Contracts | | Universal and Variable
Life Contracts | | |
| GMDBs and
GMWBs | | GMIBs | | Secondary
Guarantees | | Paid-Up
Guarantees | | Total |
| (In millions) |
| Direct: | | | | | | | | | |
| Balance at January 1, 2020 | $ | 361 | | | $ | 757 | | | $ | 1,075 | | | $ | 166 | | | $ | 2,359 | |
| Incurred guaranteed benefits | 144 | | | 206 | | | 320 | | | (12) | | | 658 | |
| Paid guaranteed benefits | (12) | | | (4) | | | (44) | | | (14) | | | (74) | |
| | | | | | | | | |
| Balance at December 31, 2020 | 493 | | | 959 | | | 1,351 | | | 140 | | | 2,943 | |
| Incurred guaranteed benefits | 123 | | | 82 | | | 164 | | | 16 | | | 385 | |
| Paid guaranteed benefits | (14) | | | (7) | | | (52) | | | (15) | | | (88) | |
| Balance at December 31, 2021 | 602 | | | 1,034 | | | 1,463 | | | 141 | | | 3,240 | |
| Incurred guaranteed benefits | 247 | | | (193) | | | 65 | | | 44 | | | 163 | |
| Paid guaranteed benefits | (31) | | | (8) | | | (60) | | | (13) | | | (112) | |
| | | | | | | | | |
| Balance at December 31, 2022 | $ | 818 | | | $ | 833 | | | $ | 1,468 | | | $ | 172 | | | $ | 3,291 | |
| Ceded: | | | | | | | | | |
| Balance at January 1, 2020 | $ | — | | | $ | — | | | $ | 396 | | | $ | 95 | | | $ | 491 | |
| Incurred guaranteed benefits | — | | | — | | | 93 | | | 13 | | | 106 | |
| Paid guaranteed benefits | — | | | — | | | (20) | | | (9) | | | (29) | |
| | | | | | | | | |
| Balance at December 31, 2020 | — | | | — | | | 469 | | | 99 | | | 568 | |
| Incurred guaranteed benefits | — | | | — | | | 63 | | | 10 | | | 73 | |
| Paid guaranteed benefits | — | | | — | | | (32) | | | (10) | | | (42) | |
| | | | | | | | | |
| Balance at December 31, 2021 | — | | | — | | | 500 | | | 99 | | | 599 | |
| Incurred guaranteed benefits | — | | | — | | | 43 | | | 18 | | | 61 | |
| Paid guaranteed benefits | — | | | — | | | (24) | | | (9) | | | (33) | |
| | | | | | | | | |
| Balance at December 31, 2022 | $ | — | | | $ | — | | | $ | 519 | | | $ | 108 | | | $ | 627 | |
| Net: | | | | | | | | | |
| Balance at January 1, 2020 | $ | 361 | | | $ | 757 | | | $ | 679 | | | $ | 71 | | | $ | 1,868 | |
| Incurred guaranteed benefits | 144 | | | 206 | | | 227 | | | (25) | | | 552 | |
| Paid guaranteed benefits | (12) | | | (4) | | | (24) | | | (5) | | | (45) | |
| | | | | | | | | |
| Balance at December 31, 2020 | 493 | | | 959 | | | 882 | | | 41 | | | 2,375 | |
| Incurred guaranteed benefits | 123 | | | 82 | | | 101 | | | 6 | | | 312 | |
| Paid guaranteed benefits | (14) | | | (7) | | | (20) | | | (5) | | | (46) | |
| | | | | | | | | |
| Balance at December 31, 2021 | 602 | | | 1,034 | | | 963 | | | 42 | | | 2,641 | |
| Incurred guaranteed benefits | 247 | | | (193) | | | 22 | | | 26 | | | 102 | |
| Paid guaranteed benefits | (31) | | | (8) | | | (36) | | | (4) | | | (79) | |
| | | | | | | | | |
| Balance at December 31, 2022 | $ | 818 | | | $ | 833 | | | $ | 949 | | | $ | 64 | | | $ | 2,664 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Present Value of Expected Net Premiums | | | | | | |
| Balance at January 1, at current discount rate at balance sheet date | | $ | — | | | $ | — | | | $ | — | |
| | | | | | |
| Balance at January 1, at original discount rate | | $ | — | | | $ | — | | | $ | — | |
| Effect of changes in cash flow assumptions (1) | | — | | | — | | | — | |
| Effect of actual variances from expected experience (2) | | (44) | | | — | | | — | |
| Adjusted balance | | (44) | | | — | | | — | |
| Issuances | | 1,607 | | | 8,326 | | | 3,370 | |
| Net premiums collected | | (1,563) | | | (8,326) | | | (3,370) | |
| Balance at December 31, at original discount rate | | — | | | — | | | — | |
| Balance at December 31, at current discount rate at balance sheet date | | $ | — | | | $ | — | | | $ | — | |
| | | | | | |
| Present Value of Expected Future Policy Benefits | | | | | | |
| Balance at January 1, at current discount rate at balance sheet date | | $ | 48,190 | | | $ | 54,172 | | | $ | 55,778 | |
| | | | | | |
| Balance at January 1, at original discount rate | | $ | 49,194 | | | $ | 42,453 | | | $ | 40,767 | |
| Effect of changes in cash flow assumptions (1) | | (193) | | | (99) | | | (112) | |
| Effect of actual variances from expected experience (2) | | (411) | | | (136) | | | (183) | |
| Adjusted balance | | 48,590 | | | 42,218 | | | 40,472 | |
| Issuances | | 1,642 | | | 8,427 | | | 3,419 | |
| Interest accrual | | 2,377 | | | 2,182 | | | 2,098 | |
| Benefit payments | | (4,618) | | | (3,633) | | | (3,536) | |
| Balance at December 31, at original discount rate | | 47,991 | | | 49,194 | | | 42,453 | |
| Effect of changes in discount rate assumptions | | 895 | | | (1,004) | | | 11,719 | |
| Balance at December 31, at current discount rate at balance sheet date | | 48,886 | | | 48,190 | | | 54,172 | |
| | | | | | |
| Cumulative amount of fair value hedging adjustments | | (191) | | | (200) | | | 727 | |
| Net liability for future policy benefits | | 48,695 | | | 47,990 | | | 54,899 | |
| Less: Reinsurance recoverables | | — | | | — | | | 312 | |
| Net liability for future policy benefits, net of reinsurance | | $ | 48,695 | | | $ | 47,990 | | | $ | 54,587 | |
| | | | | | |
| Undiscounted - Expected future benefit payments | | $ | 93,959 | | | $ | 95,493 | | | $ | 80,524 | |
| Discounted - Expected future benefit payments (at current discount rate at balance sheet date) | | $ | 48,886 | | | $ | 48,190 | | | $ | 54,172 | |
| Weighted-average duration of the liability | | 9 years | | 9 years | | 12 years |
| Weighted-average interest accretion (original locked-in) rate | | 5.0 | % | | 4.9 | % | | 5.2 | % |
| Weighted-average current discount rate at balance sheet date | | 5.1 | % | | 5.5 | % | | 2.9 | % |
__________________
(1) For the years ended December 31, 2023 and 2021, the net effect of changes in cash flow assumptions was largely offset by the corresponding impact in DPL associated with the RIS segment’s annuity products of $136 million and $95 million, respectively.For the year ended December 31, 2022, the net effect of changes in cash flow assumptions was more than offset by the corresponding impact in DPL associated with the RIS segment’s annuity products of $113 million.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
Information regarding the Company’s guarantee exposure, which includes direct business, but excludes offsets from hedging or reinsurance, if any, was as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | |
| | 2022 | | 2021 | |
| | In the
Event of Death | | At
Annuitization | | In the
Event of Death | | At
Annuitization |
| | (Dollars in millions) |
| Annuity Contracts: | | | | | | | | | | | | |
| Variable Annuity Guarantees: | | | | | | | | | | | | |
| Total account value (1), (2) | | $ | 36,646 | | | | $ | 14,515 | | | | $ | 48,868 | | | | $ | 20,140 | | |
| Separate account value (1) | | $ | 28,259 | | | | $ | 13,778 | | | | $ | 39,882 | | | | $ | 19,347 | | |
| Net amount at risk | | $ | 4,325 | | (3) | | | $ | 371 | | (4) | | | $ | 1,160 | | (3) | | | $ | 461 | | (4) | |
| Average attained age of contractholders | | 69 years | | | 68 years | | | 69 years | | | 66 years | |
| Other Annuity Guarantees: | | | | | | | | | | | | |
| Total account value (1), (2) | | N/A | | | $ | 136 | | | | N/A | | | $ | 135 | | |
| Net amount at risk | | N/A | | | $ | 65 | | (5) | | | N/A | | | $ | 70 | | (5) | |
| Average attained age of contractholders | | N/A | | | 56 years | | | N/A | | | 55 years | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Secondary
Guarantees | | Paid-Up
Guarantees | | Secondary
Guarantees | | Paid-Up
Guarantees |
| (Dollars in millions) |
| Universal and Variable Life Contracts: | | | | | | | |
| Total account value (1), (2) | $ | 4,748 | | | $ | 791 | | | $ | 5,935 | | | $ | 826 | |
| Net amount at risk (6) | $ | 37,051 | | | $ | 4,855 | | | $ | 37,482 | | | $ | 5,181 | |
| Average attained age of policyholders | 60 years | | 66 years | | 59 years | | 65 years |
______________
(1)(2) The Company’sFor the year ended December 31, 2023, the net effect of actual variances from expected experience was largely offset by the corresponding impact in DPL associated with the RIS segment’s annuity and life contractsproducts of $269 million. For the year ended December 31, 2022, the net effect of actual variances from expected experience was partially offset by the corresponding impact in DPL associated with guarantees may offerthe RIS segment’s annuity products of $51 million. For the year ended December 31, 2021, the net effect of actual variances from expected experience was more than one typeoffset by the corresponding impact in DPL associated with the RIS segment’s annuity products of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.$188 million.
(2)Includes the contractholders’ investmentsSignificant Methodologies and Assumptions
The principal inputs used in the general account and separate account, if applicable.
(3)Defined as the death benefit less the total account value, asestablishment of the balance sheet date. It representsFPB for the amount ofRIS segment’s annuity products include actual premiums, actual benefits, in-force data, locked-in claim-related expense, the claim thatlocked-in interest accretion rate, the Company would incur if death claims were filed on all contracts oncurrent upper-medium grade discount rate at the balance sheet date and includes any additional contractual claims associated with riders purchasedbest estimate mortality assumptions.
For each of the years ended December 31, 2023, 2022 and 2021, the net effect of changes in cash flow assumptions was primarily driven by updates in biometric assumptions related to assist with covering income taxes payable upon death.mortality.
For the year ended December 31, 2023, the net effect of actual variances from expected experience was primarily driven by favorable mortality, an amendment of an affiliated reinsurance treaty and model refinements. For the years ended December 31, 2022 and 2021, the net effect of actual variances from expected experience was primarily driven by favorable mortality.
(4)Defined asWhen single premium annuity contracts are issued, the amount (if any) that would beFPB reserve is required to be addedmeasured at an upper-medium grade discount rate. Due to differences between the total account valueupper-medium grade discount rate and pricing assumptions used to purchasedetermine the contractual premium, the initial FPB reserve at issue for a lifetime income stream, based on current annuity rates, equal toparticular cohort may be greater than the minimum amount provided undercontractual premium received, and the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guaranteesdifference must be recognized as an immediate loss at issue. On these cohorts, future experience that differs from expected experience and changes in cash flow assumptions result in the event all contractholders wererecognition of remeasurement gains and losses with net remeasurement gains limited to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved.
(5)Defined as either the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date or the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. These amounts represent the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date.
(6)Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim thatoriginal loss at issue, after which any favorable experience is deferred and recorded within the DPL. For the year ended December 31, 2022, the Company would incur if death claims were filed on all contracts onincurred a loss at issue of $91 million and recognized a net remeasurement gain of $8 million attributable to cohorts with no DPL or where the balance sheet date.DPL was depleted during the year.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
Guarantees — Separate Accounts
Account balances of contracts with guarantees were invested in separate account asset classes as follows at:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In millions) |
| Fund Groupings: | | | |
| Equity | $ | 17,185 | | | $ | 24,519 | |
| Balanced | 11,666 | | | 16,228 | |
| Bond | 2,147 | | | 2,874 | |
| Money Market | 37 | | | 41 | |
| Total | $ | 31,035 | | | $ | 43,662 | |
Obligations Assumed Under Structured Settlement Assignments
The Company assumed structured settlement claim obligations as an assignment company. These liabilities are measured at the present value of the future periodic claims to be provided and reported as other policy-related balances. The Company received a fee for assuming these claim obligations and, as the assignee of the claim, is legally obligated to ensure periodic payments are made to the claimant. The Company purchased annuities to fund these future periodic payment claim obligations and designates payments to be made directly to the claimant by the annuity writer. These annuities funding structured settlement claims are recorded as an investment. The Company has recorded unpaid claim obligations and annuity contracts of equal amounts of $1.2 billion and $1.3 billion at December 31, 2022 and 2021, respectively. See Note 1.
Obligations Under Funding AgreementsMetLife Holdings - Long-term Care
The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities that have issued either debt securities or commercial paper for which paymentMetLife Holdings segment’s long-term care products offer protection against potentially high costs of interest and principal is secured by such funding agreements. For the years ended December 31, 2022, 2021 and 2020, the Company issued $45.8 billion, $39.5 billion and $39.3 billion, respectively, and repaid $44.9 billion, $41.2 billion and $36.7 billion, respectively, of such funding agreements. At December 31, 2022 and 2021, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $38.2 billion and $37.2 billion, respectively.
Metropolitan Life Insurance Company is a member of FHLBNY. Holdings of common stock of FHLBNY, included in other invested assets, were $659 million and $718 million at December 31, 2022 and 2021, respectively.
The Company has also entered into funding agreements with FHLBNY and a subsidiary of the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The liability for such funding agreements is included in policyholder account balances.long-term health care services. Information related to such funding agreementsregarding these products was as follows at:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liability | | Collateral | |
| December 31, | |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In millions) | |
| FHLBNY (1) | $ | 13,535 | | | $ | 14,745 | | | $ | 15,946 | | (2) | | $ | 16,645 | | (2) |
| Farmer Mac (3) | $ | 2,050 | | | $ | 2,050 | | | $ | 2,148 | | | | $ | 2,159 | | |
| | | | | | | | | |
__________________
(1)Represents funding agreements issued to FHLBNY in exchange for cash and for which it has been granted a lien on certain assets, some of which are in the custody of FHLBNY, including residential mortgage-backed securities (“RMBS”), to collateralize obligations under such funding agreements. The Company is permitted to withdraw any portion of the collateral in the custody of FHLBNY as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, FHLBNY’s recovery on the collateral is limited to the amount of the Company’s liability to FHLBNY. | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Present Value of Expected Net Premiums | | | | | | |
| Balance at January 1, at current discount rate at balance sheet date | | $ | 5,775 | | | $ | 7,058 | | | $ | 7,142 | |
| | | | | | |
| Balance at January 1, at original discount rate | | $ | 5,807 | | | $ | 5,699 | | | $ | 5,516 | |
| Effect of changes in cash flow assumptions | | (152) | | | 272 | | | 270 | |
| Effect of actual variances from expected experience | | 199 | | | 120 | | | 183 | |
| Adjusted balance | | 5,854 | | | 6,091 | | | 5,969 | |
| Interest accrual | | 294 | | | 298 | | | 287 | |
| Net premiums collected | | (582) | | | (582) | | | (557) | |
| Balance at December 31, at original discount rate | | 5,566 | | | 5,807 | | | 5,699 | |
| Effect of changes in discount rate assumptions | | 121 | | | (32) | | | 1,359 | |
| Balance at December 31, at current discount rate at balance sheet date | | $ | 5,687 | | | $ | 5,775 | | | $ | 7,058 | |
| | | | | | |
| Present Value of Expected Future Policy Benefits | | | | | | |
| Balance at January 1, at current discount rate at balance sheet date | | $ | 19,619 | | | $ | 27,627 | | | $ | 28,483 | |
| | | | | | |
| Balance at January 1, at original discount rate | | $ | 20,165 | | | $ | 19,406 | | | $ | 18,586 | |
| Effect of changes in cash flow assumptions | | (190) | | | 301 | | | 276 | |
| Effect of actual variances from expected experience | | 223 | | | 115 | | | 188 | |
| Adjusted balance | | 20,198 | | | 19,822 | | | 19,050 | |
| Interest accrual | | 1,070 | | | 1,043 | | | 998 | |
| Benefit payments | | (774) | | | (700) | | | (642) | |
| Balance at December 31, at original discount rate | | 20,494 | | | 20,165 | | | 19,406 | |
| Effect of changes in discount rate assumptions | | 433 | | | (546) | | | 8,221 | |
| Balance at December 31, at current discount rate at balance sheet date | | 20,927 | | | 19,619 | | | 27,627 | |
| Other adjustments | | — | | | 1 | | | — | |
| Net liability for future policy benefits | | $ | 15,240 | | | $ | 13,845 | | | $ | 20,569 | |
| | | | | | |
| Undiscounted: | | | | | | |
| Expected future gross premiums | | $ | 10,603 | | | $ | 11,201 | | | $ | 11,404 | |
| Expected future benefit payments | | $ | 45,016 | | | $ | 45,872 | | | $ | 45,835 | |
| Discounted (at current discount rate at balance sheet date): | | | | | | |
| Expected future gross premiums | | $ | 7,139 | | | $ | 7,200 | | | $ | 9,049 | |
| Expected future benefit payments | | $ | 20,927 | | | $ | 19,619 | | | $ | 27,627 | |
| Weighted-average duration of the liability | | 15 years | | 15 years | | 18 years |
| Weighted -average interest accretion (original locked-in) rate | | 5.4 | % | | 5.5 | % | | 5.5 | % |
| Weighted-average current discount rate at balance sheet date | | 5.2 | % | | 5.6 | % | | 3.0 | % |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. Future Policy Benefits — (continued)
Significant Methodologies and Assumptions
The principal inputs used in the establishment of the FPB reserve for long-term care products include actual premiums, actual benefits, in-force data, locked-in claim-related expense, the locked-in interest accretion rate, current upper-medium grade discount rate at the balance sheet date and best estimate assumptions. The best estimate assumptions include mortality, lapse, incidence, claim utilization, claim cost inflation, claim continuance, and premium rate increases.
For the year ended December 31, 2023, the net effect of changes in cash flow assumptions was primarily driven by updates in policyholder behavior assumptions related to claim utilization experience, which lowered the expected cost of care. This was partially offset by updates in biometric assumptions associated with an increase in incidence rates. For the year ended December 31, 2022, the net effect of changes in cash flow assumptions was primarily driven by updates in operational assumptions related to inflation, which increased the expected cost of care.
For the year ended December 31, 2021, the net effect of actual variances from expected experience was primarily driven by a model refinement resulting in unfavorable claim utilization expectations, largely offset by higher than expected claim terminations and mortality.
Rollforward - Additional Insurance Liabilities
The Company establishes additional insurance liabilities for annuitization, death or other insurance benefits for universal life and variable universal life contract features where the Company guarantees to the contractholder either a secondary guarantee or a guaranteed paid-up benefit. The policy can remain in force, even if the base policy account value is zero, as long as contractual secondary guarantee requirements have been met.
The following information about the direct liability for additional insurance liabilities includes a disaggregated rollforward. The products grouped within the rollforward were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business. The adjusted balance in each disaggregated rollforward reflects the remeasurement (gains) losses. All amounts presented in the rollforward and accompanying financial information do not include a reduction for amounts ceded to reinsurers. See Note 8 for further information regarding the impact of reinsurance on the consolidated balance sheets and the consolidated statements of operations.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
(2)AdvancesMetLife Holdings
The MetLife Holdings segment’s universal life and variable universal life products offer a contract feature where the Company guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit. Information regarding these additional insurance liabilities was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | Universal and Variable Universal Life |
| | (Dollars in millions) |
| Balance, at January 1 | | $ | 1,642 | | | $ | 1,623 | | | $ | 1,514 | |
| Less: AOCI adjustment | | (63) | | | 66 | | | 78 | |
| Balance, at January 1, before AOCI adjustment | | 1,705 | | | 1,557 | | | 1,436 | |
| Effect of changes in cash flow assumptions | | 26 | | | 18 | | | — | |
| Effect of actual variances from expected experience | | 16 | | | 31 | | | 13 | |
| Adjusted balance | | 1,747 | | | 1,606 | | | 1,449 | |
| Assessments accrual | | 91 | | | 90 | | | 100 | |
| Interest accrual | | 90 | | | 82 | | | 75 | |
| Excess benefits paid | | (73) | | | (73) | | | (67) | |
| Balance, at December 31, before AOCI adjustment | | 1,855 | | | 1,705 | | | 1,557 | |
| Add: AOCI adjustment | | (14) | | | (63) | | | 66 | |
| Balance, at December 31 | | 1,841 | | | 1,642 | | | 1,623 | |
| Less: Reinsurance recoverables | | 1,841 | | | 627 | | | 605 | |
| Balance, at December 31, net of reinsurance | | $ | — | | | $ | 1,015 | | | $ | 1,018 | |
| | | | | | |
| Weighted-average duration of the liability | | 17 years | | 18 years | | 18 years |
| Weighted-average interest accretion rate | | 5.2 | % | | 5.2 | % | | 5.2 | % |
Significant Methodologies and Assumptions
Liabilities for ULSG and paid-up guarantees are collateralized primarilydetermined by mortgage-backed securities presentedestimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the life of the contract based on total expected assessments.
The guaranteed benefits are estimated over a range of scenarios. The significant assumptions used in estimating the ULSG and paid-up guarantee liabilities are investment income, mortality, lapses, and premium payment pattern and persistency. In addition, projected earned rate and crediting rates are used to project the account values and excess death benefits and assessments. The discount rate is equal to the crediting rate for each annual cohort and is locked-in at estimated fair value. The remaining collateral is mortgage loans presented at carrying value.inception.
(3)Represents funding agreements issuedMetropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to a subsidiarythe Consolidated Financial Statements — (continued)
3. Future Policy Benefits — (continued)
The Company’s gross premiums or assessments and interest expense recognized in the consolidated statements of Farmer Mac. The obligations under these funding agreementsoperations and comprehensive income (loss) for long-duration contracts, excluding MetLife Holdings’ participating life contracts, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | Gross Premiums or Assessments (1) | | Interest Expense (2) | | Gross Premiums or Assessments (1) | | Interest Expense (2) | | Gross Premiums or Assessments (1) | | Interest Expense (2) |
| | (In millions) |
| Traditional and Limited-Payment Contracts: | | | | | | | | | | | | |
| RIS - Annuities | | $ | 1,584 | | | $ | 2,377 | | | $ | 8,353 | | | $ | 2,182 | | | $ | 3,383 | | | $ | 2,098 | |
| MetLife Holdings - Long-term care | | 731 | | | 776 | | | 734 | | | 745 | | | 736 | | | 711 | |
| Deferred Profit Liabilities: | | | | | | | | | | | | |
| RIS - Annuities | | N/A | | 144 | | | N/A | | 136 | | | N/A | | 132 | |
| Additional Insurance Liabilities: | | | | | | | | | | | | |
| MetLife Holdings - Universal and variable universal life | | 452 | | | 90 | | | 470 | | | 82 | | | 535 | | | 75 | |
| Other long-duration | | 887 | | | 304 | | | 821 | | | 301 | | | 1,131 | | | 304 | |
| Total | | $ | 3,654 | | | $ | 3,691 | | | $ | 10,378 | | | $ | 3,446 | | | $ | 5,785 | | | $ | 3,320 | |
__________________
(1) Gross premiums are secured by a pledgerelated to traditional and limited-payment contracts and are included in premiums. Assessments are related to additional insurance liabilities and are included in universal life and investment-type product policy fees and net investment income.
(2) Interest expense is included in policyholder benefits and claims.
Participating Business
Participating business represented 2% and 3% of certain eligible agricultural mortgage loansthe Company’s life insurance in-force at December 31, 2023 and may, under certain circumstances, be secured by other qualified collateral. The amount2022, respectively. Participating policies represented 11%, 13% and 14% of collateral presented is at carrying value.gross traditional life insurance premiums for the years ended December 31, 2023, 2022 and 2021, respectively.
Liabilities for Unpaid Claims and Claim Expenses
The following is information about incurred and paid claims development by segment at December 31, 2022.2023. Such amounts are presented net of reinsurance, and are not discounted. The tables present claims development and cumulative claim payments by incurral year. The development tables are only presented for significant short-duration product liabilities within each segment. The information about incurred and paid claims development prior to 20222023 is presented as supplementary information.
U.S.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. Future Policy Benefits — (continued)
Group Benefits
Group Life - Term
| | Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance | | At December 31, 2022 |
| Years Ended December 31, | | Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims | | Cumulative
Number of
Reported
Claims |
| (Unaudited) | | |
| | Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance | | | | Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance | | At December 31, 2023 |
| | Years Ended December 31, | | | | Years Ended December 31, | | Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims | | Cumulative
Number of
Reported
Claims |
| | (Unaudited) | |
| Incurral Year | Incurral Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims | | Cumulative
Number of
Reported
Claims |
| | (Dollars in millions) |
| 2013 | | $ | 6,637 | | | $ | 6,713 | | | $ | 6,719 | | | $ | 6,720 | | | $ | 6,730 | | | $ | 6,720 | | | $ | 6,723 | | | $ | 6,724 | | | $ | 6,726 | | | $ | 6,726 | | |
| Incurral Year | |
| Incurral Year | |
| | (Dollars in millions) | |
| | (Dollars in millions) | |
| | (Dollars in millions) | |
| 2014 | 2014 | | 6,986 | | | 6,919 | | | 6,913 | | | 6,910 | | | 6,914 | | | 6,919 | | | 6,920 | | | 6,918 | | | 6,920 | | | 1 | | | 216,148 | |
| 2015 | 2015 | | 7,040 | | | 7,015 | | | 7,014 | | | 7,021 | | | 7,024 | | | 7,025 | | | 7,026 | | | 7,026 | | | 1 | | | 218,782 | |
| 2016 | 2016 | | 7,125 | | | 7,085 | | | 7,095 | | | 7,104 | | | 7,105 | | | 7,104 | | | 7,107 | | | 2 | | | 220,671 | |
| 2017 | 2017 | | 7,432 | | | 7,418 | | | 7,425 | | | 7,427 | | | 7,428 | | | 7,428 | | | 3 | | | 263,546 | |
| 2018 | 2018 | | 7,757 | | | 7,655 | | | 7,646 | | | 7,650 | | | 7,651 | | | 6 | | | 251,446 | |
| 2019 | 2019 | | 7,935 | | | 7,900 | | | 7,907 | | | 7,917 | | | 11 | | | 252,015 | |
| 2020 | 2020 | | 8,913 | | | 9,367 | | | 9,389 | | | 23 | | | 297,022 | |
| 2021 | 2021 | | 10,555 | | | 10,795 | | | 64 | | | 327,725 | |
| 2022 | 2022 | | 9,640 | | | 1,129 | | | 276,784 | |
| 2023 | |
| Total | Total | | 80,599 | | |
| Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | (77,480) | | |
| All outstanding liabilities for incurral years prior to 2013, net of reinsurance | | 22 | | |
| Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | |
| Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | |
| All outstanding liabilities for incurral years prior to 2014, net of reinsurance | |
| All outstanding liabilities for incurral years prior to 2014, net of reinsurance | |
| All outstanding liabilities for incurral years prior to 2014, net of reinsurance | |
| Total unpaid claims and claim adjustment expenses, net of reinsurance | Total unpaid claims and claim adjustment expenses, net of reinsurance | | $ | 3,141 | | |
| Total unpaid claims and claim adjustment expenses, net of reinsurance | |
| Total unpaid claims and claim adjustment expenses, net of reinsurance | |
| | Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance |
| Years Ended December 31, |
| (Unaudited) | |
| | Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | (Unaudited) | |
| Incurral Year | Incurral Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| | (In millions) |
| 2013 | | $ | 5,216 | | | $ | 6,614 | | | $ | 6,664 | | | $ | 6,678 | | | $ | 6,711 | | | $ | 6,715 | | | $ | 6,720 | | | $ | 6,721 | | | $ | 6,723 | | | $ | 6,724 | |
| Incurral Year | |
| Incurral Year | | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| | (In millions) | | | | (In millions) |
| 2014 | 2014 | | 5,428 | | | 6,809 | | | 6,858 | | | 6,869 | | | 6,902 | | | 6,912 | | | 6,915 | | | 6,916 | | | 6,917 | |
| 2015 | 2015 | | 5,524 | | | 6,913 | | | 6,958 | | | 6,974 | | | 7,008 | | | 7,018 | | | 7,022 | | | 7,024 | |
| 2016 | 2016 | | 5,582 | | | 6,980 | | | 7,034 | | | 7,053 | | | 7,086 | | | 7,096 | | | 7,100 | |
| 2017 | 2017 | | 5,761 | | | 7,292 | | | 7,355 | | | 7,374 | | | 7,400 | | | 7,414 | |
| 2018 | 2018 | | 6,008 | | | 7,521 | | | 7,578 | | | 7,595 | | | 7,629 | |
| 2019 | 2019 | | 6,178 | | | 7,756 | | | 7,820 | | | 7,853 | |
| 2020 | 2020 | | 6,862 | | | 9,103 | | | 9,242 | |
| 2021 | 2021 | | 8,008 | | | 10,476 | |
| 2022 | 2022 | | 7,101 | |
| 2023 | |
| Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | $ | 77,480 | |
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance |
| Years | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 |
| Group Life - Term | | 76.3% | | 21.1% | | 0.9% | | 0.3% | | 0.5% | | 0.2% | | 0.1% | | —% | | —% | | —% |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. Future Policy Benefits — (continued)
Group Long-Term Disability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance | | At December 31, 2023 |
| | Years Ended December 31, | | Total IBNR Liabilities Plus Expected Development on Reported Claims | | Cumulative Number of Reported Claims |
| | (Unaudited) | | | | |
| Incurral Year | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | |
| | (Dollars in millions) |
| 2014 | | $ | 1,076 | | | $ | 1,077 | | | $ | 1,079 | | | $ | 1,101 | | | $ | 1,109 | | | $ | 1,098 | | | $ | 1,097 | | | $ | 1,081 | | | $ | 1,078 | | | $ | 1,071 | | | $ | — | | | 22,854 | |
| 2015 | | | | 1,082 | | | 1,105 | | | 1,093 | | | 1,100 | | | 1,087 | | | 1,081 | | | 1,067 | | | 1,086 | | | 1,078 | | | — | | | 21,218 | |
| 2016 | | | | | | 1,131 | | | 1,139 | | | 1,159 | | | 1,162 | | | 1,139 | | | 1,124 | | | 1,123 | | | 1,086 | | | — | | | 17,974 | |
| 2017 | | | | | | | | 1,244 | | | 1,202 | | | 1,203 | | | 1,195 | | | 1,165 | | | 1,181 | | | 1,101 | | | — | | | 16,329 | |
| 2018 | | | | | | | | | | 1,240 | | | 1,175 | | | 1,163 | | | 1,147 | | | 1,170 | | | 1,102 | | | — | | | 15,215 | |
| 2019 | | | | | | | | | | | | 1,277 | | | 1,212 | | | 1,169 | | | 1,177 | | | 1,103 | | | — | | | 15,408 | |
| 2020 | | | | | | | | | | | | | | 1,253 | | | 1,223 | | | 1,155 | | | 1,100 | | | — | | | 15,773 | |
| 2021 | | | | | | | | | | | | | | | | 1,552 | | | 1,608 | | | 1,477 | | | 9 | | | 19,557 | |
| 2022 | | | | | | | | | | | | | | | | | | 1,641 | | | 1,732 | | | 46 | | | 18,006 | |
| 2023 | | | | | | | | | | | | | | | | | | | | 1,725 | | | 793 | | | 10,994 | |
| Total | | 12,575 | | | | | |
| Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | (6,295) | | | | | |
| All outstanding liabilities for incurral years prior to 2014, net of reinsurance | | 1,477 | | | | | |
| Total unpaid claims and claim adjustment expenses, net of reinsurance | | $ | 7,757 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance |
| | Years Ended December 31, |
| | (Unaudited) | | |
| Incurral Year | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| | (In millions) |
| 2014 | | $ | 51 | | | $ | 266 | | | $ | 428 | | | $ | 526 | | | $ | 609 | | | $ | 677 | | | $ | 732 | | | $ | 778 | | | $ | 818 | | | $ | 850 | |
| 2015 | | | | 50 | | | 264 | | | 427 | | | 524 | | | 601 | | | 665 | | | 718 | | | 764 | | | 801 | |
| 2016 | | | | | | 49 | | | 267 | | | 433 | | | 548 | | | 628 | | | 696 | | | 750 | | | 769 | |
| 2017 | | | | | | | | 56 | | | 290 | | | 476 | | | 579 | | | 655 | | | 719 | | | 718 | |
| 2018 | | | | | | | | | | 54 | | | 314 | | | 497 | | | 594 | | | 666 | | | 663 | |
| 2019 | | | | | | | | | | | | 57 | | | 342 | | | 522 | | | 620 | | | 621 | |
| 2020 | | | | | | | | | | | | | | 59 | | | 355 | | | 535 | | | 560 | |
| 2021 | | | | | | | | | | | | | | | | 95 | | | 505 | | | 620 | |
| 2022 | | | | | | | | | | | | | | | | | | 76 | | | 609 | |
| 2023 | | | | | | | | | | | | | | | | | | | | 84 | |
| Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | $ | 6,295 | |
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance |
| Years | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 |
| Group Long-Term Disability | | 5.0% | | 24.0% | | 14.9% | | 8.3% | | 6.0% | | 4.8% | | 3.7% | | 3.4% | | 3.6% | | 3.0% |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. Insurance (continued)
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance |
| Years | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 |
| Group Life - Term | | 76.8% | | 20.8% | | 0.8% | | 0.3% | | 0.5% | | 0.1% | | 0.1% | | —% | | —% | | —% |
Group Long-Term Disability
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance | | At December 31, 2022 |
| | Years Ended December 31, | | Total IBNR Liabilities Plus Expected Development on Reported Claims | | Cumulative Number of Reported Claims |
| | (Unaudited) | | | | |
| Incurral Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | |
| | (Dollars in millions) |
| 2013 | | $ | 1,008 | | | $ | 1,027 | | | $ | 1,032 | | | $ | 1,049 | | | $ | 1,070 | | | $ | 1,069 | | | $ | 1,044 | | | $ | 1,032 | | | $ | 1,025 | | | $ | 1,027 | | | $ | — | | | 21,139 | |
| 2014 | | | | 1,076 | | | 1,077 | | | 1,079 | | | 1,101 | | | 1,109 | | | 1,098 | | | 1,097 | | | 1,081 | | | 1,078 | | | — | | | 22,853 | |
| 2015 | | | | | | 1,082 | | | 1,105 | | | 1,093 | | | 1,100 | | | 1,087 | | | 1,081 | | | 1,067 | | | 1,086 | | | — | | | 21,216 | |
| 2016 | | | | | | | | 1,131 | | | 1,139 | | | 1,159 | | | 1,162 | | | 1,139 | | | 1,124 | | | 1,123 | | | — | | | 17,973 | |
| 2017 | | | | | | | | | | 1,244 | | | 1,202 | | | 1,203 | | | 1,195 | | | 1,165 | | | 1,181 | | | — | | | 16,328 | |
| 2018 | | | | | | | | | | | | 1,240 | | | 1,175 | | | 1,163 | | | 1,147 | | | 1,170 | | | — | | | 15,214 | |
| 2019 | | | | | | | | | | | | | | 1,277 | | | 1,212 | | | 1,169 | | | 1,177 | | | — | | | 15,392 | |
| 2020 | | | | | | | | | | | | | | | | 1,253 | | | 1,223 | | | 1,155 | | | 6 | | | 15,719 | |
| 2021 | | | | | | | | | | | | | | | | | | 1,552 | | | 1,608 | | | 43 | | | 19,189 | |
| 2022 | | | | | | | | | | | | | | | | | | | | 1,695 | | | 760 | | | 9,970 | |
| Total | | 12,300 | | | | | |
| Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | (6,251) | | | | | |
| All outstanding liabilities for incurral years prior to 2013, net of reinsurance | | 1,496 | | | | | |
| Total unpaid claims and claim adjustment expenses, net of reinsurance | | $ | 7,545 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance |
| | Years Ended December 31, |
| | (Unaudited) | | |
| Incurral Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| | (In millions) |
| 2013 | | $ | 43 | | | $ | 234 | | | $ | 382 | | | $ | 475 | | | $ | 551 | | | $ | 622 | | | $ | 676 | | | $ | 722 | | | $ | 764 | | | $ | 798 | |
| 2014 | | | | 51 | | | 266 | | | 428 | | | 526 | | | 609 | | | 677 | | | 732 | | | 778 | | | 818 | |
| 2015 | | | | | | 50 | | | 264 | | | 427 | | | 524 | | | 601 | | | 665 | | | 718 | | | 764 | |
| 2016 | | | | | | | | 49 | | | 267 | | | 433 | | | 548 | | | 628 | | | 696 | | | 750 | |
| 2017 | | | | | | | | | | 56 | | | 290 | | | 476 | | | 579 | | | 655 | | | 719 | |
| 2018 | | | | | | | | | | | | 54 | | | 314 | | | 497 | | | 594 | | | 666 | |
| 2019 | | | | | | | | | | | | | | 57 | | | 342 | | | 522 | | | 620 | |
| 2020 | | | | | | | | | | | | | | | | 59 | | | 355 | | | 535 | |
| 2021 | | | | | | | | | | | | | | | | | | 95 | | | 505 | |
| 2022 | | | | | | | | | | | | | | | | | | | | 76 | |
| Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance | | $ | 6,251 | |
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance |
| Years | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 |
| Group Long-Term Disability | | 4.8% | | 21.7% | | 15.2% | | 9.0% | | 7.0% | | 6.1% | | 5.0% | | 4.3% | | 3.9% | | 3.3% |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial StatementsFuture Policy Benefits — (continued)
3. Insurance (continued)
Significant Methodologies and Assumptions
Group Life - Term and Group Long-Term Disability incurred but not paid (“IBNP”) liabilities are developed using a combination of loss ratio and development methods. Claims in the course of settlement are then subtracted from the IBNP liabilities, resulting in the IBNR liabilities. The loss ratio method is used in the period in which the claims are neither sufficient nor credible. In developing the loss ratios, any material rate increases that could change the underlying premium without affecting the estimated incurred losses are taken into account. For periods where sufficient and credible claim data exists, the development method is used based on the claim triangles which categorize claims according to both the period in which they were incurred and the period in which they were paid, adjudicated or reported. The end result is a triangle of known data that is used to develop known completion ratios and factors. Claims paid are then subtracted from the estimated ultimate incurred claims to calculate the IBNP liability.
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims (IBNR and pending). This is expressed as a percentage of the underlying claims liability and is based on past experience and the anticipated future expense structure.
For Group Life - Term, first year incurred claims and allocated loss adjustment expenses decreased in 20222023 compared to the 20212022 incurral year due to the decline in COVID-19 related death claims. For Group Long-Term Disability, first year incurred claims and allocated loss adjustment expenses increased in 20222023 compared to 20212022 incurral year due to the growth in the size of the business.
The assumptions used in calculating the unpaid claims and claim adjustment expenses for Group Life - Term and Group Long-Term Disability are updated annually to reflect emerging trends in claim experience.
Certain of ourthe Group Life - Term customers have experience-rated contracts, whereby the group sponsor participates in the favorable and/or adverse claim experience, including favorable and/or adverse prior year development. Claim experience adjustments on these contracts are not reflected in the foregoing incurred and paid claim development tables, but are instead reflected as an increase (adverse experience) or decrease (favorable experience) to premiums on the consolidated statements of operations.
Liabilities for Group Life - Term unpaid claims and claim adjustment expenses are not discounted.
The liabilities for Group Long-Term Disability unpaid claims and claim adjustment expenses were $6.5$6.7 billion and $6.2$6.5 billion at December 31, 20222023 and 2021,2022, respectively. Using interest rates ranging from 3% to 8%, based on the incurral year, the total discount applied to these liabilities was $1.2$1.3 billion and $1.1$1.2 billion at December 31, 20222023 and 2021,2022, respectively. The amount of interest accretion recognized was $461516 million, $518461 million and $452518 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively. These amounts were reflected in policyholder benefits and claims.
For Group Life - Term, claims were based upon individual death claims. For Group Long-Term Disability, claim frequency was determined by the number of reported claims as identified by a unique claim number assigned to individual claimants. Claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.
The incurred and paid claims disclosed for the Group Life - Term product includes activity related to the product’s continued protection feature; however, the associated actuarial reserve for future benefit obligations under this feature is excluded from the liability for unpaid claims.
The Group Long-Term Disability IBNR, included in the development tables above, was developed using discounted cash flows, and is presented on a discounted basis.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses
The reconciliation of the net incurred and paid claims development tables to the liability for unpaid claims and claims adjustment expenses on the consolidated balance sheet was as follows at:
| | December 31, 2022 |
| (In millions) |
| | December 31, 2023 | | | | December 31, 2023 |
| | (In millions) | | | | (In millions) |
| Short-Duration: | Short-Duration: | |
| Unpaid claims and allocated claims adjustment expenses, net of reinsurance: | Unpaid claims and allocated claims adjustment expenses, net of reinsurance: | |
| U.S.: | |
| Unpaid claims and allocated claims adjustment expenses, net of reinsurance: | |
| Unpaid claims and allocated claims adjustment expenses, net of reinsurance: | |
| Group Benefits: | |
| Group Benefits: | |
| Group Benefits: | |
| Group Life - Term | |
| Group Life - Term | |
| Group Life - Term | Group Life - Term | | $ | 3,141 | |
| Group Long-Term Disability | Group Long-Term Disability | | 7,545 | |
| Group Long-Term Disability | |
| Group Long-Term Disability | |
| Total | |
| Total | |
| Total | Total | | | $ | 10,686 | | | $ | 10,944 |
| Other insurance lines - all segments combined | Other insurance lines - all segments combined | | 883 | Other insurance lines - all segments combined | | | 894 |
| Total unpaid claims and allocated claims adjustment expenses, net of reinsurance | Total unpaid claims and allocated claims adjustment expenses, net of reinsurance | | 11,569 | Total unpaid claims and allocated claims adjustment expenses, net of reinsurance | | | 11,838 |
| | Reinsurance recoverables on unpaid claims: | Reinsurance recoverables on unpaid claims: | |
| U.S.: | |
| Reinsurance recoverables on unpaid claims: | |
| Reinsurance recoverables on unpaid claims: | |
| Group Benefits: | |
| Group Benefits: | |
| Group Benefits: | |
| Group Life - Term | |
| Group Life - Term | |
| Group Life - Term | Group Life - Term | | 8 | |
| Group Long-Term Disability | Group Long-Term Disability | | 205 | |
| Group Long-Term Disability | |
| Group Long-Term Disability | |
| Total | |
| Total | |
| Total | Total | | | 213 | | | 280 |
| Other insurance lines - all segments combined | Other insurance lines - all segments combined | | 36 | Other insurance lines - all segments combined | | | 31 |
| Total reinsurance recoverable on unpaid claims | Total reinsurance recoverable on unpaid claims | | 249 | Total reinsurance recoverable on unpaid claims | | | 311 |
| Total unpaid claims and allocated claims adjustment expense | Total unpaid claims and allocated claims adjustment expense | | 11,818 | Total unpaid claims and allocated claims adjustment expense | | | 12,149 |
| | Discounting | Discounting | | (1,207) |
| Discounting | |
| Discounting | | | | (1,325) |
| Liability for unpaid claims and claim adjustment liabilities - short-duration | Liability for unpaid claims and claim adjustment liabilities - short-duration | | 10,611 | Liability for unpaid claims and claim adjustment liabilities - short-duration | | | 10,824 |
| Liability for unpaid claims and claim adjustment liabilities - all long-duration lines | Liability for unpaid claims and claim adjustment liabilities - all long-duration lines | | 4,837 | Liability for unpaid claims and claim adjustment liabilities - all long-duration lines | | | 785 |
| Total liability for unpaid claims and claim adjustment expense (included in future policy benefits and other policy-related balances) | Total liability for unpaid claims and claim adjustment expense (included in future policy benefits and other policy-related balances) | | $ | 15,448 | Total liability for unpaid claims and claim adjustment expense (included in future policy benefits and other policy-related balances) | | | $ | 11,609 |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
3. InsuranceFuture Policy Benefits — (continued)
Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| Balance at January 1, | Balance at January 1, | | $ | 15,059 | | | $ | 13,523 | | | $ | 13,140 | |
| Less: Reinsurance recoverables | Less: Reinsurance recoverables | | 2,263 | | | 1,639 | | | 1,525 | |
| Net balance at January 1, | Net balance at January 1, | | 12,796 | | | 11,884 | | | 11,615 | |
| Incurred related to: | Incurred related to: | |
| Current year | Current year | | 20,769 | | | 21,201 | | | 18,620 | |
| Current year | |
| Current year | |
| Prior years (1) | Prior years (1) | | 457 | | | 582 | | | (19) | |
| Total incurred | Total incurred | | 21,226 | | | 21,783 | | | 18,601 | |
| Paid related to: | Paid related to: | | | | | | |
| Current year | |
| Current year | |
| Current year | Current year | | (14,565) | | | (15,405) | | | (13,854) | |
| Prior years | Prior years | | (6,025) | | | (5,466) | | | (4,478) | |
| Total paid | Total paid | | (20,590) | | | (20,871) | | | (18,332) | |
| Net balance at December 31, | Net balance at December 31, | | 13,432 | | | 12,796 | | | 11,884 | |
| Add: Reinsurance recoverables | Add: Reinsurance recoverables | | 2,016 | | | 2,263 | | | 1,639 | |
| Balance at December 31, | Balance at December 31, | | $ | 15,448 | | | $ | 15,059 | | | $ | 13,523 | |
______________
(1)For the year ended December 31, 2023, incurred claims and claim adjustment expenses associated with prior years increased due to events incurred in prior years but reported in the current year. For the years ended December 31, 2022 and 2021, incurred claim activityclaims and claim adjustment expenses include expenses associated with prior years increased primarily due to thebut reported in 2022 and 2021 which contain impacts related to the COVID-19 pandemic, partially offset by additional premiums recorded for experience-rated contracts that are not reflected in the table above. For the year ended December 31, 2020, claim and claim adjustment expenses associated with prior years decreased due to favorable claims experience in the current year.
Separate Accounts
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $52.4 billion and $78.8 billion at December 31, 2022 and 2021, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $36.8 billion and $45.0 billion at December 31, 2022 and 2021, respectively. The latter category consisted primarily of guaranteed interest contracts (“GICs”). The average interest rate credited on these contracts was 2.49% and 2.16% at December 31, 2022 and 2021, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Deferred Policy Acquisition Costs, Value of Business Acquired and Other IntangiblesPolicyholder Account Balances
See Note 1 for a description of capitalized acquisition costs.
Nonparticipating and Non-Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts (term insurance, nonparticipating whole life insurance, traditional group life insurance and non-medical health insurance) over the appropriate premium paying period in proportion to the actual and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include provisions for adverse deviation, and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes.
Participating, Dividend-Paying Traditional Contracts
The Company amortizes DACestablishes liabilities for PABs, which are generally equal to the account value, and VOBAwhich includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.
The LDTI transition adjustments related to PABs, as described in Note 1, were as follows at the Transition Date:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Group Benefits Group Life | | RIS Capital Markets Investment Products and Stable Value GICs | | RIS Annuities and Risk Solutions | | MetLife Holdings Annuities | | Other | | Total |
| | (In millions) |
| Balance at December 31, 2020 | | $ | 7,585 | | | $ | 60,641 | | | $ | 5,316 | | | $ | 15,012 | | | $ | 8,081 | | | $ | 96,635 | |
| Reclassification of carrying amounts of contracts and contract features that are market risk benefits | | — | | | — | | | (1) | | | (494) | | | — | | | (495) | |
| Other balance sheet reclassifications and adjustments upon adoption of the LDTI standard | | — | | | — | | | 4,747 | | | — | | | 47 | | | 4,794 | |
| Balance at January 1, 2021 | | $ | 7,585 | | | $ | 60,641 | | | $ | 10,062 | | | $ | 14,518 | | | $ | 8,128 | | | $ | 100,934 | |
The Company’s PABs on the consolidated balance sheets were as follows at:
| | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| | (In millions) |
| Group Benefits - Group Life | | $ | 7,605 | | | $ | 7,954 | |
| RIS: | | | | |
| Capital Markets Investment Products and Stable Value GICs | | 58,554 | | | 58,508 | |
| Annuities and Risk Solutions | | 10,650 | | | 10,244 | |
| | | | |
| | | | |
| MetLife Holdings - Annuities | | 10,888 | | | 12,598 | |
| | | | |
| Other | | 16,197 | | | 14,103 | |
| Total | | $ | 103,894 | | | $ | 103,407 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
Rollforwards
The following information about the direct and assumed liability for PABs includes year-to-date disaggregated rollforwards. The products grouped within these contracts over the estimated livesrollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the contractsbusiness. Policy charges presented in proportion to actual and expected future gross margins. The amortization includes interesteach disaggregated rollforward reflect a premium and/or assessment based on rates in effect at inception or acquisitionthe account balance.
Group Benefits
Group Life
The Group Benefits segment’s group life PABs predominantly consist of retained asset accounts, universal life products, and the contracts. The future gross marginsfixed account of variable life insurance products. Information regarding this liability was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Balance at January 1, | | $ | 7,954 | | | $ | 7,889 | | | $ | 7,585 | |
| Deposits | | 3,227 | | | 3,227 | | | 3,444 | |
| Policy charges | | (635) | | | (612) | | | (589) | |
| Surrenders and withdrawals | | (3,121) | | | (2,680) | | | (2,667) | |
| Benefit payments | | (12) | | | (10) | | | (9) | |
| Net transfers from (to) separate accounts | | — | | | (2) | | | (1) | |
| Interest credited | | 192 | | | 142 | | | 126 | |
| Balance at December 31, | | $ | 7,605 | | | $ | 7,954 | | | $ | 7,889 | |
| | | | | | |
| Weighted-average annual crediting rate | | 2.5 | % | | 1.8 | % | | 1.6 | % |
| | | | | | |
| At period end: | | | | | | |
| Cash surrender value | | $ | 7,543 | | $ | 7,900 | | $ | 7,837 |
| Net amount at risk, excluding offsets from reinsurance: | | | | | | |
| In the event of death (1) | | $ | 250,033 | | $ | 244,638 | | $ | 238,062 |
__________________
(1)For benefits that are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. For participating contracts within the closed block (dividend-paying traditional contracts) future gross margins are also dependent upon changespayable in the policyholder dividend obligation. See Note 6. Of these factors,event of death, the Company anticipates that investment returns, expenses, persistency and other factor changes,net amount at risk is generally defined as well as policyholder dividend scales, are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross margins exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also updates the actual amount of business in-force, which impacts expected future gross margins. When expected future gross margins are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross margins are above the previously estimated expected future gross margins. Each period, the Company also reviews the estimated gross margins for each block of business to determine the recoverability of DAC and VOBA balances.
Fixed and Variable Universal Life Contracts and Fixed and Variable Deferred Annuity Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon returnsdeath benefit in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administercurrent account balance at the business, creditworthinessbalance sheet date. It represents the amount of reinsurance counterparties, the effect of any hedges used and certain economic variables, such as inflation. Of these factors,claim that the Company anticipates that investment returns, expenses and persistency are reasonably likely to significantly impactwould incur if death claims were filed on all contracts at the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances.balance sheet date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Deferred Policy Acquisition Costs, Value of Business Acquired and Other IntangiblesPolicyholder Account Balances (continued)
Factors Impacting AmortizationThe Group Benefits segment’s group life product account values by range of guaranteed minimum crediting rates (“GMCR”) and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
Separate account rates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| December 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 863 | | | $ | 4,558 | | | $ | 5,421 | |
| Equal to or greater than 2% but less than 4% | | 1,196 | | | 9 | | | 62 | | | 2 | | | 1,269 | |
| Equal to or greater than 4% | | 727 | | | 1 | | | 43 | | | 34 | | | 805 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 110 | |
| Total | | $ | 1,923 | | | $ | 10 | | | $ | 968 | | | $ | 4,594 | | | $ | 7,605 | |
| | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | 899 | | | $ | 4,471 | | | $ | 236 | | | $ | 5,606 | |
| Equal to or greater than 2% but less than 4% | | 1,303 | | | 52 | | | 21 | | | — | | | 1,376 | |
| Equal to or greater than 4% | | 803 | | | 1 | | | 11 | | | 30 | | | 845 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 127 | |
| Total | | $ | 2,106 | | | $ | 952 | | | $ | 4,503 | | | $ | 266 | | | $ | 7,954 | |
| | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 5,228 | | | $ | 132 | | | $ | — | | | $ | 131 | | | $ | 5,491 | |
| Equal to or greater than 2% but less than 4% | | 1,374 | | | 50 | | | 23 | | | — | | | 1,447 | |
| Equal to or greater than 4% | | 793 | | | — | | | — | | | 29 | | | 822 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 129 | |
| Total | | $ | 7,395 | | | $ | 182 | | | $ | 23 | | | $ | 160 | | | $ | 7,889 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
RIS
Capital Markets Investment Products and variable deferred annuity contracts affect in-force accountStable Value GICs
The RIS segment’s capital markets investment products and stable value GICs in PABs are investment-type products, mainly funding agreements.
In addition, the Company has entered into funding agreements with FHLBNY and a subsidiary of the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The PAB balances on such contracts each reporting period, which can result in significant fluctuations in amortizationfor FHLBNY funding agreements were $13.0 billion and $13.5 billion at December 31, 2023 and 2022, respectively. These advances are collateralized by residential mortgage-backed securities (“RMBS”) with an estimated fair value of DAC$15.9 billion at both December 31, 2023 and VOBA. Returns that are higher than the Company’s long-term expectation produce higher account balances, which increases the Company’s future fee expectations and decreases future benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company’s long-term expectation. The Company’s practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected.2022. The Company monitors these events and only changesis permitted to withdraw any portion of the assumption when its long-term expectation changes.
The Company also periodically reviews other long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, policyholder behavior and expenses to administer business. Management annually updates assumptions usedcollateral in the calculationcustody of estimated gross marginsFHLBNY as long as there is no event of default and profits which may have significantly changed. If the updateremaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.
Periodically,default by the Company, modifies product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If such modification, referred to as an internal replacement, substantially changes the contract, the associated DAC or VOBA is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA amortizationFHLBNY’s recovery on the original contract will continue and any acquisition costs associated with the related modification are expensed.
Amortization of DAC and VOBAcollateral is attributedlimited to net investment gains (losses) and net derivative gains (losses), and to other expenses for the amount of gross margins or profits originating from transactionsthe Company’s liability to FHLBNY. The PAB balances for the Farmer Mac funding agreements were $2.1 billion at both December 31, 2023 and 2022. The obligations under the Farmer Mac funding agreements are secured by a pledge of certain eligible agricultural mortgage loans and may, under certain circumstances, be secured by other than investment gainsqualified collateral. The carrying value of such collateral was $2.2 billion and losses. Unrealized investment gains$2.1 billion at December 31, 2023 and losses represent the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized.2022, respectively.
Information regarding DACthe RIS segment’s capital markets investment products and VOBAstable value GICs in PABs was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| DAC: | | | | | |
| Balance at January 1, | $ | 2,579 | | | $ | 2,626 | | | $ | 3,427 | |
| Capitalizations | 184 | | | 64 | | | 51 | |
| Amortization related to: | | | | | |
| Net investment gains (losses) and net derivative gains (losses) | 50 | | | (38) | | | (56) | |
| Other expenses | (193) | | | (215) | | | (348) | |
| Total amortization | (143) | | | (253) | | | (404) | |
| Unrealized investment gains (losses) | 2,625 | | | 142 | | | (448) | |
| Balance at December 31, | 5,245 | | | 2,579 | | | 2,626 | |
| VOBA: | | | | | |
| Balance at January 1, | 19 | | | 23 | | | 26 | |
| Amortization related to other expenses | (1) | | | (6) | | | (2) | |
| Unrealized investment gains (losses) | — | | | 2 | | | (1) | |
| Balance at December 31, | 18 | | | 19 | | | 23 | |
| Total DAC and VOBA: | | | | | |
| Balance at December 31, | $ | 5,263 | | | $ | 2,598 | | | $ | 2,649 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Balance at January 1, | | $ | 58,508 | | | $ | 58,495 | | | $ | 60,641 | |
| Deposits | | 62,605 | | | 74,689 | | | 72,504 | |
| | | | | | |
| Surrenders and withdrawals | | (65,444) | | | (75,129) | | | (75,079) | |
| | | | | | |
| | | | | | |
| Interest credited | | 1,907 | | | 1,190 | | | 885 | |
| Effect of foreign currency translation and other, net | | 978 | | | (737) | | | (456) | |
| Balance at December 31, | | $ | 58,554 | | | $ | 58,508 | | | $ | 58,495 | |
| | | | | | |
| Weighted-average annual crediting rate | | 3.3 | % | | 2.1 | % | | 1.5 | % |
| Cash surrender value at period end | | $ | 1,583 | | $ | 1,706 | | $ | 1,571 |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
The RIS segment’s capital markets investment products and stable value GICs account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| December 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 1 | | | $ | 2,621 | | | $ | 2,622 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 55,932 | |
| Total | | $ | — | | | $ | — | | | $ | 1 | | | $ | 2,621 | | | $ | 58,554 | |
| | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 1 | | | $ | 3,053 | | | $ | 3,054 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 55,454 | |
| Total | | $ | — | | | $ | — | | | $ | 1 | | | $ | 3,053 | | | $ | 58,508 | |
| | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | 632 | | | $ | 3,542 | | | $ | 10 | | | $ | 4,184 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 54,311 | |
| Total | | $ | — | | | $ | 632 | | | $ | 3,542 | | | $ | 10 | | | $ | 58,495 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
Annuities and Risk Solutions
The RIS segment’s annuities and risk solutions PABs include certain structured settlements and institutional income annuities, and benefit funding solutions that include postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives. Information regarding this liability was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Balance at January 1, | | $ | 10,244 | | | $ | 10,009 | | | $ | 10,062 | |
| Deposits | | 850 | | | 912 | | | 754 | |
| Policy charges | | (160) | | | (135) | | | (108) | |
| Surrenders and withdrawals | | (215) | | | (176) | | | (444) | |
| Benefit payments | | (547) | | | (555) | | | (570) | |
| Net transfers from (to) separate accounts | | 53 | | | (1) | | | 10 | |
| Interest credited | | 427 | | | 396 | | | 388 | |
| Other | | (2) | | | (206) | | | (83) | |
| Balance at December 31, | | $ | 10,650 | | | $ | 10,244 | | | $ | 10,009 | |
| | | | | | |
| Weighted-average annual crediting rate | | 4.2 | % | | 4.0 | % | | 4.0 | % |
| | | | | | |
| At period end: | | | | | | |
| Cash surrender value | | $ | 6,798 | | $ | 6,365 | | $ | 5,637 |
| Net amount at risk, excluding offsets from ceded reinsurance: | | | | | | |
| In the event of death (1) | | $ | 33,148 | | $ | 33,908 | | $ | 32,158 |
__________________
(1)For benefits that are payable in the event of death, the net amount at risk is generally defined as the current death benefit in excess of the current account balance at the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts at the balance sheet date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
The RIS segment’s annuities and risk solutions account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| December 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 20 | | | $ | 1,490 | | | $ | 1,510 | |
| Equal to or greater than 2% but less than 4% | | 249 | | | 34 | | | 7 | | | 432 | | | 722 | |
| Equal to or greater than 4% | | 3,607 | | | — | | | 165 | | | 5 | | | 3,777 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 4,641 | |
| Total | | $ | 3,856 | | | $ | 34 | | | $ | 192 | | | $ | 1,927 | | | $ | 10,650 | |
| | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 64 | | | $ | 1,201 | | | $ | 1,265 | |
| Equal to or greater than 2% but less than 4% | | 301 | | | 39 | | | 40 | | | 375 | | | 755 | |
| Equal to or greater than 4% | | 3,657 | | | 122 | | | 1 | | | 4 | | | 3,784 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 4,440 | |
| Total | | $ | 3,958 | | | $ | 161 | | | $ | 105 | | | $ | 1,580 | | | $ | 10,244 | |
| | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 114 | | | $ | 490 | | | $ | 604 | |
| Equal to or greater than 2% but less than 4% | | 258 | | | 36 | | | 41 | | | 469 | | | 804 | |
| Equal to or greater than 4% | | 3,650 | | | 126 | | | 1 | | | 5 | | | 3,782 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 4,819 | |
| Total | | $ | 3,908 | | | $ | 162 | | | $ | 156 | | | $ | 964 | | | $ | 10,009 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
MetLife Holdings
Annuities
The MetLife Holdings segment’s annuity PABs primarily includes fixed deferred annuities, the fixed account portion of variable annuities, certain income annuities, and embedded derivatives related to equity-indexed annuities. Information regarding this liability was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Dollars in millions) |
| Balance at January 1, | | $ | 12,598 | | | $ | 13,692 | | | $ | 14,518 | |
| Deposits | | 172 | | | 229 | | | 274 | |
| Policy charges | | (12) | | | (13) | | | (13) | |
| Surrenders and withdrawals | | (1,916) | | | (1,453) | | | (1,341) | |
| Benefit payments | | (408) | | | (406) | | | (404) | |
| Net transfers from (to) separate accounts | | 72 | | | 198 | | | 237 | |
| Interest credited | | 359 | | | 375 | | | 394 | |
| Other | | 23 | | | (24) | | | 27 | |
| Balance at December 31, | | $ | 10,888 | | | $ | 12,598 | | | $ | 13,692 | |
| | | | | | |
| Weighted-average annual crediting rate | | 3.1 | % | | 2.9 | % | | 2.9 | % |
| | | | | | |
| At period end: | | | | | | |
| Cash surrender value | | $ | 10,181 | | $ | 11,688 | | $ | 12,554 |
| Net amount at risk, excluding offsets from ceded reinsurance (1): | | | | | | |
| In the event of death (2) | | $ | 2,821 | | $ | 4,354 | | $ | 1,119 |
| At annuitization or exercise of other living benefits (3) | | $ | 646 | | $ | 917 | | $ | 538 |
__________________
(1)Includes amounts for certain variable annuities recorded as PABs with the related guarantees recorded as MRBs which are disclosed in “MetLife Holdings – Annuities” in Note 5.
(2)For benefits that are payable in the event of death, the net amount at risk is generally defined as the current death benefit in excess of the current account balance at the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts at the balance sheet date.
(3)For benefits that are payable in the event of annuitization or exercise of other living benefits, the net amount at risk is generally defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates or to provide other living benefits. This amount represents the Company’s potential economic exposure in the event all contractholders were to annuitize or to exercise other living benefits at the balance sheet date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
4. Policyholder Account Balances (continued)
The MetLife Holdings segment’s annuities account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| December 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 36 | | | $ | 307 | | | $ | 378 | | | $ | 252 | | | $ | 973 | |
| Equal to or greater than 2% but less than 4% | | 1,033 | | | 7,197 | | | 454 | | | 202 | | | 8,886 | |
| Equal to or greater than 4% | | 426 | | | 145 | | | 27 | | | — | | | 598 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 431 | |
| Total | | $ | 1,495 | | | $ | 7,649 | | | $ | 859 | | | $ | 454 | | | $ | 10,888 | |
| | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 934 | | | $ | 4 | | | $ | 8 | | | $ | 16 | | | $ | 962 | |
| Equal to or greater than 2% but less than 4% | | 9,381 | | | 892 | | | 186 | | | 12 | | | 10,471 | |
| Equal to or greater than 4% | | 593 | | | 43 | | | — | | | — | | | 636 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 529 | |
| Total | | $ | 10,908 | | | $ | 939 | | | $ | 194 | | | $ | 28 | | | $ | 12,598 | |
| | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 1,066 | | | $ | 7 | | | $ | 14 | | | $ | 11 | | | $ | 1,098 | |
| Equal to or greater than 2% but less than 4% | | 10,671 | | | 299 | | | 192 | | | 1 | | | 11,163 | |
| Equal to or greater than 4% | | 623 | | | 40 | | | — | | | — | | | 663 | |
| Products with either a fixed rate or no guaranteed minimum crediting rate | | N/A | | N/A | | N/A | | N/A | | 768 | |
| Total | | $ | 12,360 | | | $ | 346 | | | $ | 206 | | | $ | 12 | | | $ | 13,692 | |
5. Market Risk Benefits
The Company establishes liabilities for variable annuity contract features which include a minimum benefit guarantee that provides to the contractholder a minimum return based on their initial deposit less withdrawals. In some cases, the benefit base may be increased by additional deposits, bonus amounts, accruals or optional market value resets.
The LDTI transition adjustments related to MRB liabilities, as described in Note 1, were as follows at the Transition Date:
| | | | | | | | | | | | | | | | | | | | |
| | MetLife Holdings
Annuities | | Other | | Total |
| | (In millions) |
| Direct and assumed MRB liabilities at December 31, 2020 | | $ | — | | | $ | — | | | $ | — | |
| Reclassification of carrying amounts of contracts and contract features that are market risk benefits | | 1,882 | | | 1 | | | 1,883 | |
| Adjustments for the cumulative effect of changes in nonperformance risk between contract issue date and Transition Date | | (9) | | | (17) | | | (26) | |
| Adjustments for the difference between the fair value of the MRB balance, excluding the cumulative effect of changes in nonperformance risk, and the historical carrying value | | 4,728 | | | 204 | | | 4,932 | |
| Direct and assumed MRB liabilities at January 1, 2021 | | $ | 6,601 | | | $ | 188 | | | $ | 6,789 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Market Risk Benefits (continued)
The Company’s MRB assets and MRB liabilities on the consolidated balance sheets were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| | Asset | | Liability | | Net | | Asset | | Liability | | Net |
| | (In millions) |
| MetLife Holdings - Annuities | | $ | 156 | | | $ | 2,858 | | | $ | 2,702 | | | $ | 153 | | | $ | 3,224 | | | $ | 3,071 | |
| Other | | 21 | | | 20 | | | (1) | | | 21 | | | 46 | | | 25 | |
| Total | | $ | 177 | | | $ | 2,878 | | | $ | 2,701 | | | $ | 174 | | | $ | 3,270 | | | $ | 3,096 | |
Rollforwards
The following information about the direct liability for MRBs includes a disaggregated rollforward. The products grouped within this rollforward were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business.
MetLife Holdings - Annuities
The MetLife Holdings segment’s variable annuity products offer contract features where the Company guarantees to the contractholder a minimum benefit, which includes guaranteed minimum death benefits (“GMDBs”) and living benefit guarantees. The GMDB contract features include return of premium, which provides a return of the purchase payment upon death, annual step-up and roll-up and step-up combinations. The living benefit guarantees contract features primarily include guaranteed minimum income benefits (“GMIBs”), which provide a minimum accumulation of purchase payments that can be annuitized to receive a monthly income stream, and guaranteed minimum withdrawal benefits (“GMWBs”), which provide a series of withdrawals, provided that withdrawals in a contract year do not exceed a contractual limit. Information regarding MetLife Holdings annuity products was as follows:
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Market Risk Benefits (continued)
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In millions) |
| Balance at January 1, | | $ | 3,071 | | | $ | 5,715 | | | $ | 6,601 | |
| | | | | | |
| Balance, beginning of period, before effect of cumulative changes in the instrument-specific credit risk | | $ | 3,164 | | | $ | 6,017 | | | $ | 6,610 | |
| | | | | | |
| Attributed fees collected | | 315 | | | 316 | | | 320 | |
| Benefit payments | | (57) | | | (42) | | | (41) | |
| Effect of changes in interest rates | | (156) | | | (3,584) | | | (524) | |
| Effect of changes in capital markets | | (734) | | | 896 | | | (934) | |
| Effect of changes in equity index volatility | | (120) | | | 41 | | | 20 | |
| Actual policyholder behavior different from expected behavior | | 115 | | | 3 | | | (46) | |
| Effect of changes in future expected policyholder behavior and other assumptions (1) | | 9 | | | (317) | | | 557 | |
| Effect of foreign currency translation and other, net (2) | | 219 | | | 72 | | | 399 | |
| Effect of changes in risk margin | | (14) | | | (238) | | | (344) | |
| Balance, end of period, before the cumulative effect of changes in the instrument-specific credit risk | | 2,741 | | | 3,164 | | | 6,017 | |
| Cumulative effect of changes in the instrument-specific credit risk | | (39) | | | (93) | | | (302) | |
| | | | | | |
| Balance at December 31, | | $ | 2,702 | | | $ | 3,071 | | | $ | 5,715 | |
| | | | | | |
| | | | | | |
| | | | | | |
| At period end: | | | | | | |
| Net amount at risk, excluding offsets from hedging (3): | | | | | | |
| In the event of death (4) | | $ | 2,821 | | | $ | 4,354 | | | $ | 1,119 | |
| At annuitization or exercise of other living benefits (5) | | $ | 646 | | | $ | 917 | | | $ | 538 | |
| Weighted-average attained age of contractholders: | | | | | | |
| In the event of death (4) | | 70 years | | 69 years | | 70 years |
| At annuitization or exercise of other living benefits (5) | | 70 years | | 69 years | | 67 years |
__________________
(1) For the year ended December 31, 2022, the effect of changes in future expected policyholder behavior and other assumptions was primarily driven by changes in policyholder behavior assumptions relating to projected annuitizations for variable annuities.
(2) Included is the covariance impact from aggregating the market observable inputs, mostly driven by interest rate and capital market volatility.
(3) Includes amounts for certain variable annuities guarantees recorded as MRBs on contracts also recorded as PABs which are disclosed in “MetLife Holdings – Annuities” in Note 4.
(4) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts at the balance sheet date.
(5) For benefits that are payable in the event of annuitization or exercise of other living benefits, the net amount at risk is generally defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates or to provide other living benefits. This amount represents the Company’s potential economic exposure in the event all contractholders were to annuitize or to exercise other living benefits at the balance sheet date.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Market Risk Benefits (continued)
Significant Methodologies and Assumptions
The Company issues GMDBs, GMWBs, guaranteed minimum accumulation benefits (“GMABs”) and GMIBs that typically meet the definition of MRBs, which are measured in aggregate, as one compound MRB, at estimated fair value separately from the variable annuity contract, with changes in estimated fair value reported in net income, except for changes in nonperformance risk of the Company which are recorded in OCI.
The Company calculates the fair value of these MRBs, which is estimated as the present value of projected future benefits minus the present value of projected attributed fees, using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, projecting future cash flows from the MRB over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience. See Note 12 for additional information on significant unobservable inputs.
The valuation of these MRBs includes a nonperformance risk adjustment and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions at annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including changes in interest rates, equity indices, market volatility and foreign currency exchange rates; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, impact the estimated fair value of the guarantees and affect net income, and changes in nonperformance risk of the Company affect OCI.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Market Risk Benefits (continued)
Other
In addition to the disaggregated MRB product rollforward above, the Company offers other products with guaranteed minimum benefit features. These MRBs are measured at estimated fair value with changes in estimated fair value reported in net income, except for changes in nonperformance risk of the Company which are recorded in OCI. See Note 12 for additional information on significant unobservable inputs used in the fair value measurement of MRBs. Information regarding these product liabilities was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In millions) |
| Balance at January 1, | | $ | 25 | | | $ | 286 | | | $ | 188 | |
| | | | | | |
| Balance, beginning of period, before effect of cumulative changes in the instrument-specific credit risk | | $ | 34 | | | $ | 322 | | | $ | 205 | |
| | | | | | |
| Attributed fees collected | | 2 | | | 2 | | | 2 | |
| | | | | | |
| Effect of changes in interest rates | | (9) | | | (156) | | | (63) | |
| Effect of changes in capital markets | | — | | | (2) | | | (5) | |
| | | | | | |
| Actual policyholder behavior different from expected behavior | | (26) | | | (5) | | | (4) | |
| Effect of changes in future expected policyholder behavior and other assumptions | | 1 | | | (2) | | | 63 | |
| Effect of foreign currency translation and other, net | | — | | | (125) | | | 124 | |
| | | | | | |
| Balance, end of period, before the cumulative effect of changes in the instrument-specific credit risk | | 2 | | | 34 | | | 322 | |
| Cumulative effect of changes in the instrument-specific credit risk | | (3) | | | (9) | | | (36) | |
| | | | | | |
| Balance at December 31, | | $ | (1) | | | $ | 25 | | | $ | 286 | |
| | | | | | |
| | | | | | |
6. Separate Accounts
Separate account assets consist of investment accounts established and maintained by the Company. The investment objectives of these assets are directed by the contractholder. An equivalent amount is reported as separate account liabilities. These accounts are reported separately from the general account assets and liabilities.
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $54.7 billion and $52.4 billion at December 31, 2023 and 2022, respectively, for which the contractholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the contractholder which totaled $28.5 billion and $36.8 billion at December 31, 2023 and 2022, respectively. The latter category consisted primarily of GICs. The average interest rate credited on these contracts was 2.6% and 2.5% at December 31, 2023 and 2022, respectively.
Separate Account Liabilities
The Company’s separate account liabilities on the consolidated balance sheets were as follows at:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| (In millions) |
| RIS: | | | |
| Stable Value and Risk Solutions | $ | 35,562 | | | $ | 43,249 | |
| Annuities | 11,659 | | | 11,694 | |
| MetLife Holdings - Annuities | 29,162 | | | 28,443 | |
| Other | 6,814 | | | 5,855 | |
| Total | $ | 83,197 | | | $ | 89,241 | |
Rollforwards
The following information about the separate account liabilities includes disaggregated rollforwards. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6. Separate Accounts (continued)
The separate account liabilities are primarily comprised of the following: RIS stable value and risk solutions contracts, RIS annuities participating and non-participating group contracts and MetLife Holdings variable annuities.
The balances of and changes in separate account liabilities were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | RIS
Stable Value and Risk Solutions | | RIS
Annuities | | MetLife Holdings
Annuities |
| | (In millions) |
| Balance, January 1, 2021 | | $ | 58,704 | | | $ | 21,895 | | | $ | 40,755 | |
| Premiums and deposits | | 3,411 | | | 944 | | | 298 | |
| Policy charges | | (263) | | | (35) | | | (788) | |
| Surrenders and withdrawals | | (8,170) | | | (2,457) | | | (4,454) | |
| Benefit payments | | (137) | | | — | | | (500) | |
| Investment performance | | 400 | | | 1,189 | | | 5,023 | |
| Net transfers from (to) general account | | (41) | | | 30 | | | (237) | |
| Other | | 487 | | | (274) | | | (1) | |
| Balance, December 31, 2021 | | $ | 54,391 | | | $ | 21,292 | | | $ | 40,096 | |
| Premiums and deposits | | 4,329 | | | 1,233 | | | 266 | |
| Policy charges | | (263) | | | (25) | | | (665) | |
| Surrenders and withdrawals | | (5,882) | | | (7,481) | | | (2,906) | |
| Benefit payments | | (108) | | | — | | | (431) | |
| Investment performance | | (4,492) | | | (2,823) | | | (7,722) | |
| Net transfers from (to) general account | | 57 | | | (56) | | | (199) | |
| Other (1) | | (4,783) | | | (446) | | | 4 | |
| Balance, December 31, 2022 | | $ | 43,249 | | | $ | 11,694 | | | $ | 28,443 | |
| Premiums and deposits | | 1,643 | | | 175 | | | 256 | |
| Policy charges | | (232) | | | (21) | | | (608) | |
| Surrenders and withdrawals | | (11,087) | | | (944) | | | (2,942) | |
| Benefit payments | | (95) | | | — | | | (464) | |
| Investment performance | | 2,241 | | | 774 | | | 4,548 | |
| Net transfers from (to) general account | | (56) | | | 3 | | | (73) | |
| Other | | (101) | | | (22) | | | 2 | |
| Balance, December 31, 2023 | | $ | 35,562 | | | $ | 11,659 | | | $ | 29,162 | |
| | | | | | |
| Cash surrender value at December 31, 2021 (2) | | $ | 44,774 | | | N/A | | $ | 39,855 | |
| Cash surrender value at December 31, 2022 (2) | | $ | 38,420 | | | N/A | | $ | 28,292 | |
| Cash surrender value at December 31, 2023 (2) | | $ | 30,841 | | | N/A | | 29,016 | |
_____________
(1) Other for RIS stable value and risk solutions primarily includes changes related to unsettled trades of mortgage-backed securities.
(2) Cash surrender value represents the amount of the contractholders’ account balances distributable at the balance sheet date less policy loans and certain surrender charges.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6. Separate Accounts (continued)
Separate Account Assets
The Company’s aggregate fair value of assets, by major investment asset category, supporting separate account liabilities was as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Group Benefits | | RIS | | MetLife Holdings | | | Total |
| | (In millions) |
| Fixed maturity securities: | | | | | | | | | |
| Bonds: | | | | | | | | | |
| Foreign government | | $ | — | | | $ | 509 | | | $ | — | | | | $ | 509 | |
| U.S. government and agency | | — | | | 9,603 | | | — | | | | 9,603 | |
| Public utilities | | — | | | 1,066 | | | — | | | | 1,066 | |
| Municipals | | — | | | 346 | | | — | | | | 346 | |
| Corporate bonds: | | | | | | | | | |
| Materials | | — | | | 143 | | | — | | | | 143 | |
| Communications | | — | | | 883 | | | — | | | | 883 | |
| Consumer | | — | | | 1,843 | | | — | | | | 1,843 | |
| Energy | | — | | | 906 | | | — | | | | 906 | |
| Financial | | — | | | 2,670 | | | — | | | | 2,670 | |
| Industrial and other | | — | | | 757 | | | — | | | | 757 | |
| Technology | | — | | | 541 | | | — | | | | 541 | |
| Foreign | | — | | | 1,889 | | | — | | | | 1,889 | |
| Total corporate bonds | | — | | | 9,632 | | | — | | | | 9,632 | |
| Total bonds | | — | | | 21,156 | | | — | | | | 21,156 | |
| Mortgage-backed securities | | — | | | 9,515 | | | — | | | | 9,515 | |
| Asset-backed securities and collateralized loan obligations | | — | | | 2,341 | | | — | | | | 2,341 | |
| Redeemable preferred stock | | — | | | 9 | | | — | | | | 9 | |
| Total fixed maturity securities | | — | | | 33,021 | | | — | | | | 33,021 | |
| Equity securities: | | | | | | | | | |
| Common stock: | | | | | | | | | |
| Industrial, miscellaneous and all other | | — | | | 2,338 | | | — | | | | 2,338 | |
| Banks, trust and insurance companies | | — | | | 716 | | | — | | | | 716 | |
| Public utilities | | — | | | 65 | | | — | | | | 65 | |
| Non-redeemable preferred stock | | — | | | — | | | — | | | | — | |
| Mutual funds | | 1,159 | | | 3,672 | | | 34,728 | | | | 39,559 | |
| Total equity securities | | 1,159 | | | 6,791 | | | 34,728 | | | | 42,678 | |
| Other invested assets | | — | | | 1,425 | | | — | | | | 1,425 | |
| Total investments | | 1,159 | | | 41,237 | | | 34,728 | | | | 77,124 | |
| Other assets | | — | | | 6,073 | | | — | | | | 6,073 | |
| Total | | $ | 1,159 | | | $ | 47,310 | | | $ | 34,728 | | | | $ | 83,197 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6. Separate Accounts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Group Benefits (1) | | RIS (1) | | MetLife Holdings | | | Total |
| | (In millions) |
| Fixed maturity securities: | | | | | | | | | |
| Bonds: | | | | | | | | | |
| Foreign government | | $ | — | | | $ | 588 | | | $ | — | | | | $ | 588 | |
| U.S. government and agency | | — | | | 11,189 | | | — | | | | 11,189 | |
| Public utilities | | — | | | 1,174 | | | — | | | | 1,174 | |
| Municipals | | — | | | 475 | | | — | | | | 475 | |
| Corporate bonds: | | | | | | | | | |
| Materials | | — | | | 242 | | | — | | | | 242 | |
| Communications | | — | | | 1,174 | | | — | | | | 1,174 | |
| Consumer | | — | | | 2,365 | | | — | | | | 2,365 | |
| Energy | | — | | | 861 | | | — | | | | 861 | |
| Financial | | — | | | 3,495 | | | — | | | | 3,495 | |
| Industrial and other | | — | | | 876 | | | — | | | | 876 | |
| Technology | | — | | | 711 | | | — | | | | 711 | |
| Foreign | | — | | | 2,451 | | | — | | | | 2,451 | |
| Total corporate bonds | | — | | | 12,175 | | | — | | | | 12,175 | |
| Total bonds | | — | | | 25,601 | | | — | | | | 25,601 | |
| Mortgage-backed securities | | — | | | 12,202 | | | — | | | | 12,202 | |
| Asset-backed securities and collateralized loan obligations | | — | | | 2,763 | | | — | | | | 2,763 | |
| Redeemable preferred stock | | — | | | 4 | | | — | | | | 4 | |
| Total fixed maturity securities | | — | | | 40,570 | | | — | | | | 40,570 | |
| Equity securities: | | | | | | | | | |
| Common stock: | | | | | | | | | |
| Industrial, miscellaneous and all other | | — | | | 2,853 | | | — | | | | 2,853 | |
| Banks, trust and insurance companies | | — | | | 586 | | | — | | | | 586 | |
| Public utilities | | — | | | 94 | | | — | | | | 94 | |
| Non-redeemable preferred stock | | — | | | 2 | | | — | | | | 2 | |
| Mutual funds | | 988 | | | 3,367 | | | 33,231 | | | | 37,586 | |
| Total equity securities | | 988 | | | 6,902 | | | 33,231 | | | | 41,121 | |
| Other invested assets | | 2 | | | 1,634 | | | — | | | | 1,636 | |
| Total investments | | 990 | | | 49,106 | | | 33,231 | | | | 83,327 | |
| Other assets | | — | | | 5,914 | | | — | | | | 5,914 | |
| Total | | $ | 990 | | | $ | 55,020 | | | $ | 33,231 | | | | $ | 89,241 | |
__________________
(1)See Note 2 for information on the reorganization of the Company’s segments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Deferred Policy Acquisition Costs, Value of Business Acquired, Unearned Revenue and Other Intangibles (continued)
The transition adjustments related to DAC, VOBA, and UREV, as described in Note 1, were as follows at the Transition Date:
| | | | | | | | | | | | | | | | | | | | | | | |
| Group Benefits (1) | | RIS (1) | | MetLife Holdings | | Total |
| (In millions) |
| DAC: | | | | | | | |
| Balance at December 31, 2020 | $ | 278 | | | $ | 100 | | | $ | 2,248 | | | $ | 2,626 | |
| Removal of related amounts in AOCI | — | | | — | | | 1,480 | | | 1,480 | |
| Other adjustments upon adoption of the LDTI standard | — | | | — | | | 12 | | | 12 | |
| Balance at January 1, 2021 | $ | 278 | | | $ | 100 | | | $ | 3,740 | | | $ | 4,118 | |
| | | | | | | |
| VOBA: | | | | | | | |
| Balance at December 31, 2020 | $ | — | | | $ | 20 | | | $ | 3 | | | $ | 23 | |
| Removal of related amounts in AOCI | — | | | — | | | 2 | | | 2 | |
| Balance at January 1, 2021 | $ | — | | | $ | 20 | | | $ | 5 | | | $ | 25 | |
| | | | | | | |
| UREV: | | | | | | | |
| Balance at December 31, 2020 | $ | — | | | $ | 22 | | | $ | 157 | | | $ | 179 | |
| Removal of related amounts in AOCI | — | | | — | | | — | | | — | |
| Balance at January 1, 2021 | $ | — | | | $ | 22 | | | $ | 157 | | | $ | 179 | |
__________________(1)See Note 2 for information on the reorganization of the Company’s segments.
DAC and VOBA
Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows:follows at:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In millions) |
| U.S. | $ | 411 | | | $ | 401 | |
| MetLife Holdings | 4,732 | | | 2,191 | |
| Corporate & Other | 120 | | | 6 | |
| Total | $ | 5,263 | | | $ | 2,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Group Benefits (1) | | RIS (1) | | MetLife Holdings (2) | | Corporate & Other | | Total |
| (In millions) |
| DAC: | | | | | | | | | |
| Balance at January 1, 2021 | $ | 278 | | | $ | 100 | | | $ | 3,740 | | | $ | — | | | $ | 4,118 | |
| Capitalizations | 19 | | | 40 | | | (2) | | | 6 | | | 63 | |
| Amortization | (25) | | | (28) | | | (281) | | | — | | | (334) | |
| Balance at December 31, 2021 | 272 | | | 112 | | | 3,457 | | | 6 | | | 3,847 | |
| Capitalizations | 18 | | | 51 | | | — | | | 120 | | | 189 | |
| Amortization | (26) | | | (26) | | | (237) | | | (6) | | | (295) | |
| Balance at December 31, 2022 | 264 | | | 137 | | | 3,220 | | | 120 | | | 3,741 | |
| Capitalizations | 18 | | | 46 | | | (1) | | | 55 | | | 118 | |
| Amortization | (27) | | | (28) | | | (224) | | | (17) | | | (296) | |
| Other (3) | — | | | — | | | (272) | | | — | | | (272) | |
| Balance at December 31, 2023 | $ | 255 | | | $ | 155 | | | $ | 2,723 | | | $ | 158 | | | $ | 3,291 | |
| | | | | | | | | |
| Total DAC and VOBA: | | | | | | | | | |
| Balance at December 31, 2021 | | | | | | | | | $ | 3,865 | |
| Balance at December 31, 2022 | | | | | | | | | $ | 3,757 | |
| Balance at December 31, 2023 | | | | | | | | | $ | 3,305 | |
__________________
(1)See Note 2 for information on the reorganization of the Company’s segments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Deferred Policy Acquisition Costs, Value of Business Acquired, Unearned Revenue and Other Intangibles (continued)
(2)Includes DAC balances primarily related to whole life, variable annuities, disability income, term life, long-term care, and universal life products.
(3)MetLife Holdings segment includes activity for total DAC ceded at the date of inception related to a reinsurance agreement. See Note 8 for further information on the transaction.
Significant Methodologies and Assumptions
The Company amortizes DAC and VOBA related to long-duration contracts over the estimated lives of the contracts in proportion to benefits in-force for RIS annuities and policy count for all other products. The amortization amount is calculated using the same cohorts as the corresponding liabilities on a quarterly basis, using an amortization rate that includes current period reporting experience and end of period persistency and longevity assumptions that are consistent with those used to measure the corresponding liabilities.
The Company amortizes DAC for short-duration contracts, which is primarily comprised of commissions and certain underwriting expenses, in proportion to actual and future earned premium over the applicable contract term.
Information regarding other intangibles was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (In millions) |
| DSI: | | | | | | |
| Balance at January 1, | | $ | 42 | | | $ | 30 | | | $ | 62 | |
| Capitalization | | — | | | — | | | — | |
| Amortization | | (19) | | | 2 | | | (21) | |
| Unrealized investment gains (losses) | | 44 | | | 10 | | | (11) | |
| Balance at December 31, | | $ | 67 | | | $ | 42 | | | $ | 30 | |
| | | | | | |
| VODA and VOCRA: | | | | | | |
| Balance at January 1, | | $ | 116 | | | $ | 135 | | | $ | 157 | |
| Amortization | | (17) | | | (19) | | | (22) | |
| Balance at December 31, | | $ | 99 | | | $ | 116 | | | $ | 135 | |
| Accumulated amortization | | $ | 358 | | | $ | 341 | | | $ | 322 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In millions) |
| VODA and VOCRA: | | | | | | |
| Balance at January 1, | | $ | 99 | | | $ | 116 | | | $ | 135 | |
| Amortization | | (15) | | | (17) | | | (19) | |
| Balance at December 31, | | $ | 84 | | | $ | 99 | | | $ | 116 | |
| Accumulated amortization | | $ | 373 | | | $ | 358 | | | $ | 341 | |
5.Unearned Revenue
Information regarding the Company’s UREV primarily related to universal life and variable universal life products by segment included in other policy-related balances was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | RIS (1) | | MetLife Holdings | | Total |
| | (In millions) |
| Balance at January 1, 2021 | | $ | 22 | | | $ | 157 | | | $ | 179 | |
| Deferrals | | 3 | | | 49 | | | 52 | |
| Amortization | | (4) | | | (11) | | | (15) | |
| Balance at December 31, 2021 | | 21 | | | 195 | | | 216 | |
| Deferrals | | 1 | | | 45 | | | 46 | |
| Amortization | | (4) | | | (13) | | | (17) | |
| Balance at December 31, 2022 | | 18 | | | 227 | | | 245 | |
| Deferrals | | 2 | | | 33 | | | 35 | |
| Amortization | | (4) | | | (14) | | | (18) | |
| Other (2) | | — | | | (241) | | | (241) | |
| Balance at December 31, 2023 | | $ | 16 | | | $ | 5 | | | $ | 21 | |
__________________
(1) See Note 2 for information on the reorganization of the Company’s segments.
(2)MetLife Holdings segment includes activity for total UREV ceded at the date of inception related to a reinsurance agreement. See Note 8 for further information on the transaction.
Significant Methodologies and Assumptions
UREV is amortized similarly to DAC and VOBA, see “— DAC and VOBA.”
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Reinsurance
The Company enters into reinsurance agreements that transfer risk from its various insurance products to affiliated and unaffiliated companies. These cessions limit losses, minimize exposure to significant risks and provide additional capacity for future growth. The Company also provides reinsurance by accepting risk from affiliates and nonaffiliates.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse the Company for the ceded amount in the event a claim is paid. Cessions under reinsurance agreements do not discharge the Company’s obligation as the primary insurer. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in “— Fixed Maturity Securities AFS – Evaluation of Fixed Maturity Securities AFS for Credit Loss” in Note 7.10.
U.S.Group Benefits
For its Group Benefits business,segment, the Company generally retains most of the risk, with the exception of its Group Term Life business and certain client arrangements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Reinsurance (continued)
The Company reinsures an 80% quota share of its Group Term Life business and a 50% quota share of its Group Dental business for capital management purposes. The majority of the Company’s other reinsurance activity within this businesssegment relates to client agreements for employer sponsored captive programs, risk-sharing agreements and multinational pooling. The risks ceded under these agreements are generally quota shares of group life and disability policies. The cessions vary and the Company may cede up to 100% of all the risks of these policies.
RIS
The Company’s RIS businesssegment has engaged in reinsurance activities on an opportunistic basis. Also, the Company assumes certain group annuity contracts issued in connection with pension risk transfers from an affiliate.
MetLife Holdings
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. In 2023, the Company reinsured an in-force block of universal life, variable universal life, universal life with secondary guarantees and fixed annuities to a third party on a 100% quota share basis.
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in its results of operations. For its U.S.Group Benefits segment, the Company purchases catastrophe coverage to reinsure risks issued within territories that it believes are subject to the greatest catastrophic risks. For its MetLife Holdings segment,other segments, the Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks. Excess of retention reinsurance agreements provide for a portion of a risk to remain with the direct writing company and quota share reinsurance agreements provide for the direct writing company to transfer a fixed percentage of all risks of a class of policies.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Reinsurance (continued)
Reinsurance Recoverables
The Company reinsures its business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts, and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at December 31, 20222023 and 2021,2022, were not significant.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $1.3$1.4 billion and $1.5$1.3 billion of unsecured unaffiliated reinsurance recoverable balances at December 31, 20222023 and 2021,2022, respectively.
At December 31, 2023, the Company had $9.6 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $8.9 billion, or 93%, were with the Company’s five largest unaffiliated ceded reinsurers, including $925 million of net unaffiliated ceded reinsurance recoverables which were unsecured. At December 31, 2022, the Company had $2.0 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $1.6 billion, or 80%, were with the Company’s five largest unaffiliated ceded reinsurers, including $1.1 billion of net unaffiliated ceded reinsurance recoverables which were unsecured. At December 31, 2021, the Company had $2.3 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $1.8 billion, or 78%, were with the Company’s five largest unaffiliated ceded reinsurers, including $1.2 billion of net unaffiliated ceded reinsurance recoverables which were unsecured.
The Company has reinsured, with an unaffiliated third-party reinsurer, 59% of the closed block through a modified coinsurance agreement. The Company accounts for this agreement under the deposit method of accounting. The Company, having the right of offset, has offset the modified coinsurance deposit liability with the deposit recoverable.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5. Reinsurance (continued)
The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Premiums | | | | | |
| Direct premiums | $ | 31,275 | | | $ | 23,008 | | | $ | 20,821 | |
| Reinsurance assumed | 871 | | | 4,121 | | | 909 | |
| Reinsurance ceded | (948) | | | (938) | | | (989) | |
| Net premiums | $ | 31,198 | | | $ | 26,191 | | | $ | 20,741 | |
| Universal life and investment-type product policy fees | | | | | |
| Direct universal life and investment-type product policy fees | $ | 2,268 | | | $ | 2,371 | | | $ | 2,290 | |
| Reinsurance assumed | 30 | | | (16) | | | (16) | |
| Reinsurance ceded | (301) | | | (293) | | | (278) | |
| Net universal life and investment-type product policy fees | $ | 1,997 | | | $ | 2,062 | | | $ | 1,996 | |
| Other revenues | | | | | |
| Direct other revenues | $ | 1,027 | | | $ | 1,066 | | | $ | 1,043 | |
| Reinsurance assumed | 54 | | | 13 | | | 10 | |
| Reinsurance ceded | 617 | | | 537 | | | 608 | |
| Net other revenues | $ | 1,698 | | | $ | 1,616 | | | $ | 1,661 | |
| Policyholder benefits and claims | | | | | |
| Direct policyholder benefits and claims | $ | 33,327 | | | $ | 26,672 | | | $ | 23,488 | |
| Reinsurance assumed | 843 | | | 3,964 | | | 811 | |
| Reinsurance ceded | (1,216) | | | (1,213) | | | (1,225) | |
| Net policyholder benefits and claims | $ | 32,954 | | | $ | 29,423 | | | $ | 23,074 | |
| Interest credited to policyholder account balances | | | | | |
| Direct interest credited to policyholder account balances | $ | 2,285 | | | $ | 1,996 | | | $ | 2,218 | |
| Reinsurance assumed | 109 | | | 43 | | | 42 | |
| Reinsurance ceded | (12) | | | (12) | | | (13) | |
| Net interest credited to policyholder account balances | $ | 2,382 | | | $ | 2,027 | | | $ | 2,247 | |
| Other expenses | | | | | |
| Direct other expenses | $ | 4,886 | | | $ | 4,459 | | | $ | 4,469 | |
| Reinsurance assumed | 98 | | | 163 | | | 71 | |
| Reinsurance ceded | 571 | | | 995 | | | 473 | |
| Net other expenses | $ | 5,555 | | | $ | 5,617 | | | $ | 5,013 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5.8. Reinsurance (continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (In millions) |
| Premiums | | | | | |
| Direct premiums | $ | 25,027 | | | $ | 31,265 | | | $ | 23,005 | |
| Reinsurance assumed | 847 | | | 872 | | | 4,121 | |
| Reinsurance ceded | (1,156) | | | (948) | | | (938) | |
| Net premiums | $ | 24,718 | | | $ | 31,189 | | | $ | 26,188 | |
| Universal life and investment-type product policy fees | | | | | |
| Direct universal life and investment-type product policy fees | $ | 2,019 | | | $ | 2,079 | | | $ | 2,173 | |
| Reinsurance assumed | (17) | | | 30 | | | (16) | |
| Reinsurance ceded | (338) | | | (292) | | | (283) | |
| Net universal life and investment-type product policy fees | $ | 1,664 | | | $ | 1,817 | | | $ | 1,874 | |
| Other revenues | | | | | |
| Direct other revenues | $ | 1,025 | | | $ | 1,025 | | | $ | 1,066 | |
| Reinsurance assumed | 125 | | | 54 | | | 13 | |
| Reinsurance ceded | 523 | | | 615 | | | 537 | |
| Net other revenues | $ | 1,673 | | | $ | 1,694 | | | $ | 1,616 | |
| Policyholder benefits and claims | | | | | |
| Direct policyholder benefits and claims | $ | 26,768 | | | $ | 33,433 | | | $ | 26,322 | |
| Reinsurance assumed | 708 | | | 856 | | | 3,962 | |
| Reinsurance ceded | (1,326) | | | (1,156) | | | (1,200) | |
| Net policyholder benefits and claims | $ | 26,150 | | | $ | 33,133 | | | $ | 29,084 | |
| Policyholder liability remeasurement (gains) losses | | | | | |
| Direct policyholder liability remeasurement (gains) losses | $ | (87) | | | $ | 43 | | | $ | (19) | |
| Reinsurance assumed | (48) | | | (39) | | | 31 | |
| Reinsurance ceded | (15) | | | (15) | | | (12) | |
| Net policyholder liability remeasurement (gains) losses | $ | (150) | | | $ | (11) | | | $ | — | |
| Market risk benefits remeasurement (gains) losses | | | | | |
| Direct market risk benefits remeasurement (gains) losses | $ | (701) | | | $ | (3,389) | | | $ | (758) | |
| Reinsurance assumed | (2) | | | 10 | | | — | |
| Reinsurance ceded | — | | | — | | | — | |
| Net market risk benefits remeasurement (gains) losses | $ | (703) | | | $ | (3,379) | | | $ | (758) | |
| Interest credited to policyholder account balances | | | | | |
| Direct interest credited to policyholder account balances | $ | 3,276 | | | $ | 2,418 | | | $ | 2,157 | |
| Reinsurance assumed | 354 | | | 109 | | | 43 | |
| Reinsurance ceded | (28) | | | (18) | | | (15) | |
| Net interest credited to policyholder account balances | $ | 3,602 | | | $ | 2,509 | | | $ | 2,185 | |
| Other expenses | | | | | |
| Direct other expenses | $ | 5,365 | | | $ | 5,026 | | | $ | 4,551 | |
| Reinsurance assumed | 280 | | | 97 | | | 162 | |
| Reinsurance ceded | 140 | | | 580 | | | 987 | |
| Net other expenses | $ | 5,785 | | | $ | 5,703 | | | $ | 5,700 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Reinsurance (continued)
The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at:
| | December 31, |
| 2022 | | 2021 |
| Direct | | Assumed | | Ceded | | Total
Balance
Sheet | | Direct | | Assumed | | Ceded | | Total
Balance
Sheet |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Direct | | | Direct | | Assumed | | Ceded | | Total
Balance
Sheet | | Direct | | Assumed | | Ceded | | Total
Balance
Sheet |
| (In millions) | | | (In millions) |
| Assets | Assets | |
Premiums, reinsurance and other receivables | Premiums, reinsurance and other receivables | $ | 3,006 | | | $ | 1,166 | | | $ | 16,532 | | | $ | 20,704 | | | $ | 2,778 | | | $ | 636 | | | $ | 17,091 | | | $ | 20,505 | |
Premiums, reinsurance and other receivables | |
Premiums, reinsurance and other receivables | |
| Market risk benefits | |
Deferred policy acquisition costs and value of business acquired | Deferred policy acquisition costs and value of business acquired | 5,370 | | | 131 | | | (238) | | | 5,263 | | | 2,805 | | | 18 | | | (225) | | | 2,598 | |
| Total assets | Total assets | $ | 8,376 | | | $ | 1,297 | | | $ | 16,294 | | | $ | 25,967 | | | $ | 5,583 | | | $ | 654 | | | $ | 16,866 | | | $ | 23,103 | |
| Liabilities | Liabilities | | | | | | | | | | | | | | | |
| Future policy benefits | Future policy benefits | $ | 129,784 | | | $ | 3,932 | | | $ | 9 | | | $ | 133,725 | | | $ | 128,086 | | | $ | 4,198 | | | $ | (10) | | | $ | 132,274 | |
| Future policy benefits | |
| Future policy benefits | |
| Policyholder account balances | Policyholder account balances | 93,716 | | | 6,251 | | | — | | | 99,967 | | | 94,059 | | | 400 | | | — | | | 94,459 | |
| Market risk benefits | |
| Other policy-related balances | Other policy-related balances | 7,508 | | | 358 | | | (3) | | | 7,863 | | | 7,757 | | | 337 | | | — | | | 8,094 | |
| Other liabilities | Other liabilities | 8,715 | | | 2,160 | | | 13,614 | | | 24,489 | | | 6,259 | | | 2,213 | | | 15,324 | | | 23,796 | |
| Total liabilities | Total liabilities | $ | 239,723 | | | $ | 12,701 | | | $ | 13,620 | | | $ | 266,044 | | | $ | 236,161 | | | $ | 7,148 | | | $ | 15,314 | | | $ | 258,623 | |
Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. TheIncluded in the above table are deposit assets on reinsurance were $11.6of $14.3 billion and $11.9$11.6 billion at December 31, 2023 and 2022, and 2021, respectively. TheAlso, included in the table above are deposit liabilities on reinsurance wereof $1.5 billion and $1.7 billion at both December 31, 2023 and 2022, respectively.
In November 2023, the Company completed a risk transfer transaction with a subsidiary of Global Atlantic Financial Group, a retirement and 2021.life insurance company, to reinsure an in-force block of universal life, variable universal life, universal life with secondary guarantees, and fixed annuities, which are reported in the MetLife Holdings segment. The Company entered into a reinsurance agreement on a coinsurance basis for the general account products and on a modified coinsurance basis for the separate account products. The Company recorded reinsurance recoverables and deposit receivables of $7.5 billion at December 31, 2023 reported in premiums, reinsurance and other receivables. At inception of the agreement, in addition to recording the amount recoverable, the Company i) transferred to the reinsurer $7.2 billion of assets primarily consisting of fixed maturity securities AFS and mortgage loans supporting the general account liabilities reduced by a $1.7 billion pre-tax ceding commission, ii) retained $4.5 billion separate account assets under the modified coinsurance arrangement and iii) recorded the net cost of reinsurance of $240 million within other liabilities, related to universal life, variable universal life and universal life with secondary guarantees reinsured. The net cost of reinsurance will be amortized on a basis consistent with the methodologies and assumptions used for amortizing DAC related to the underlying reinsured contracts in policyholder benefits and claims.
As part of this transaction, an affiliate entered into investment advisory and other agreements with a subsidiary of Global Atlantic Financial Group to serve as the investment manager for certain of the transferred general account assets. With certain exceptions, the agreements contemplate a term of five years.
Related Party Reinsurance Transactions
The Company has reinsurance agreements with certain of MetLife, Inc.’s subsidiaries, including MetLife Reinsurance Company of Charleston (“MRC”), MetLife Reinsurance Company of Vermont, Metropolitan Tower Life Insurance Company (“MTL”), Superior Vision Insurance, Inc. and MetLife Insurance K.K., all of which are related parties.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5.8. Reinsurance (continued)
Information regarding the significant effects of affiliated reinsurance included on the consolidated statements of operations was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Premiums | Premiums | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance assumed | Reinsurance assumed | $ | 7 | | | $ | 3,237 | | | $ | 8 | |
| Reinsurance ceded | Reinsurance ceded | (139) | | | (114) | | | (113) | |
| Net premiums | Net premiums | $ | (132) | | | $ | 3,123 | | | $ | (105) | |
| Universal life and investment-type product policy fees | Universal life and investment-type product policy fees | | | | | |
| Reinsurance assumed | Reinsurance assumed | $ | — | | | $ | 1 | | | $ | 1 | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance ceded | Reinsurance ceded | (14) | | | (19) | | | (7) | |
| Net universal life and investment-type product policy fees | Net universal life and investment-type product policy fees | $ | (14) | | | $ | (18) | | | $ | (6) | |
| Other revenues | Other revenues | | | | | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance assumed | Reinsurance assumed | $ | 78 | | | $ | (11) | | | $ | (12) | |
| Reinsurance ceded | Reinsurance ceded | 472 | | | 505 | | | 572 | |
| Net other revenues | Net other revenues | $ | 550 | | | $ | 494 | | | $ | 560 | |
| Policyholder benefits and claims | Policyholder benefits and claims | | | | | |
| Reinsurance assumed | Reinsurance assumed | $ | 36 | | | $ | 3,138 | | | $ | 1 | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance ceded | Reinsurance ceded | (159) | | | (152) | | | (145) | |
| Net policyholder benefits and claims | Net policyholder benefits and claims | $ | (123) | | | $ | 2,986 | | | $ | (144) | |
| Policyholder liability remeasurement (gains) losses | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance ceded | |
| Net policyholder liability remeasurement (gains) losses | |
| Interest credited to policyholder account balances | Interest credited to policyholder account balances | | | | | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance assumed | Reinsurance assumed | $ | 97 | | | $ | 31 | | | $ | 29 | |
| Reinsurance ceded | Reinsurance ceded | (12) | | | (12) | | | (13) | |
| Net interest credited to policyholder account balances | Net interest credited to policyholder account balances | $ | 85 | | | $ | 19 | | | $ | 16 | |
| Other expenses | Other expenses | | | | | |
| Reinsurance assumed | Reinsurance assumed | $ | 36 | | | $ | 89 | | | $ | — | |
| Reinsurance assumed | |
| Reinsurance assumed | |
| Reinsurance ceded | Reinsurance ceded | 644 | | | 1,055 | | | 516 | |
| Net other expenses | Net other expenses | $ | 680 | | | $ | 1,144 | | | $ | 516 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
5.8. Reinsurance (continued)
Information regarding the significant effects of affiliated reinsurance included on the consolidated balance sheets was as follows at:
| | December 31, |
| 2022 | | 2021 |
| | Assumed | | Ceded | | Assumed | | Ceded |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| | Assumed | | | | Assumed | | Ceded | | Assumed | | Ceded |
| (In millions) | | | (In millions) |
| Assets | Assets | |
| Premiums, reinsurance and other receivables | |
| Premiums, reinsurance and other receivables | |
| Premiums, reinsurance and other receivables | Premiums, reinsurance and other receivables | | $ | 587 | | | $ | 11,314 | | | $ | 25 | | | $ | 11,710 | |
| Deferred policy acquisition costs and value of business acquired | Deferred policy acquisition costs and value of business acquired | | 120 | | | (162) | | | 6 | | | (139) | |
| Total assets | Total assets | | $ | 707 | | | $ | 11,152 | | | $ | 31 | | | $ | 11,571 | |
| Liabilities | Liabilities | | | | | | | | |
| Future policy benefits | Future policy benefits | | $ | 2,938 | | | $ | 9 | | | $ | 3,139 | | | $ | (10) | |
| Future policy benefits | |
| Future policy benefits | |
| Policyholder account balances | Policyholder account balances | | 6,216 | | | — | | | 366 | | | — | |
| Other policy-related balances | Other policy-related balances | | 61 | | | (4) | | | 14 | | | — | |
| Other liabilities | Other liabilities | | 910 | | | 10,377 | | | 894 | | | 12,190 | |
| Total liabilities | Total liabilities | | $ | 10,125 | | | $ | 10,382 | | | $ | 4,413 | | | $ | 12,180 | |
Effective April 1, 2021, the Company, through its wholly-owned subsidiary, Missouri Reinsurance, Inc. (“MoRe”), entered into an agreement to assume certain group annuity contracts issued in connection with a qualifying pension risk transfer on a modified coinsurance basis from MTL. The significant reinsurance effects to the Company were primarily increases in future policy benefits of $2.9$2.2 billion and $3.1$2.4 billion and other invested assets of $2.8 billion and $3.0 billion at December 31, 2023 and 2022, and 2021, respectively, as well as premiums of $0 and $3.2 billion, andrespectively. Also, the Company recorded policyholder benefits and claims of $34($130) million, $50 million and $3.1 billion and other expenses of $194 million, $24 million and $89 million for the years ended December 31, 2022 and 2021, respectively. Also, as a result of this agreement, other invested assets increased by $3.0 billion and $3.2 billion at December 31,2023, 2022 and 2021, respectively.
The Company ceded two blocks of business to an affiliate on a 75% coinsurance with funds withheld basis. Certain contractual features of these agreementsthis agreement qualify as embedded derivatives, which are separately accounted for at estimated fair value on the Company’s consolidated balance sheets. The embedded derivatives related to the funds withheld associated with thesethis reinsurance agreementsagreement are included within other liabilities and were ($28)39) million and $31($28) million at December 31, 20222023 and 2021,2022, respectively. Net derivative gains (losses) associated with these embedded derivatives were $11 million, $59 million $15 million and ($24)$15 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
Certain contractual features of the closed block agreement with MRC qualify as embedded derivative,derivatives, which isare separately accounted for at estimated fair value on the Company’s consolidated balance sheets. The embedded derivative related to the funds withheld associated with this reinsurance agreement iswas included within other liabilities and was ($423)265) million and $1.0 billion($423) million at December 31, 20222023 and 2021,2022, respectively. Net derivative gains (losses) associated with the embedded derivative were ($158) million, $1.5 billion $341 million and ($387)$341 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $746$822 million and $677$757 million of unsecured affiliated reinsurance recoverable balances at December 31, 20222023 and 2021,2022, respectively.
Affiliated reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. TheIncluded in the above table are deposit assets on affiliated reinsurance were $9.7of $9.6 billion and $10.1$9.7 billion at December 31, 2023 and 2022, and 2021, respectively. TheAlso, included in the table above are deposit liabilities on affiliated reinsurance were $874of $764 million and $892$874 million at December 31, 20222023 and 2021,2022, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6.9. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving Metropolitan Life Insurance Company’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, Metropolitan Life Insurance Company established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life Insurance Company. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience.
The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years from the Demutualization Date.
The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the Demutualization Date. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the Demutualization Date (adjusted to eliminate the impact of related amounts in AOCI) represents the estimated maximum future earnings from the closed block expected to result from operations, attributed net of income tax, to the closed block. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes.
If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block are greater than the expected cumulative earnings of the closed block, the Company will pay the excess to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings.
At least annually, management performs a premium deficiency test using best estimate assumptions to determine whether the projected future earnings of the closed block are sufficient to support the payment of future closed block contractual benefits. The most recent deficiency test demonstrated that the projected future earnings of the closed block are sufficient to support the payment of future closed block contractual benefits.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earningspolicy count within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6.9. Closed Block (continued)
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.
Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
| | December 31, |
| 2022 | | 2021 |
| (In millions) |
| | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| | (In millions) | | | | (In millions) |
| Closed Block Liabilities | Closed Block Liabilities | |
| Future policy benefits | |
| Future policy benefits | |
| Future policy benefits | Future policy benefits | | $ | 37,214 | | | $ | 38,046 | |
| Other policy-related balances | Other policy-related balances | | 273 | | | 290 | |
| Policyholder dividends payable | Policyholder dividends payable | | 181 | | | 253 | |
| Policyholder dividend obligation | | — | | | 1,682 | |
| Deferred income tax liability | | — | | | 210 | |
| Other liabilities | Other liabilities | | 455 | | | 263 | |
| Total closed block liabilities | Total closed block liabilities | | 38,123 | | | 40,744 | |
| Assets Designated to the Closed Block | Assets Designated to the Closed Block | | | | |
| Investments: | Investments: | |
| Investments: | |
| Investments: | |
| Fixed maturity securities available-for-sale, at estimated fair value | |
| Fixed maturity securities available-for-sale, at estimated fair value | |
| Fixed maturity securities available-for-sale, at estimated fair value | Fixed maturity securities available-for-sale, at estimated fair value | | 19,648 | | | 25,669 | |
| Mortgage loans | Mortgage loans | | 6,564 | | | 6,417 | |
| Policy loans | Policy loans | | 4,084 | | | 4,191 | |
| Real estate and real estate joint ventures | Real estate and real estate joint ventures | | 635 | | | 565 | |
| Other invested assets | Other invested assets | | 705 | | | 556 | |
| Total investments | Total investments | | 31,636 | | | 37,398 | |
| Cash and cash equivalents | Cash and cash equivalents | | 437 | | | 126 | |
| Accrued investment income | Accrued investment income | | 375 | | | 384 | |
| Premiums, reinsurance and other receivables | Premiums, reinsurance and other receivables | | 52 | | | 50 | |
| Current income tax recoverable | Current income tax recoverable | | 88 | | | 81 | |
| Deferred income tax asset | Deferred income tax asset | | 423 | | | — | |
| Total assets designated to the closed block | Total assets designated to the closed block | | 33,011 | | | 38,039 | |
| Excess of closed block liabilities over assets designated to the closed block | Excess of closed block liabilities over assets designated to the closed block | | 5,112 | | | 2,705 | |
| AOCI: | AOCI: | | | | |
| Unrealized investment gains (losses), net of income tax | Unrealized investment gains (losses), net of income tax | | (1,357) | | | 2,562 | |
| Unrealized investment gains (losses), net of income tax | |
| Unrealized investment gains (losses), net of income tax | |
| Unrealized gains (losses) on derivatives, net of income tax | Unrealized gains (losses) on derivatives, net of income tax | | 262 | | | 107 | |
| Allocated to policyholder dividend obligation, net of income tax | | — | | | (1,329) | |
| Total amounts included in AOCI | Total amounts included in AOCI | | (1,095) | | | 1,340 | |
| Maximum future earnings to be recognized from closed block assets and liabilities | Maximum future earnings to be recognized from closed block assets and liabilities | | $ | 4,017 | | | $ | 4,045 | |
Information regarding the closed block policyholder dividend obligation was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| Balance at January 1, | Balance at January 1, | | $ | 1,682 | | | $ | 2,969 | | | $ | 2,020 | |
| Change in unrealized investment and derivative gains (losses) | Change in unrealized investment and derivative gains (losses) | | (1,682) | | | (1,287) | | | 949 | |
| Balance at December 31, | Balance at December 31, | | $ | — | | | $ | 1,682 | | | $ | 2,969 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
6.9. Closed Block (continued)
Information regarding the closed block revenues and expenses was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| Revenues | Revenues | |
| Premiums | |
| Premiums | |
| Premiums | Premiums | | $ | 1,104 | | | $ | 1,298 | | | $ | 1,498 | |
| Net investment income | Net investment income | | 1,382 | | | 1,541 | | | 1,596 | |
| Net investment gains (losses) | Net investment gains (losses) | | (51) | | | (36) | | | (25) | |
| Net derivative gains (losses) | Net derivative gains (losses) | | 33 | | | 18 | | | (17) | |
| Total revenues | Total revenues | | 2,468 | | | 2,821 | | | 3,052 | |
| Expenses | Expenses | | | | | | |
| Policyholder benefits and claims | Policyholder benefits and claims | | 1,890 | | | 2,150 | | | 2,330 | |
| Policyholder benefits and claims | |
| Policyholder benefits and claims | |
| Policyholder dividends | Policyholder dividends | | 453 | | | 621 | | | 791 | |
| Other expenses | Other expenses | | 90 | | | 96 | | | 104 | |
| Total expenses | Total expenses | | 2,433 | | | 2,867 | | | 3,225 | |
| Revenues, net of expenses before provision for income tax expense (benefit) | Revenues, net of expenses before provision for income tax expense (benefit) | | 35 | | | (46) | | | (173) | |
| Provision for income tax expense (benefit) | Provision for income tax expense (benefit) | | 7 | | | (10) | | | (36) | |
| Revenues, net of expenses and provision for income tax expense (benefit) | Revenues, net of expenses and provision for income tax expense (benefit) | | $ | 28 | | | $ | (36) | | | $ | (137) | |
Metropolitan Life Insurance Company charges the closed block with federal income taxes, state and local premium taxes and other state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan of Reorganization. Metropolitan Life Insurance Company also charges the closed block for expenses of maintaining the policies included in the closed block.
7.10. Investments
See Note 912 for information about the fair value hierarchy for investments and the related valuation methodologies.
Investment Risks and Uncertainties
Investments are exposed to the following primary sources of risk: credit, interest rate, liquidity, market valuation, currency and real estate risk. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of ACL and impairments, the recognition of income on certain investments and the potential consolidation of VIEs. The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the amounts presented within the consolidated financial statements.
The determination of ACL and impairments is highly subjective and is based upon quarterly evaluations and assessments of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.
The recognition of income on certain investments (e.g. structured securities, including mortgage-backed securities, asset-backed securities and collateralized loan obligations (“ABS & CLO”), certain structured investment transactions and FVO Securities)securities) is dependent upon certain factors such as prepayments and defaults, and changes in such factors could result in changes in amounts to be earned.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Fixed Maturity Securities AFS
Fixed Maturity Securities AFS by Sector
The following table presents fixed maturity securities AFS by sector. U.S. corporate and foreign corporate sectors include redeemable preferred stock. RMBS includes agency, prime, prime investor, non-qualified residential mortgage, alternative, reperforming and sub-prime mortgage-backed securities. ABS & CLO includes securities collateralized by consumer loans, corporate loans and broadly syndicated bank loans. Municipals includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political subdivisions. Commercial mortgage-backed securities (“CMBS”) primarily includes securities collateralized by multiple commercial mortgage loans. RMBS, ABS & CLO and CMBS are, collectively, “Structured Products.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value | | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value |
| Sector | | | Allowance for Credit Loss | | Gains | | Losses | | Allowance for Credit Loss | | Gains | | Losses | |
| | (In millions) |
| | | | | | | | | | | | | | | | | | | | |
| U.S. corporate | | $ | 55,280 | | | $ | (28) | | | $ | 649 | | | $ | 4,811 | | | $ | 51,090 | | | $ | 51,328 | | | $ | (30) | | | $ | 7,257 | | | $ | 153 | | | $ | 58,402 | |
| Foreign corporate | | 28,328 | | | (3) | | | 206 | | | 4,538 | | | 23,993 | | | 27,475 | | | (10) | | | 2,651 | | | 431 | | | 29,685 | |
| U.S. government and agency | | 24,409 | | | — | | | 333 | | | 2,384 | | | 22,358 | | | 26,782 | | | — | | | 4,568 | | | 128 | | | 31,222 | |
| RMBS | | 21,539 | | | — | | | 177 | | | 2,383 | | | 19,333 | | | 22,082 | | | — | | | 1,198 | | | 135 | | | 23,145 | |
| ABS & CLO | | 12,639 | | | — | | | 9 | | | 812 | | | 11,836 | | | 12,787 | | | — | | | 127 | | | 35 | | | 12,879 | |
| Municipals | | 7,880 | | | — | | | 256 | | | 672 | | | 7,464 | | | 6,884 | | | — | | | 1,849 | | | 5 | | | 8,728 | |
| CMBS | | 6,691 | | | (15) | | | 7 | | | 640 | | | 6,043 | | | 6,686 | | | (13) | | | 237 | | | 32 | | | 6,878 | |
| Foreign government | | 3,711 | | | (68) | | | 140 | | | 324 | | | 3,459 | | | 4,330 | | | — | | | 698 | | | 82 | | | 4,946 | |
| Total fixed maturity securities AFS | | $ | 160,477 | | | $ | (114) | | | $ | 1,777 | | | $ | 16,564 | | | $ | 145,576 | | | $ | 158,354 | | | $ | (53) | | | $ | 18,585 | | | $ | 1,001 | | | $ | 175,885 | |
The Company held non-income producing fixed maturity securities AFS with an estimated fair value of $71 million and $19 million at December 31, 2022 and 2021, respectively, with unrealized gains (losses) of ($1) million and $10 million at December 31, 2022 and 2021, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value | | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value |
| Sector | | | Allowance for Credit Loss | | Gains | | Losses | | Allowance for Credit Loss | | Gains | | Losses | |
| | (In millions) |
| | | | | | | | | | | | | | | | | | | | |
| U.S. corporate | | $ | 52,479 | | | $ | (62) | | | $ | 1,126 | | | $ | 3,050 | | | $ | 50,493 | | | $ | 55,280 | | | $ | (28) | | | $ | 649 | | | $ | 4,811 | | | $ | 51,090 | |
| Foreign corporate | | 27,520 | | | (2) | | | 536 | | | 2,839 | | | 25,215 | | | 28,328 | | | (3) | | | 206 | | | 4,538 | | | 23,993 | |
| U.S. government and agency | | 23,100 | | | — | | | 243 | | | 2,283 | | | 21,060 | | | 24,409 | | | — | | | 333 | | | 2,384 | | | 22,358 | |
| RMBS | | 20,700 | | | (1) | | | 228 | | | 1,979 | | | 18,948 | | | 21,539 | | | — | | | 177 | | | 2,383 | | | 19,333 | |
| ABS & CLO | | 12,049 | | | (6) | | | 30 | | | 432 | | | 11,641 | | | 12,639 | | | — | | | 9 | | | 812 | | | 11,836 | |
| Municipals | | 6,429 | | | — | | | 318 | | | 428 | | | 6,319 | | | 7,880 | | | — | | | 256 | | | 672 | | | 7,464 | |
| CMBS | | 6,387 | | | (11) | | | 28 | | | 570 | | | 5,834 | | | 6,691 | | | (15) | | | 7 | | | 640 | | | 6,043 | |
| Foreign government | | 3,416 | | | (50) | | | 156 | | | 227 | | | 3,295 | | | 3,711 | | | (68) | | | 140 | | | 324 | | | 3,459 | |
| Total fixed maturity securities AFS | | $ | 152,080 | | | $ | (132) | | | $ | 2,665 | | | $ | 11,808 | | | $ | 142,805 | | | $ | 160,477 | | | $ | (114) | | | $ | 1,777 | | | $ | 16,564 | | | $ | 145,576 | |
Methodology for Amortization of Premium and Accretion of Discount on Structured Products
Amortization of premium and accretion of discount on Structured Products considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Products are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive and certain prepayment-sensitive Structured Products, the effective yield is recalculated on a prospective basis. For all other Structured Products, the effective yield is recalculated on a retrospective basis.
Maturities of Fixed Maturity Securities AFS
The amortized cost, net of ACL, and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at December 31, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Due in One Year or Less | | Due After One Year Through Five Years | | Due After Five Years Through Ten Years | | Due After Ten Years | | Structured Products | | Total Fixed Maturity Securities AFS |
| (In millions) |
| Amortized cost, net of ACL | $ | 3,214 | | | $ | 25,521 | | | $ | 28,232 | | | $ | 62,542 | | | $ | 40,854 | | | $ | 160,363 | |
| Estimated fair value | $ | 3,071 | | | $ | 24,259 | | | $ | 26,014 | | | $ | 55,020 | | | $ | 37,212 | | | $ | 145,576 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Due in One Year or Less | | Due After One Year Through Five Years | | Due After Five Years Through Ten Years | | Due After Ten Years | | Structured Products | | Total Fixed Maturity Securities AFS |
| (In millions) |
| Amortized cost, net of ACL | $ | 4,011 | | | $ | 24,416 | | | $ | 27,330 | | | $ | 57,073 | | | $ | 39,118 | | | $ | 151,948 | |
| Estimated fair value | $ | 3,949 | | | $ | 23,787 | | | $ | 26,459 | | | $ | 52,187 | | | $ | 36,423 | | | $ | 142,805 | |
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not due at a single maturity date have been presented in the year of final contractual maturity. Structured Products are shown separately, as they are not due at a single maturity.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position without an ACL by sector and aggregated by length of time that the securities have been in a continuous unrealized loss position.
| | December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Less than 12 Months | | | Less than 12 Months | | Equal to or Greater
than 12 Months | | Less than 12 Months | | Equal to or Greater
than 12 Months |
| Sector & Credit Quality | | Sector & Credit Quality | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses |
| (Dollars in millions) | | | (Dollars in millions) |
| | December 31, |
| 2022 | | 2021 |
| Less than 12 Months | | Equal to or Greater
than 12 Months | | Less than 12 Months | | Equal to or Greater
than 12 Months |
| Sector & Credit Quality | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses |
| (Dollars in millions) |
| | U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | U.S. corporate | $ | 34,358 | | | $ | 3,953 | | | $ | 3,383 | | | $ | 856 | | | $ | 4,503 | | | $ | 83 | | | $ | 784 | | | $ | 70 | |
| Foreign corporate | Foreign corporate | 16,834 | | | 3,350 | | | 3,977 | | | 1,188 | | | 4,079 | | | 199 | | | 1,348 | | | 232 | |
| U.S. government and agency | U.S. government and agency | 13,489 | | | 1,895 | | | 2,756 | | | 489 | | | 10,063 | | | 78 | | | 523 | | | 49 | |
| RMBS | RMBS | 11,622 | | | 1,280 | | | 4,585 | | | 1,103 | | | 7,481 | | | 111 | | | 314 | | | 24 | |
| ABS & CLO | ABS & CLO | 7,725 | | | 499 | | | 3,009 | | | 313 | | | 5,643 | | | 25 | | | 593 | | | 10 | |
| Municipals | Municipals | 3,526 | | | 616 | | | 133 | | | 56 | | | 154 | | | 4 | | | 17 | | | 1 | |
| CMBS | CMBS | 4,376 | | | 426 | | | 1,254 | | | 213 | | | 1,613 | | | 20 | | | 355 | | | 12 | |
| Foreign government | Foreign government | 1,803 | | | 209 | | | 306 | | | 115 | | | 497 | | | 37 | | | 148 | | | 45 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | $ | 93,733 | | | $ | 12,228 | | | $ | 19,403 | | | $ | 4,333 | | | $ | 34,033 | | | $ | 557 | | | $ | 4,082 | | | $ | 443 | |
| | Investment grade | Investment grade | $ | 88,059 | | | $ | 11,710 | | | $ | 17,470 | | | $ | 3,897 | | | $ | 31,419 | | | $ | 454 | | | $ | 3,273 | | | $ | 353 | |
| Investment grade | |
| Investment grade | |
| Below investment grade | Below investment grade | 5,674 | | | 518 | | | 1,933 | | | 436 | | | 2,614 | | | 103 | | | 809 | | | 90 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | $ | 93,733 | | | $ | 12,228 | | | $ | 19,403 | | | $ | 4,333 | | | $ | 34,033 | | | $ | 557 | | | $ | 4,082 | | | $ | 443 | |
| Total number of securities in an unrealized loss position | Total number of securities in an unrealized loss position | 10,688 | | | | | 2,110 | | | | | 2,549 | | | | | 427 | | | |
Evaluation of Fixed Maturity Securities AFS for Credit Loss
Evaluation and Measurement Methodologies
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the credit loss evaluation process include, but are not limited to: (i) the extent to which the estimated fair value has been below amortized cost, (ii) adverse conditions specifically related to a security, an industry sector or sub-sector, or an economically depressed geographic area, adverse change in the financial condition of the issuer of the security, changes in technology, discontinuance of a segment of the business that may affect future earnings, and changes in the quality of credit enhancement, (iii) payment structure of the security and likelihood of the issuer being able to make payments, (iv) failure of the issuer to make scheduled interest and principal payments, (v) whether the issuer, or series of issuers or an industry has suffered a catastrophic loss or has exhausted natural resources, (vi) whether the Company has the intent to sell or will more likely than not be required to sell, including transfers in connection with reinsurance transactions, a particular security before the decline in estimated fair value below amortized cost recovers, (vii) with respect to Structured Products, changes in forecasted cash flows after considering the changes in the financial condition of the underlying loan obligors and quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security, (viii) changes in the rating of the security by a rating agency, and (ix) other subjective factors, including concentrations and information obtained from regulators.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
The methodology and significant inputs used to determine the amount of credit loss are as follows:
•The Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows. The discount rate is generally the effective interest rate of the security at the time of purchase for fixed-rate securities and the spot rate at the date of evaluation of credit loss for floating-rate securities.
•When determining collectability and the period over which value is expected to recover, the Company applies considerations utilized in its overall credit loss evaluation process which incorporates information regarding the specific security, fundamentals of the industry and geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from management’s single best estimate, the most likely outcome in a range of possible outcomes, after giving consideration to a variety of variables that include, but are not limited to: payment terms of the security; the likelihood that the issuer can service the interest and principal payments; the quality and amount of any credit enhancements; the security’s position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; any private and public sector programs to restructure foreign government securities and municipals; and changes to the rating of the security or the issuer by rating agencies.
•Additional considerations are made when assessing the unique features that apply to certain Structured Products including, but not limited to: the quality of underlying collateral, historical performance of the underlying loan obligors, historical rent and vacancy levels, changes in the financial condition of the underlying loan obligors, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying loans or assets backing a particular security, changes in the quality of credit enhancement and the payment priority within the tranche structure of the security.
With respect to securities that have attributes of debt and equity (“perpetual hybrid securities”), consideration is given in the credit loss analysis as to whether there has been any deterioration in the credit of the issuer and the likelihood of recovery in value of the securities that are in a severe unrealized loss position. Consideration is also given as to whether any perpetual hybrid securities with an unrealized loss, regardless of credit rating, have deferred any dividend payments.
In periods subsequent to the recognition of an initial ACL on a security, the Company reassesses credit loss quarterly. Subsequent increases or decreases in the expected cash flow from the security result in corresponding decreases or increases in the ACL which are recognized in earnings and reported within net investment gains (losses); however, the previously recorded ACL is not reduced to an amount below zero. Full or partial write-offs are deducted from the ACL in the period the security, or a portion thereof, is considered uncollectible. Recoveries of amounts previously written off are recorded to the ACL in the period received. When the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, any ACL is written off and the amortized cost is written down to estimated fair value through a charge within net investment gains (losses), which becomes the new amortized cost of the security.
Evaluation of Fixed Maturity Securities AFS in an Unrealized Loss Position
Gross unrealized losses on securities without an ACL increased $15.6decreased $4.8 billion for the year ended December 31, 20222023 to $16.6$11.8 billion primarily due to increases in interest rates, wideningrate volatility, narrowing credit spreads, impairments in connection with a reinsurance transaction and, to a lesser extent, the impactstrengthening of weakening foreign currencies on certain non-functional currency denominated fixed maturity securities.
GrossAs shown above, most of the gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater were $4.3 billion at December 31, 2022, or 26% of the total gross2023 relate to investment grade securities. These unrealized losses onare principally due to widening credit spreads since purchase and, with respect to fixed-rate securities, without an ACL.rising interest rates since purchase.
Investment Grade Fixed Maturity Securities AFS
Of the $4.3 billionAs of December 31, 2023, $428 million of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater $3.9 billion, or 90%, were related to 1,797 investment grade securities. Unrealized losses on below investment grade securities were concentrated in the transportation, consumer and communications sectors within corporate securities and in foreign government securities. These unrealized losses are principally related to wideningthe result of significantly wider credit spreads since purchase and, with respect to fixed-rate securities, rising interest rates since purchase.resulting from higher
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Below Investment Grade Fixed Maturity Securities AFS
Of the $4.3 billion of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater, $436 million, or 10%, were related to 313 below investment grade securities. Unrealized losses on below investment grade securities are principally related to foreign corporate and U.S. corporate securities (primarily transportation, consumer and communications). These unrealized losses are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty as well asand, with respect to fixed-rate securities, rising interest rates since purchase. Management evaluates U.S. corporate and foreign corporate securities based on several factors such as expected cash flows, financial condition and near-term and long-term prospects of the issuers.
Current Period Evaluation
At December 31, 2022, with respect2023, the Company did not intend to sell its securities in an unrealized loss position without an ACL, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost. Based on the Company’s current evaluation of its securities in an unrealized loss position without an ACL,Therefore, the Company concluded that these securities had not incurred a credit loss and should not have an ACL at December 31, 2022.2023.
Future provisions for credit loss will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings and collateral valuation.
Rollforward of Allowance for Credit Loss for Fixed Maturity Securities AFS By Sector
The rollforward of ACL for fixed maturity securities AFS by sector is as follows:
| | U.S.
Corporate | | Foreign
Corporate | | Foreign
Government | | | CMBS | | Total |
| Year Ended December 31, 2022 | | (In millions) |
| | U.S.
Corporate | |
| | U.S.
Corporate | |
| | U.S.
Corporate | | | Foreign
Corporate | | Foreign
Government | | | | RMBS | | ABS & CLO | | | | CMBS | | Total |
| Year Ended December 31, 2023 | | Year Ended December 31, 2023 | | (In millions) |
| Balance at January 1, | Balance at January 1, | | $ | 30 | | | $ | 10 | | | $ | — | | | | $ | 13 | | | $ | 53 | |
| | ACL not previously recorded | ACL not previously recorded | | 13 | | | 12 | | | 103 | | | | 2 | | | 130 | |
| | Changes for securities with previously recorded ACL | Changes for securities with previously recorded ACL | | 17 | | | 3 | | | (15) | | | | — | | | 5 | |
| | Securities sold or exchanged | Securities sold or exchanged | | (10) | | | (22) | | | (20) | | | | — | | | (52) | |
| | Write-offs | Write-offs | | (22) | | | — | | | — | | | | — | | | (22) | |
| | Write-offs | |
| Write-offs | |
| Balance at December 31, | Balance at December 31, | | $ | 28 | | | $ | 3 | | | $ | 68 | | | | $ | 15 | | | $ | 114 | |
| | U.S.
Corporate | | Foreign
Corporate | | Foreign
Government | | | CMBS | | Total |
| Year Ended December 31, 2021 | | (In millions) |
| | U.S.
Corporate | |
| | U.S.
Corporate | |
| | U.S.
Corporate | | | Foreign
Corporate | | Foreign
Government | | | | RMBS | | ABS & CLO | | | | CMBS | | Total |
| Year Ended December 31, 2022 | | Year Ended December 31, 2022 | | (In millions) |
| Balance at January 1, | Balance at January 1, | | $ | 43 | | | $ | 8 | | | $ | — | | | | $ | — | | | $ | 51 | |
| | ACL not previously recorded | |
| ACL not previously recorded | |
| ACL not previously recorded | ACL not previously recorded | | 48 | | | 12 | | | — | | | | 9 | | | 69 | |
| | Changes for securities with previously recorded ACL | Changes for securities with previously recorded ACL | | 3 | | | (5) | | | — | | | | 4 | | | 2 | |
| | Changes for securities with previously recorded ACL | |
| | Changes for securities with previously recorded ACL | |
| | Securities sold or exchanged | |
| Securities sold or exchanged | |
| Securities sold or exchanged | Securities sold or exchanged | | (51) | | | (5) | | | — | | | | — | | | (56) | |
| | Write-offs | Write-offs | | (13) | | | — | | | — | | | | — | | | (13) | |
| | Write-offs | |
| | Write-offs | |
| | Balance at December 31, | Balance at December 31, | | $ | 30 | | | $ | 10 | | | $ | — | | | | $ | 13 | | | $ | 53 | |
| Balance at December 31, | |
| Balance at December 31, | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
| | | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| Portfolio Segment | | Portfolio Segment | | Carrying
Value | | % of
Total | | Carrying
Value | | % of
Total |
| | (Dollars in millions) | | | | (Dollars in millions) |
| | December 31, |
| 2022 | | 2021 |
| Portfolio Segment | | Carrying
Value | | % of
Total | | Carrying
Value | | % of
Total |
| | (Dollars in millions) |
| | Commercial | |
| Commercial | |
| Commercial | Commercial | | $ | 37,196 | | | 59.4 | % | | $ | 35,772 | | | 59.4 | % | | $ | 37,129 | | | 59.3 | | 59.3 | % | | $ | 37,196 | | | 59.4 | | 59.4 | % |
| Agricultural | Agricultural | | 15,869 | | | 25.4 | | | 15,450 | | | 25.7 | |
| Residential | Residential | | 9,953 | | | 15.9 | | | 9,406 | | | 15.6 | |
| Total amortized cost | Total amortized cost | | 63,018 | | | 100.7 | | | 60,628 | | | 100.7 | |
| Allowance for credit loss | Allowance for credit loss | | (448) | | | (0.7) | | | (536) | | | (0.9) | |
| Subtotal mortgage loans, net | | 62,570 | | | 100.0 | | | 60,092 | | | 99.8 | |
| Residential — FVO | | — | | | — | | | 127 | | | 0.2 | |
| | Total mortgage loans, net | | $ | 62,570 | | | 100.0 | % | | $ | 60,219 | | | 100.0 | % |
| | Total mortgage loans | |
| | Total mortgage loans | |
| | Total mortgage loans | | | $ | 62,584 | | | 100.0 | % | | $ | 62,570 | | | 100.0 | % |
Metropolitan Life Insurance Company elects
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the FVO for certain residential mortgage loans that are managed on a total return basis, with changes in estimated fair value included in net investment income. See Note 9 for further information.Consolidated Financial Statements — (continued)
10. Investments (continued)
The amount of net (discounts) premiums and deferred (fees) expenses, included within total amortized cost, primarily attributable to residential mortgage loans was ($717)720) million and ($736)717) million at December 31, 2023 and 2022, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural and 2021,residential mortgage loans at December 31, 2023 was $196 million, $166 million and $79 million, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural and residential mortgage loans at December 31, 2022 was $171 million, $147 million and $70 million, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural and residential mortgage loans at December 31, 2021 was $140 million, $136 million, $77 million, respectively.
Purchases of unaffiliated mortgage loans from unaffiliated parties, consisting primarily of residential mortgage loans, were $1.1 billion, $2.3 billion $1.4 billion and $2.8$1.4 billion for the years ended December 31, 2023, 2022 and 2021, and 2020, respectively.
During the year ended December 31, 2023, the Company disposed of commercial mortgage loans with an amortized cost of $141 million in connection with a reinsurance transaction. The disposition resulted in a loss of $31 million for the year ended December 31, 2023.
The Company originates and acquires unaffiliated mortgage loans and simultaneously sells a portion to affiliates under master participation agreements. The aggregate amount of mortgage loan participation interests in unaffiliated mortgage loans sold by the Company to affiliates for the years ended December 31, 2023, 2022 and 2021 and 2020 was $22 million, $167 million $277 million and $59$277 million, respectively. In connection with the mortgage loan participations, the Company collected mortgage loan principal and interest payments from unaffiliated borrowers on behalf of affiliates and remitted such receipts to the affiliates in the amount of $536 million, $576 million and $1.0 billion and $540 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
The Company originatesacquires mortgage loans through an affiliate.from its affiliated mortgage origination company. The affiliate originates and acquires mortgage loans and the Company simultaneously purchases participation interests under a master participation agreement. The aggregate amount of mortgage loan and mortgage secured loan participation interests purchased by the Company from such affiliate for the years ended December 31, 2023, 2022 and 2021 and 2020 was $2.1 billion, $4.8 billion $4.7 billion and $3.8$4.7 billion, respectively. In connection with the mortgage loan and mortgage secured loan participations, the affiliate collected mortgage loan principal and interest payments on the Company’s behalf and the affiliate remitted such payments to the Company in the amount of $2.5 billion, $2.6 billion and $1.9 billion and $696 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
During the second quarter of 2023, the Company assigned mortgage loans with a previously recorded amortized cost of $5.3 billion to its affiliated mortgage origination company. In connection with the assignment, this affiliate contemporaneously assumed the Company’s rights and obligations associated with the assigned mortgage loans. In exchange, the Company received $5.3 billion of mortgage secured loans from this affiliate, secured by the same mortgage loans assigned. As of December 31, 2023, the Company’s aggregate participation interests in affiliated mortgage secured loans included in commercial and agricultural mortgage loans was $13.1 billion.
During the years ended December 31, 2023 and 2022, the Company contributed commercial mortgage loans with an amortized cost of $14 million and $306 million, respectively, to joint ventures in anticipation of subsequent foreclosure or deed-in-lieu of foreclosure transactions. During the years ended December 31, 2023 and 2022, the joint ventures completed foreclosure or deed-in-lieu of foreclosure transactions on loans with an amortized cost of $35 million and $285 million, respectively. During the year ended December 31, 2023, no gains or losses were recognized on foreclosures or deed-in-lieu of foreclosures within joint ventures as the estimated fair value of the real estate collateralizing the foreclosures or deed-in-lieu of foreclosures approximated amortized cost. The real estate collateralizing the 2022 foreclosures or deed-in-lieu of foreclosures had an estimated fair value in excess of amortized cost. Therefore, during the year ended December 31, 2022, the Company recognized its pro rata share of $19 million within net investment gains (losses) upon consummation of the foreclosures or deed-in-lieu of foreclosures. See “— Real Estate and Real Estate Joint Ventures” for the carrying value of wholly-owned real estate acquired through foreclosure. In addition, for the year ended December 31, 2022, the Company contributed commercial mortgage loans with an amortized cost of $306 million to joint ventures in anticipation of subsequent foreclosure or deed-in-lieu of foreclosure transactions. During the year, the joint ventures completed foreclosure or deed-in-lieu of foreclosure transactions on loans with an amortized cost of $285 million. The real estate collateralizing these foreclosures or deed-in-lieu of foreclosures had an estimated fair value in excess of amortized cost. As a result of the excess of estimated fair value of the collateral over the amortized cost of the commercial mortgage loans, upon consummating the foreclosures or deed-
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
in-lieu of foreclosure transactions, the joint ventures recognized a gain, of which the Company recognized its pro-rata share of $19 million within net investment gains (losses).
Rollforward of Allowance for Credit Loss for Mortgage Loans by Portfolio Segment
The rollforward of ACL for mortgage loans, by portfolio segment, is as follows:
| | Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Commercial | | | Commercial | | Agricultural | | Residential | | Total | | Commercial | | Agricultural | | Residential | | Total | | Commercial | | Agricultural | | Residential | | Total |
| (In millions) | | | (In millions) |
| Balance at January 1, | |
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Commercial | | Agricultural | | Residential | | Total | | Commercial | | Agricultural | | Residential | | Total | | Commercial | | Agricultural | | Residential | | Total |
| (In millions) |
| Balance at January 1, | $ | 260 | | | $ | 79 | | | $ | 197 | | | $ | 536 | | | $ | 199 | | | $ | 97 | | | $ | 221 | | | $ | 517 | | | $ | 186 | | | $ | 49 | | | $ | 54 | | | $ | 289 | |
| Adoption of credit loss guidance | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (87) | | | 32 | | | 154 | | | 99 | |
| Provision (release) | |
| Provision (release) | |
| Provision (release) | Provision (release) | (3) | | | 47 | | | (20) | | | 24 | | | 61 | | | 6 | | | (25) | | | 42 | | | 100 | | | 18 | | | 27 | | | 145 | |
| Initial credit losses on PCD loans (1) | Initial credit losses on PCD loans (1) | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | | — | | | — | | | 18 | | | 18 | |
| Charge-offs, net of recoveries | Charge-offs, net of recoveries | (83) | | | (21) | | | (8) | | | (112) | | | — | | | (24) | | | (2) | | | (26) | | | — | | | (2) | | | (32) | | | (34) | |
| Balance at December 31, | Balance at December 31, | $ | 174 | | | $ | 105 | | | $ | 169 | | | $ | 448 | | | $ | 260 | | | $ | 79 | | | $ | 197 | | | $ | 536 | | | $ | 199 | | | $ | 97 | | | $ | 221 | | | $ | 517 | |
__________________
(1)Represents the initial credit losses on purchased mortgage loans accounted for as PCD.
Allowance for Credit Loss Methodology
The Company records an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents the portion of the amortized cost basis of mortgage loans that the Company does not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In determining the Company’s ACL, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling mortgage loans that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of its mortgage loans adjusted for expected prepayments and any extensions, and (iii) considering past events and current and forecasted economic conditions. Each of the Company’s commercial, agricultural and residential mortgage loan portfolio segments are evaluated separately. The ACL is calculated for each mortgage loan portfolio segment based on inputs unique to each loan portfolio segment. On a quarterly basis, mortgage loans within a portfolio segment that share similar risk characteristics, such as internal risk ratings or consumer credit scores, are pooled for calculation of ACL. On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), such as collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable) and reasonably expected TDRs (i.e., the Company grants concessions to a borrower that is experiencing financial difficulties) are evaluated individually for credit loss. The ACL for loans evaluated individually are established using the same methodologies for all three portfolio segments. For example, the ACL for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans, which are evaluated individually for credit loss, is recorded as a change in the ACL which is recorded on a quarterly basis as a charge or credit to earnings in net investment gains (losses).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Commercial and Agricultural Mortgage Loan Portfolio Segments
Commercial and agricultural mortgage loan ACL are calculated in a similar manner. Within each loan portfolio segment, commercial and agricultural loans are pooled by internal risk rating. Estimated lifetime loss rates, which vary by internal risk rating, are applied to the amortized cost of each loan, excluding accrued investment income, on a quarterly basis to develop the ACL. Internal risk ratings are based on an assessment of the loan’s credit quality, which can change over time. The estimated lifetime loss rates are based on several loan portfolio segment-specific factors, including (i) the Company’s experience with defaults and loss severity, (ii) expected default and loss severity over the forecast period, (iii) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, (iv) loan specific characteristics including loan-to-value (“LTV”) ratios, and (v) internal risk ratings. These evaluations are revised as conditions change and new information becomes available. The Company uses its several decades of historical default and loss severity experience which capture multiple economic cycles. The Company uses a forecast of economic assumptions for a two-year period for most of its commercial and agricultural mortgage loans, while a one-year period is used for loans originated in certain markets. After the applicable forecast period, the Company reverts to its historical loss experience using a straight-line basis over two years. For evaluations of commercial mortgage loans, in addition to historical experience, management considers factors that include the impact of a rapid change to the economy, which may not be reflected in the loan portfolio, recent loss and recovery trend experience as compared to historical loss and recovery experience, and loan specific characteristics including debt service coverage ratios (“DSCR”). In estimating expected lifetime credit loss over the term of its commercial mortgage loans, the Company adjusts for expected prepayment and extension experience during the forecast period using historical prepayment and extension experience considering the expected position in the economic cycle and the loan profile (i.e., floating rate, shorter-term fixed rate and longer-term fixed rate) and after the forecast period using long-term historical prepayment experience. For evaluations of agricultural mortgage loans, in addition to historical experience, management considers factors that include increased stress in certain sectors, which may be evidenced by higher delinquency rates, or a change in the number of higher risk loans. In estimating expected lifetime credit loss over the term of its agricultural mortgage loans, the Company’s experience is much less sensitive to the position in the economic cycle and by loan profile; accordingly, historical prepayment experience is used, while extension terms are not prevalent with the Company’s agricultural mortgage loans.
Commercial mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. Agricultural mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, as well as reviews on a geographic and property-type basis. The monitoring process for agricultural mortgage loans also focuses on higher risk loans.
For commercial mortgage loans, the primary credit quality indicator is the DSCR, which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. The Company also reviews the LTV ratio of its commercial mortgage loan portfolio. LTV ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio is routinely updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
For agricultural mortgage loans, the Company’s primary credit quality indicator is the LTV ratio. The values utilized in calculating this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Commitments to lend: After commercial and agricultural mortgage loans are approved, the Company makes commitments to lend and, typically, borrowers draw down on some or all of the commitments. The timing of mortgage loan funding is based on the commitment expiration dates. A liability for credit loss for unfunded commercial and agricultural mortgage loan commitments that areis not unconditionally cancellable is recognized in earnings and is reported within net investment gains (losses). The liability is based on estimated lifetime loss rates as described above and the amount of the outstanding commitments, which for lines of credit, considers estimated utilization rates. When the commitment is funded or expires, the liability is adjusted accordingly.
Residential Mortgage Loan Portfolio Segment
The Company’s residential mortgage loan portfolio is comprised primarily of purchased closed end, amortizing residential mortgage loans, including both performing loans purchased within 12 months of origination and reperforming loans purchased after they have been performing for at least 12 months post-modification. Residential mortgage loans are pooled by loan type (i.e., new origination and reperforming) and pooled by similar risk profiles (including consumer credit score and LTV ratios). Estimated lifetime loss rates, which vary by loan type and risk profile, are applied to the amortized cost of each loan excluding accrued investment income on a quarterly basis to develop the ACL. The estimated lifetime loss rates are based on several factors, including (i) industry historical experience and expected results over the forecast period for defaults, (ii) loss severity, (iii) prepayment rates, (iv) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, and (v) loan pool specific characteristics including consumer credit scores, LTV ratios, payment history and home prices. These evaluations are revised as conditions change and new information becomes available. The Company uses industry historical experience which captures multiple economic cycles as the Company has purchased most of its residential mortgage loans in the last five years. The Company uses a forecast of economic assumptions for a two-year period for most of its residential mortgage loans. After the applicable forecast period, the Company immediately reverts to industry historical loss experience.experience using a straight-line basis over one year.
For residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in nonaccrual status which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Troubled Debt RestructuringsModifications to Borrowers Experiencing Financial Difficulty
The Company may grant concessionsmodify mortgage loans to borrowersborrowers. Each mortgage loan modification is evaluated to determine whether the borrower was experiencing financial difficulties. Disclosed below are those modifications, in materially impacted segments, where the borrower was determined to be experiencing financial difficulties which, if not significant, are not classified as TDRs, while more significant concessions are classified as TDRs. Generally,and the types of concessions include: reductionmortgage loans were modified by any of the contractualfollowing means: principal forgiveness, interest rate extension of the maturity date at an interest rate lower than current market interest rates, and/reduction, other-than-insignificant payment delay or a reduction of accrued interest.term extension. The amount, timing and extent of the concessionsmodifications granted are considered in determining any ACL recorded. Mortgage loans are summarized as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Maturity Extension | | | | | | | | Weighted Average Life Increase | | | | % of Total BV |
| Amortized Cost | | | | | | | | Affected Loans (in Years) | | | | |
| (Dollars in millions) |
| Commercial | $ | 419 | | | | | | | | | Less than one year | | | | | | 1.0 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
For the year ended December 31, 2022, the Company had two commercial mortgage loans modified in a TDR with both pre-modification and post-modification carrying value, after ACL, of $123 million.
For the year ended December 31, 2021,2023, the Company did not have any commerciala significant amount of mortgage loans that were modified in a TDR.to borrowers experiencing financial difficulty that are not considered current.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Credit Quality of Mortgage Loans by Portfolio Segment
The amortized cost of commercial mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2022:2023:
| | Credit Quality Indicator | Credit Quality Indicator | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving
Loans | | Total | | % of
Total | Credit Quality Indicator | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| LTV ratios: | LTV ratios: | |
| Less than 65% | |
| Less than 65% | |
| Less than 65% | Less than 65% | | $ | 3,288 | | | $ | 3,198 | | | $ | 2,142 | | | $ | 2,938 | | | $ | 3,384 | | | $ | 10,519 | | | $ | 2,860 | | | $ | 28,329 | | | 76.2 | % | | $ | 1,609 | | | $ | | $ | 1,228 | | | $ | | $ | 1,795 | | | $ | | $ | 989 | | | $ | | $ | 1,980 | | | $ | | $ | 8,873 | | | $ | | $ | 2,698 | | | $ | | $ | 19,172 | | | 51.7 | | 51.7 | % |
| 65% to 75% | 65% to 75% | | 1,781 | | | 936 | | | 730 | | | 1,243 | | | 788 | | | 1,549 | | | — | | | 7,027 | | | 18.9 | |
| 76% to 80% | 76% to 80% | | 45 | | | 16 | | | 83 | | | 284 | | | 237 | | | 159 | | | — | | | 824 | | | 2.2 | |
| Greater than 80% | Greater than 80% | | 33 | | | 40 | | | 18 | | | 134 | | | 89 | | | 702 | | | — | | | 1,016 | | | 2.7 | |
| Total | Total | | $ | 5,147 | | | $ | 4,190 | | | $ | 2,973 | | | $ | 4,599 | | | $ | 4,498 | | | $ | 12,929 | | | $ | 2,860 | | | $ | 37,196 | | | 100.0 | % | Total | | $ | 1,866 | | | $ | | $ | 5,204 | | | $ | | $ | 4,161 | | | $ | | $ | 2,648 | | | $ | | $ | 4,506 | | | $ | | $ | 16,046 | | | $ | | $ | 2,698 | | | $ | | $ | 37,129 | | | 100.0 | | 100.0 | % |
| DSCR: | DSCR: | | | | | | | | | | | | | | | | | | |
| > 1.20x | > 1.20x | | $ | 4,421 | | | $ | 3,893 | | | $ | 2,763 | | | $ | 4,272 | | | $ | 4,068 | | | $ | 11,175 | | | $ | 2,860 | | | $ | 33,452 | | | 89.9 | % |
| > 1.20x | |
| > 1.20x | | | $ | 1,309 | | | $ | 4,221 | | | $ | 3,777 | | | $ | 2,375 | | | $ | 3,963 | | | $ | 13,609 | | | $ | 2,698 | | | $ | 31,952 | | | 86.1 | % |
| 1.00x - 1.20x | 1.00x - 1.20x | | 636 | | | 94 | | | 88 | | | 255 | | | 152 | | | 819 | | | — | | | 2,044 | | | 5.5 | |
| <1.00x | <1.00x | | 90 | | | 203 | | | 122 | | | 72 | | | 278 | | | 935 | | | — | | | 1,700 | | | 4.6 | |
| Total | Total | | $ | 5,147 | | | $ | 4,190 | | | $ | 2,973 | | | $ | 4,599 | | | $ | 4,498 | | | $ | 12,929 | | | $ | 2,860 | | | $ | 37,196 | | | 100.0 | % | Total | | $ | 1,866 | | | $ | | $ | 5,204 | | | $ | | $ | 4,161 | | | $ | | $ | 2,648 | | | $ | | $ | 4,506 | | | $ | | $ | 16,046 | | | $ | | $ | 2,698 | | | $ | | $ | 37,129 | | | 100.0 | | 100.0 | % |
The amortized cost of agricultural mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2022:2023:
| | Credit Quality Indicator | Credit Quality Indicator | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving
Loans | | Total | | % of
Total | Credit Quality Indicator | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| LTV ratios: | LTV ratios: | |
| Less than 65% | |
| Less than 65% | |
| Less than 65% | Less than 65% | | $ | 1,902 | | | $ | 1,507 | | | $ | 1,886 | | | $ | 1,498 | | | $ | 2,085 | | | $ | 4,210 | | | $ | 1,107 | | | $ | 14,195 | | | 89.4 | % | | $ | 772 | | | $ | | $ | 1,985 | | | $ | | $ | 1,474 | | | $ | | $ | 1,977 | | | $ | | $ | 1,512 | | | $ | | $ | 5,596 | | | $ | | $ | 1,293 | | | $ | | $ | 14,609 | | | 92.3 | | 92.3 | % |
| 65% to 75% | 65% to 75% | | 158 | | | 229 | | | 301 | | | 176 | | | 44 | | | 490 | | | 127 | | | 1,525 | | | 9.6 | |
| 76% to 80% | 76% to 80% | | — | | | — | | | — | | | — | | | — | | | 11 | | | — | | | 11 | | | 0.1 | |
| Greater than 80% | Greater than 80% | | — | | | — | | | 14 | | | 76 | | | — | | | 44 | | | 4 | | | 138 | | | 0.9 | |
| Total | Total | | $ | 2,060 | | | $ | 1,736 | | | $ | 2,201 | | | $ | 1,750 | | | $ | 2,129 | | | $ | 4,755 | | | $ | 1,238 | | | $ | 15,869 | | | 100.0 | % | Total | | $ | 799 | | | $ | | $ | 2,067 | | | $ | | $ | 1,675 | | | $ | | $ | 2,108 | | | $ | | $ | 1,669 | | | $ | | $ | 6,097 | | | $ | | $ | 1,416 | | | $ | | $ | 15,831 | | | 100.0 | | 100.0 | % |
The amortized cost of residential mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2022:2023:
| | Credit Quality Indicator | Credit Quality Indicator | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving
Loans | | Total | | % of
Total | Credit Quality Indicator | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Performance indicators: | Performance indicators: | |
| Performing | |
| Performing | |
| Performing | Performing | | $ | 1,411 | | | $ | 809 | | | $ | 156 | | | $ | 606 | | | $ | 332 | | | $ | 6,211 | | | $ | — | | | $ | 9,525 | | | 95.7 | % | | $ | 243 | | | $ | | $ | 1,855 | | | $ | | $ | 880 | | | $ | | $ | 151 | | | $ | | $ | 565 | | | $ | | $ | 6,096 | | | $ | | $ | — | | | $ | | $ | 9,790 | | | 96.6 | | 96.6 | % |
| Nonperforming (1) | Nonperforming (1) | | 9 | | | 5 | | | 6 | | | 39 | | | 9 | | | 360 | | | — | | | 428 | | | 4.3 | |
| Total | Total | | $ | 1,420 | | | $ | 814 | | | $ | 162 | | | $ | 645 | | | $ | 341 | | | $ | 6,571 | | | $ | — | | | $ | 9,953 | | | 100.0 | % | Total | | $ | 244 | | | $ | | $ | 1,887 | | | $ | | $ | 895 | | | $ | | $ | 159 | | | $ | | $ | 597 | | | $ | | $ | 6,351 | | | $ | | $ | — | | | $ | | $ | 10,133 | | | 100.0 | | 100.0 | % |
__________________
(1)Includes residential mortgage loans in process of foreclosure of $143$134 million and $69$143 million at December 31, 20222023 and 2021,2022, respectively.
LTV ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. The amortized cost of commercial and agricultural mortgage loans with an LTV ratio in excess of 100% was $639 million,$1.0 billion, or 1%2%, of total commercial and agricultural mortgage loans at December 31, 2022.2023.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both December 31, 20222023 and 2021.2022. The Company defines delinquency consistent with industry practice,
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
when mortgage loans are past due more than two or more months, as applicable, by portfolio segment. The past due and nonaccrual mortgage loans at amortized cost, prior to ACL by portfolio segment, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due | | Past Due and Still Accruing | | Nonaccrual |
| Portfolio Segment | | December 31, 2022 | | December 31, 2021 | | December 31, 2022 | | December 31, 2021 | | December 31, 2022 | | December 31, 2021 |
| | (In millions) |
| Commercial | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 158 | | | $ | 146 | |
| Agricultural | | 120 | | | 124 | | | 18 | | | 16 | | | 131 | | | 225 | |
| Residential | | 428 | | | 418 | | | — | | | — | | | 429 | | | 418 | |
| Total | | $ | 548 | | | $ | 542 | | | $ | 18 | | | $ | 16 | | | $ | 718 | | | $ | 789 | |
The amortized cost for nonaccrual commercial, agricultural and residential mortgage loans at beginning of year 2021 was $293 million, $261 million and $503 million, respectively. The amortized cost for nonaccrual agricultural mortgage loans with no ACL was $7 million and $134 million at December 31, 2022 and 2021, respectively. There were no nonaccrual commercial or residential mortgage loans without an ACL at either December 31, 2022 or 2021.
Purchased Investments with Credit Deterioration
Investments that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination are classified as PCD. The amortized cost for PCD investments is the purchase price plus an ACL for the initial estimate of expected lifetime credit losses established upon purchase. Subsequent changes in the ACL on PCD investments are recognized in earnings and are reported in net investment gains (losses). The non-credit discount or premium is accreted or amortized to net investment income on an effective yield basis.
The following table reconciles the contractual principal to the purchase price of PCD investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | Contractual
Principal | | ACL at
Acquisition | | Non-Credit
(Discount)
Premium | | Purchase
Price |
| | (In millions) |
| | | | | | | | |
| PCD residential mortgage loans | | $ | 48 | | | $ | — | | | $ | (3) | | | $ | 45 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due | | Past Due
and Still Accruing Interest | | Nonaccrual |
| Portfolio Segment | | December 31, 2023 | | December 31, 2022 | | December 31, 2023 | | December 31, 2022 | | December 31, 2023 | | December 31, 2022 |
| | (In millions) |
| Commercial | | $ | 19 | | | $ | — | | | $ | — | | | $ | — | | | $ | 303 | | | $ | 158 | |
| Agricultural | | 40 | | | 120 | | | — | | | 18 | | | 206 | | | 131 | |
| Residential | | 343 | | | 428 | | | — | | | — | | | 343 | | | 429 | |
| Total | | $ | 402 | | | $ | 548 | | | $ | — | | | $ | 18 | | | $ | 852 | | | $ | 718 | |
Real Estate and Real Estate Joint Ventures
The Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, operating income and equity in earnings from equity method real estate joint ventures. Real estate investments, by income type, as well as income earned, were as follows at and for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | Years Ended December 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2020 |
| Income Type | | Carrying Value | | Income |
| | (In millions) |
| Wholly-owned real estate: | | | | | | | | | | |
| Leased real estate | | $ | 1,618 | | | $ | 1,934 | | | $ | 198 | | | $ | 209 | | | $ | 188 | |
| Other real estate | | 487 | | | 473 | | | 243 | | | 186 | | | 127 | |
| Real estate joint ventures | | 6,311 | | | 5,466 | | | 308 | | | 180 | | | (59) | |
| Total real estate and real estate joint ventures | | $ | 8,416 | | | $ | 7,873 | | | $ | 749 | | | $ | 575 | | | $ | 256 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | Years Ended December 31, |
| | | 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
| Income Type | | Carrying Value | | Income |
| | (In millions) |
| Wholly-owned real estate: | | | | | | | | | | |
| Leased real estate | | $ | 1,594 | | | $ | 1,618 | | | $ | 171 | | | $ | 198 | | | $ | 209 | |
| Other real estate | | 506 | | | 487 | | | 287 | | | 243 | | | 186 | |
| Real estate joint ventures | | 6,590 | | | 6,311 | | | (75) | | | 308 | | | 180 | |
| Total real estate and real estate joint ventures | | $ | 8,690 | | | $ | 8,416 | | | $ | 383 | | | $ | 749 | | | $ | 575 | |
The carrying value of wholly-owned real estate acquired through foreclosure was $179$190 million and $180$179 million at December 31, 20222023 and 2021,2022, respectively. Depreciation expense on real estate investments was $86$81 million, $86 million and $73$86 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively. Real estate investments were net of accumulated depreciation of $566$638 million and $581$566 million at December 31, 20222023 and 2021,2022, respectively.
Leases
Leased Real Estate Investments - Operating Leases
The Company, as lessor, leases investment real estate, principally commercial real estate for office, apartment and retail use, through a variety of operating lease arrangements, which typically include tenant reimbursement for property operating costs and options to renew or extend the lease. In some circumstances, leases may include an option for the lessee to purchase the property. In addition, certain leases of retail space may stipulate that a portion of the income earned is contingent upon the level of the tenants’ revenues. The Company has elected a practical expedient of not separating non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs have the same timing and pattern of transfer as the related lease component, because they are incurred over the same period of time as the operating lease. Therefore, the combined component is accounted for as a single operating lease. Risk is managed through lessee credit analysis, property type diversification, and geographic diversification. Leased real estate investments and income earned, by property type, were as follows at and for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | Years Ended December 31, | | |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2020 | | |
| Property Type | | Carrying Value | | Income | | |
| | (In millions) | | |
| Leased real estate investments: | | | | | | | | | | | | |
| Office | | $ | 797 | | | $ | 782 | | | $ | 74 | | | $ | 73 | | | $ | 31 | | | |
| Apartment | | 328 | | | 506 | | | 34 | | | 40 | | | 40 | | | |
| Retail | | 298 | | | 363 | | | 35 | | | 44 | | | 66 | | | |
| Industrial | | 171 | | | 260 | | | 55 | | | 52 | | | 50 | | | |
| Land | | 24 | | | 23 | | | — | | | — | | | 1 | | | |
| Total leased real estate investments | | $ | 1,618 | | | $ | 1,934 | | | $ | 198 | | | $ | 209 | | | $ | 188 | | | |
Future contractual receipts under operating leases at December 31, 2022 were $109 million in 2023, $95 million in 2024, $90 million in 2025, $78 million in 2026, $66 million in 2027, $142 million thereafter and, in total, were $580 million.
Leveraged and Direct Financing Leases
The Company has diversified leveraged and direct financing lease portfolios. Its leveraged leases principally include rail cars, commercial real estate and renewable energy generation facilities, and its direct financing leases principally include renewable energy generation facilities. These assets are leased through a variety of lease arrangements, which may include options to renew or extend the lease and options for the lessee to purchase the property. Residual values are estimated using available third-party data at inception of the lease. Risk is managed through lessee credit analysis, asset allocation, geographic diversification, and ongoing reviews of estimated residual values, using available third-party data. Generally, estimated residual values are not guaranteed by the lessee or a third party.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Investment in leveraged and direct financing leases consisted of the following at: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | Years Ended December 31, | | |
| | | 2023 | | 2022 | | 2023 | | 2022 | | 2021 | | |
| Property Type | | Carrying Value | | Income | | |
| | (In millions) | | |
| Leased real estate investments: | | | | | | | | | | | | |
| Office | | $ | 848 | | | $ | 797 | | | $ | 114 | | | $ | 74 | | | $ | 73 | | | |
| Apartment | | 324 | | | 328 | | | 23 | | | 34 | | | 40 | | | |
| Retail | | 280 | | | 298 | | | 23 | | | 35 | | | 44 | | | |
| Industrial | | 119 | | | 171 | | | 11 | | | 55 | | | 52 | | | |
| Land | | 23 | | | 24 | | | — | | | — | | | — | | | |
| Total leased real estate investments | | $ | 1,594 | | | $ | 1,618 | | | $ | 171 | | | $ | 198 | | | $ | 209 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Leveraged
Leases | | Direct
Financing
Leases | | Leveraged
Leases | | Direct
Financing
Leases |
| (In millions) |
| Lease receivables, net (1) | $ | 477 | | | $ | 123 | | | $ | 542 | | | $ | 141 | |
| Estimated residual values | 517 | | | 39 | | | 560 | | | 39 | |
| Subtotal | 994 | | | 162 | | | 1,102 | | | 180 | |
| Unearned income | (245) | | | (34) | | | (284) | | | (42) | |
| Investment in leases, before ACL | 749 | | | 128 | | | 818 | | | 138 | |
| ACL | (18) | | | (1) | | | (31) | | | (1) | |
| Investment in leases, net of ACL | $ | 731 | | | $ | 127 | | | $ | 787 | | | $ | 137 | |
__________________
(1)Future contractual receipts under direct financingoperating leases at December 31, 20222023 were $18 million in 2023, $18$99 million in 2024, $18$101 million in 2025, $16$93 million in 2026, $13$84 million in 2027, $40$71 million in 2028, $223 million thereafter and, in total, were $123$671 million.
Lease receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to nine years, but in certain circumstances can be over nine years, while the payment periods for direct financing leases generally range from one to 11 years. For lease receivables, the primary credit quality indicator is whether the lease receivable is performing or nonperforming, which is assessed monthly. The Company generally defines nonperforming lease receivables as those that are 90 days or more past due. At both December 31, 2022 and 2021, all lease receivables were performing.
The deferred income tax liability related to leveraged leases was $220 million and $272 million at December 31, 2022 and 2021, respectively.
The components of income from investment in leveraged and direct financing leases, excluding net investment gains (losses), were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Leveraged
Leases | | Direct
Financing
Leases | | Leveraged
Leases | | Direct
Financing
Leases | | Leveraged
Leases | | Direct
Financing
Leases |
| (In millions) |
| Lease investment income | $ | 35 | | | $ | 8 | | | $ | 34 | | | $ | 11 | | | $ | 36 | | | $ | 11 | |
| Less: Income tax expense | 7 | | | 2 | | | 7 | | 2 | | 8 | | 2 |
| Lease investment income, net of income tax | $ | 28 | | | $ | 6 | | | $ | 27 | | | $ | 9 | | | $ | 28 | | | $ | 9 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
The Company records an allowance for expected lifetime credit loss in earnings within investment gains (losses) in an amount that represents the portion of the investment in leases that the Company does not expect to collect, resulting in the investment in leases being presented at the net amount expected to be collected. In determining the ACL, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling leases that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of the lease, and (iii) considering past events and current and forecasted economic conditions. Leases with dissimilar risk characteristics are evaluated individually for credit loss. Expected lifetime credit loss on leveraged and direct financing lease receivables is estimated using a probability of default and loss given default model, where the probability of default incorporates third party credit ratings of the lessee and the related historical default data. The Company also assesses the non-guaranteed residual values for recoverability by comparison to the current estimated fair value of the leased asset and considers other relevant market information such as independent third-party forecasts, consulting, asset brokerage and investment banking reports and data, comparable market transactions, and factors such as the competitive dynamics impacting specific industries, technological change and obsolescence, government and regulatory rules, tax policy, potential environmental liabilities and litigation.
Other Invested Assets
Other invested assets is comprised primarily of freestanding derivatives with positive estimated fair values (see Note 8)11), funds withheld tax credit and renewable energy partnerships,(see Note 1), annuities funding structured settlement claims (see Note 1), affiliated investments (see “— Related Party Investment Transactions”), annuities funding structured settlement claimstax credit and renewable energy partnerships (see Note 1), FVO securities and equity securities (see “— FVO Securities and Equity Securities”), leveraged and direct financing leases (see “— Leases — Leveraged and Direct Financing Leases”), an operating joint venture (see Note 1) and, FHLBNY common stock (see “— Invested Assets on Deposit and Pledged as Collateral”), an operating joint venture (see Note 1) and COLI (see Note 1).
Tax Credit Partnerships
The carrying value of tax credit partnerships was $749518 million and $937$749 million at December 31, 20222023 and 2021,2022, respectively. Losses from tax credit partnerships included within net investment income were $175145 million, $197$175 million and $225$197 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
FVO Securities and Equity Securities
The following table presents FVO Securitiessecurities and equity securities by security type. Common stock includes common stock and certain mutual funds. FVO securities includes fixed maturity and equity securities to support asset and liability management strategies for certain insurance products and investments in certain separate accounts.
| | December 31, |
| 2022 | | 2021 |
| Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value |
| | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| | Cost | | | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value |
| Security Type | Security Type | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value |
| | (In millions) |
| FVO Securities | | $ | 673 | | | $ | 171 | | | $ | 844 | | | $ | 598 | | | $ | 250 | | | $ | 848 | |
| | | | (In millions) | |
| | | | (In millions) | |
| | | | (In millions) | |
| FVO securities | |
| | Equity securities | Equity securities | |
| Equity securities | |
| Equity securities | |
| Common stock | |
| Common stock | |
| Common stock | Common stock | | $ | 119 | | | $ | 47 | | | $ | 166 | | | $ | 88 | | | $ | 32 | | | $ | 120 | |
| Non-redeemable preferred stock | Non-redeemable preferred stock | | 77 | | | (3) | | | 74 | | | 107 | | | (1) | | | 106 | |
| Total equity securities | Total equity securities | | $ | 196 | | | $ | 44 | | | $ | 240 | | | $ | 195 | | | $ | 31 | | | $ | 226 | |
__________________
(1) Represents cumulative changes in estimated fair value, recognized in earnings, and not in OCI.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
Cash Equivalents
Cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $6.6$3.5 billion and $4.7$6.6 billion, principally at estimated fair value, at December 31, 2023 and 2022, and 2021, respectively.
Concentrations of Credit Risk
There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at both December 31, 20222023 and 2021.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
2022.Securities Lending Transactions and Repurchase Agreements
Securities, Collateral and Reinvestment Portfolio
A summary of these transactions and agreements accounted for as secured borrowings were as follows:
| | | December 31, |
| | 2022 | | | 2021 |
| | Securities (1) | | | | Securities (1) | |
| | | December 31, | |
| | | December 31, | |
| | | December 31, | |
| | | 2023 | | | | | 2023 | | | | 2022 |
| | | Securities (1) | |
| Agreement Type | Agreement Type | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated Fair Value | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated Fair Value |
| | | | | | | (In millions) | | | | | | |
| Agreement Type | |
| Agreement Type | | | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated Fair Value | | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated Fair Value |
| | | | | | | | (In millions) | |
| Securities lending | |
| Securities lending | |
| Securities lending | Securities lending | | | $ | 6,601 | | | $ | 6,773 | | | $ | 6,625 | | | | $ | 14,689 | | | $ | 14,977 | | | $ | 15,116 | |
| Repurchase agreements | Repurchase agreements | | | $ | 3,176 | | | $ | 3,125 | | | $ | 3,057 | | | | $ | 3,416 | | | $ | 3,325 | | | $ | 3,357 | |
|
__________________
(1)These securities were included within fixed maturity securities AFS, short-term investments and cash equivalents at December 31, 2023 and within fixed maturity securities AFS and short-term investments at December 31, 2022 and within fixed maturity securities AFS at December 31, 2021.2022.
(2)The liability for cash collateral is included within payables for collateral under securities loaned and other transactions.
Contractual Maturities
Contractual maturities of these transactions and agreements accounted for as secured borrowings were as follows:
| | December 31, | |
| 2022 | | | 2021 | |
| Remaining Maturities | | | | Remaining Maturities | | |
| | December 31, | |
| | December 31, | |
| | December 31, | |
| | 2023 | |
| | 2023 | |
| | 2023 | |
| | Remaining Maturities | |
| | Remaining Maturities | |
| | Remaining Maturities | |
| Security Type | Security Type | | Open (1) | | 1 Month
or Less | | Over 1 Month
to 6 Months | | Over 6 Months to 1 Year | | Total | | | Open (1) | | 1 Month
or Less | | Over 1 Month to 6 Months | | Over 6 Months to 1 Year | | Total | |
| | (In millions) |
| Security Type | |
| Security Type | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
| Cash collateral liability by security type: | Cash collateral liability by security type: | | | | |
| Securities lending: | Securities lending: | | | | |
| Securities lending: | |
| Securities lending: | |
| U.S. government and agency | |
| U.S. government and agency | |
| U.S. government and agency | U.S. government and agency | | $ | 935 | | | $ | 4,233 | | | $ | 1,605 | | | $ | — | | | $ | 6,773 | | | | $ | 3,996 | | | $ | 5,279 | | | $ | 5,702 | | | $ | — | | | $ | 14,977 | | |
| | Repurchase agreements: | Repurchase agreements: | | | | |
| | Repurchase agreements: | |
| | Repurchase agreements: | |
| U.S. government and agency | |
| U.S. government and agency | |
| U.S. government and agency | U.S. government and agency | | $ | — | | | $ | 3,125 | | | $ | — | | | $ | — | | | $ | 3,125 | | | | $ | — | | | $ | 3,325 | | | $ | — | | | $ | — | | | $ | 3,325 | | |
|
________________
(1)The related security could be returned to the Company on the next business day, which would require the Company to immediately return the cash collateral.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell investments to meet the return obligation, it may have difficulty selling such collateral that is invested in a timely manner, be forced to sell investments in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both.
The securities lending and repurchase agreements reinvestment portfolios consist principally of high quality, liquid, publicly-traded fixed maturity securities AFS, short-term investments, cash equivalents or cash. If the securities orin the reinvestment portfolio become less liquid, liquidity resources within the general account are available to meet any potential cash demands when securities are put back by the counterparty.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
Invested Assets on Deposit and Pledged as Collateral
Invested assets on deposit and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans, which are presented at carrying value and were as follows at:
| | | | December 31, | | December 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| | | (In millions) | | (In millions) |
| Invested assets on deposit (regulatory deposits) | Invested assets on deposit (regulatory deposits) | $ | 98 | | | $ | 118 | |
| | Invested assets pledged as collateral (1) | Invested assets pledged as collateral (1) | 20,612 | | | 20,390 | |
| Invested assets pledged as collateral (1) | |
| Invested assets pledged as collateral (1) | |
| Total invested assets on deposit and pledged as collateral | Total invested assets on deposit and pledged as collateral | $ | 20,710 | | | $ | 20,508 | |
__________________
(1)The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3)4), derivative transactions (see Note 8)11) and secured debt (see Note 11)14).
See “— Securities Lending Transactions and Repurchase Agreements” for information regarding securities supporting securities lending transactions and repurchase agreements and Note 69 for information regarding investments designated to the closed block. In addition, the Company’s investment in FHLBNY common stock, included within other invested assets, which is considered restricted until redeemed by the issuer, was $659$637 million and $718$659 million, at redemption value, at December 31, 20222023 and 2021,2022, respectively.
Collectively Significant Equity Method Investments
The Company held equity method investmentsinvestments of $15.9 $16.0 billion at December 31, 2022,2023, comprised primarily of other limited partnership interests (private equity funds and hedge funds), real estate joint ventures (including real estate funds), tax credit and renewable energy partnerships and an operating joint venture. The Company’s maximum exposure to loss related to these equity method investments was limited to the carrying value of these investments plus $3.5$3.0 billion of unfunded unfunded commitments at December 31, 2022.2023.
As described in NoteNote 1, the Company generallygenerally recognizes its share of earnings in its equity method investments within net investment income using a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. Aggregate net investment income from these equity method investments exceeded 10% of the Company’s consolidated pre-tax income (loss) for two of the three most recent annual periods.periods: 2022 and 2021.
The following aggregated summarized financial data reflects the latest available financial information and does not represent the Company’s proportionate share of the assets, liabilities, or earnings of such entities.
Aggregate total assets of these entities totaled $991.6 billion and $1.0 trillion at both December 31, 2023 and 2022, and 2021.respectively. Aggregate total liabilities of these entities totaled $119.8$114.1 billion and $126.4$119.8 billion at December 31, 20222023 and 2021,2022, respectively. Aggregate net income (loss) of these entities totaledtotaled $24.7 billion, ($8.3) billion $218.6 billionand $34.4$218.6 billion for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively. Aggregate net incomeincome (loss) from the underlying entities in which the Company invests is primarily comprised of investment income, including recurring investment income (loss) and realized and unrealized investment gains (losses).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
The following table presents the total assets and total liabilities relating to investment related VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at:
| | | | | December 31, | | | December 31, |
| | | | 2022 | | 2021 | | | 2023 | | 2022 |
| Asset Type | Asset Type | | Total
Assets | | Total
Liabilities | | Total
Assets | | Total
Liabilities | Asset Type | | Total
Assets | | Total
Liabilities | | Total
Assets | | Total
Liabilities |
| | (In millions) |
| | (In millions) | | | | (In millions) |
| Real estate joint ventures | Real estate joint ventures | | $ | 1,357 | | | $ | — | | | $ | 1,094 | | | $ | — | |
| Mortgage loan joint ventures | Mortgage loan joint ventures | | 147 | | | — | | | 226 | | | — | |
| Renewable energy partnership (primarily other invested assets) | |
| Investment funds (primarily other invested assets) | Investment funds (primarily other invested assets) | | 98 | | | — | | | 101 | | | — | |
| Renewable energy partnership (primarily other invested assets) | | 76 | | | — | | | 79 | | | — | |
| Total | Total | | $ | 1,678 | | | $ | — | | | $ | 1,500 | | | $ | — | |
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
| | | | | December 31, | | | December 31, |
| | | | 2022 | | 2021 | | | 2023 | | 2022 |
| Asset Type | Asset Type | | Carrying
Amount | | Maximum
Exposure
to Loss (1) | | Carrying
Amount | | Maximum
Exposure
to Loss (1) | Asset Type | | Carrying
Amount | | Maximum
Exposure
to Loss (1) | | Carrying
Amount | | Maximum
Exposure
to Loss (1) |
| | | | (In millions) | | | (In millions) |
| Fixed maturity securities AFS (2) | Fixed maturity securities AFS (2) | | $ | 35,813 | | | $ | 35,813 | | | $ | 43,653 | | | $ | 43,653 | |
| | Other limited partnership interests | Other limited partnership interests | | 7,299 | | | 9,716 | | | 8,005 | | | 11,057 | |
| | Other limited partnership interests | |
| | Other limited partnership interests | |
| Other invested assets | Other invested assets | | 1,342 | | | 1,509 | | | 1,605 | | | 1,815 | |
| Real estate joint ventures | Real estate joint ventures | | 86 | | | 88 | | | 97 | | | 100 | |
| Total | Total | | $ | 44,540 | | | $ | 47,126 | | | $ | 53,360 | | | $ | 56,625 | |
__________________
(1)The maximum exposure to loss relating to fixed maturity securities AFS and FVO securities is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests (“OLPI”) and real estate joint ventures (“REJV”) is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax credits guaranteed by third parties. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Investments (continued)
(2)For variable interests in Structured Products included within fixed maturity securities AFS, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
As described in Note 16,19, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs for each of the years ended December 31, 2023, 2022 2021 and 2020.2021.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7. Investments (continued)
Net Investment Income
The composition of net investment income by asset type was as follows:
| | | Years Ended December 31, | | | | Years Ended December 31, |
| Asset Type | | Asset Type | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| | Years Ended December 31, |
| Asset Type | | 2022 | | 2021 | | 2020 |
| | (In millions) |
| | Fixed maturity securities AFS | |
| Fixed maturity securities AFS | |
| Fixed maturity securities AFS | Fixed maturity securities AFS | | $ | 6,458 | | | $ | 6,101 | | | $ | 6,535 | |
| Mortgage loans | Mortgage loans | | 2,615 | | | 2,661 | | | 2,836 | |
| Policy loans | Policy loans | | 288 | | | 292 | | | 305 | |
| Real estate and real estate joint ventures | | 749 | | | 575 | | | 256 | |
| Other limited partnership interests | | 433 | | | 3,161 | | | 633 | |
| Real estate and REJV | |
| OLPI | |
| Cash, cash equivalents and short-term investments | Cash, cash equivalents and short-term investments | | 147 | | | 11 | | | 77 | |
| FVO Securities | | (143) | | | 102 | | | 48 | |
| FVO securities | |
| Operating joint venture | Operating joint venture | | 34 | | | 65 | | | 80 | |
| Equity securities | Equity securities | | 11 | | | 16 | | | 25 | |
| Other | Other | | 410 | | | 142 | | | 154 | |
| Subtotal investment income | Subtotal investment income | | 11,002 | | | 13,126 | | | 10,949 | |
| Less: Investment expenses | Less: Investment expenses | | 880 | | | 640 | | | 699 | |
| | Net investment income | Net investment income | | $ | 10,122 | | | $ | 12,486 | | | $ | 10,250 | |
| | | Net investment income | |
| | Net investment income | |
| | Net Investment Income (“NII”) Information | |
| Net Investment Income (“NII”) Information | |
| Net Investment Income (“NII”) Information | Net Investment Income (“NII”) Information | | |
| Net realized and unrealized gains (losses) recognized in NII: | Net realized and unrealized gains (losses) recognized in NII: | | |
| Net realized gains (losses) from sales and disposals (primarily Residential - FVO mortgage loans and FVO Securities) | | $ | (13) | | | $ | 22 | | | $ | 2 | |
| Net unrealized gains (losses) from changes in estimated fair value (primarily FVO Securities and real estate joint ventures) | | (33) | | | 168 | | | 94 | |
| Net realized and unrealized gains (losses) recognized in NII: | |
| Net realized and unrealized gains (losses) recognized in NII: | |
| Net realized gains (losses) from sales and disposals (primarily Residential - FVO mortgage loans and FVO securities) | |
| Net realized gains (losses) from sales and disposals (primarily Residential - FVO mortgage loans and FVO securities) | |
| Net realized gains (losses) from sales and disposals (primarily Residential - FVO mortgage loans and FVO securities) | |
| Net unrealized gains (losses) from changes in estimated fair value (primarily FVO securities and REJV) | |
| Net realized and unrealized gains (losses) recognized in NII | Net realized and unrealized gains (losses) recognized in NII | | $ | (46) | | | $ | 190 | | | $ | 96 | |
| | Changes in estimated fair value subsequent to purchase of FVO Securities still held at the end of the respective periods and recognized in NII: | | $ | (145) | | | $ | 77 | | | $ | 46 | |
| Changes in estimated fair value subsequent to purchase of FVO securities still held at the end of the respective periods and recognized in NII: | |
| Changes in estimated fair value subsequent to purchase of FVO securities still held at the end of the respective periods and recognized in NII: | |
| Changes in estimated fair value subsequent to purchase of FVO securities still held at the end of the respective periods and recognized in NII: | |
| | Equity method investments NII (primarily real estate joint ventures, other limited partnership interests, tax credit and renewable energy partnerships and an operating joint venture) | | $ | 625 | | | $ | 3,235 | | | $ | 427 | |
| Equity method investments NII (primarily REJV, OLPI, tax credit and renewable energy partnerships and an operating joint venture) | |
| Equity method investments NII (primarily REJV, OLPI, tax credit and renewable energy partnerships and an operating joint venture) | |
| Equity method investments NII (primarily REJV, OLPI, tax credit and renewable energy partnerships and an operating joint venture) | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Net Investment Gains (Losses)
Net Investment Gains (Losses) by Asset Type and Transaction Type
The composition of net investment gains (losses) by asset type and transaction type was as follows:
| | Years Ended December 31, |
| | Years Ended December 31, | | | | Years Ended December 31, |
| Asset Type | Asset Type | | 2022 | | 2021 | | 2020 | Asset Type | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| | | (In millions) |
| | Fixed maturity securities AFS (1) | |
| | Fixed maturity securities AFS | | $ | (851) | | | $ | (49) | | | $ | (58) | |
| | Fixed maturity securities AFS (1) | |
| | Fixed maturity securities AFS (1) | |
| | Equity securities | Equity securities | | 6 | | | 40 | | | (76) | |
| Mortgage loans | | (42) | | | (34) | | | (188) | |
| Real estate and real estate joint ventures (excluding changes in estimated fair value) | | 561 | | | 568 | | | 7 | |
| Other limited partnership interests (excluding changes in estimated fair value) | | 4 | | | (15) | | | (12) | |
| | Equity securities | |
| | Equity securities | |
| Mortgage loans (1) | |
| Real estate and REJV (excluding changes in estimated fair value) | |
| OLPI (excluding changes in estimated fair value) | |
| Other gains (losses) | Other gains (losses) | | 72 | | | 109 | | | 293 | |
| Subtotal | Subtotal | | (250) | | | 619 | | | (34) | |
| Change in estimated fair value of other limited partnership interests and real estate joint ventures | | (14) | | | 45 | | | (5) | |
| Change in estimated fair value of OLPI and REJV | |
| Non-investment portfolio gains (losses) | Non-investment portfolio gains (losses) | | 137 | | | (12) | | | (34) | |
| | Subtotal | |
| Subtotal | |
| Subtotal | Subtotal | | 123 | | | 33 | | | (39) | |
| Net investment gains (losses) | Net investment gains (losses) | | $ | (127) | | | $ | 652 | | | $ | (73) | |
| | Transaction Type | Transaction Type | |
| Transaction Type | |
| Transaction Type | |
| Realized gains (losses) on investments sold or disposed | Realized gains (losses) on investments sold or disposed | | $ | (146) | | | $ | 579 | | | $ | 306 | |
| Impairment (losses) | | (38) | | | (24) | | | (50) | |
| Realized gains (losses) on investments sold or disposed | |
| Realized gains (losses) on investments sold or disposed | |
| Impairment (losses) (1) | |
| Recognized gains (losses): | Recognized gains (losses): | |
| Change in allowance for credit loss recognized in earnings | |
| Change in allowance for credit loss recognized in earnings | |
| Change in allowance for credit loss recognized in earnings | Change in allowance for credit loss recognized in earnings | | (77) | | | (41) | | | (204) | |
| Unrealized net gains (losses) recognized in earnings | Unrealized net gains (losses) recognized in earnings | | (3) | | | 150 | | | (91) | |
| Total recognized gains (losses) | Total recognized gains (losses) | | (264) | | | 664 | | | (39) | |
| Non-investment portfolio gains (losses) | Non-investment portfolio gains (losses) | | 137 | | | (12) | | | (34) | |
| Net investment gains (losses) | Net investment gains (losses) | | $ | (127) | | | $ | 652 | | | $ | (73) | |
| | Net Investment Gains (Losses) (“NIGL”) Information | Net Investment Gains (Losses) (“NIGL”) Information | | |
| Net Investment Gains (Losses) (“NIGL”) Information | |
| Net Investment Gains (Losses) (“NIGL”) Information | |
| Changes in estimated fair value subsequent to purchase of equity securities still held at the end of the respective periods and recognized in NIGL | |
| Changes in estimated fair value subsequent to purchase of equity securities still held at the end of the respective periods and recognized in NIGL | |
| Changes in estimated fair value subsequent to purchase of equity securities still held at the end of the respective periods and recognized in NIGL | Changes in estimated fair value subsequent to purchase of equity securities still held at the end of the respective periods and recognized in NIGL | | $ | 8 | | | $ | 10 | | | $ | (80) | |
| | Other gains (losses) include: | Other gains (losses) include: | | |
| Other gains (losses) include: | |
| Other gains (losses) include: | |
| Gains (losses) on disposed investments which were previously in a qualified cash flow hedge relationship | |
| Gains (losses) on disposed investments which were previously in a qualified cash flow hedge relationship | |
| Gains (losses) on disposed investments which were previously in a qualified cash flow hedge relationship | Gains (losses) on disposed investments which were previously in a qualified cash flow hedge relationship | | $ | 48 | | | $ | 91 | | | $ | 128 | |
| Gains (losses) on leveraged leases and renewable energy partnerships | Gains (losses) on leveraged leases and renewable energy partnerships | | $ | 33 | | | $ | 12 | | | $ | 87 | |
| | Foreign currency gains (losses) | Foreign currency gains (losses) | | $ | 97 | | | $ | 62 | | | $ | (19) | |
| Foreign currency gains (losses) | |
| Foreign currency gains (losses) | |
| | Net Realized Investment Gains (Losses) From Sales and Disposals of Investments: | Net Realized Investment Gains (Losses) From Sales and Disposals of Investments: | | |
| Net Realized Investment Gains (Losses) From Sales and Disposals of Investments: | |
| Net Realized Investment Gains (Losses) From Sales and Disposals of Investments: | |
| Recognized in NIGL | |
| Recognized in NIGL | |
| Recognized in NIGL | Recognized in NIGL | | $ | (146) | | | $ | 579 | | | $ | 306 | |
| Recognized in NII | Recognized in NII | | (13) | | | 22 | | | 2 | |
| Net realized investment gains (losses) from sales and disposals of investments | Net realized investment gains (losses) from sales and disposals of investments | | $ | (159) | | | $ | 601 | | | $ | 308 | |
|
__________________
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
(1)Includes a net loss of $895 million during the year ended December 31, 2023 for investments disposed of in connection with a reinsurance transaction. The net loss was comprised of ($946) million of impairments and $82 million of realized gains on disposal for fixed maturity securities AFS, ($29) million of adjustments to mortgage loans, reflected as impairments, (calculated at lower of amortized cost or estimated fair value) and ($2) million of realized losses on disposal for mortgage loans. See Note 8 for further information on this reinsurance transaction.
Fixed Maturity Securities AFS and Equity Securities – Composition of Net Investment Gains (Losses)
The composition of net investment gains (losses) for these securities is as follows:
| | | Years Ended December 31, | |
| | Years Ended December 31, | |
| | Years Ended December 31, | |
| Fixed Maturity Securities AFS | |
| | | Years Ended December 31, |
| Fixed Maturity Securities AFS | | 2022 | | 2021 | | 2020 | |
|
| |
|
|
| | (In millions) | | (In millions) |
| Proceeds | Proceeds | | $ | 42,903 | | | $ | 27,587 | | | $ | 20,453 | | |
| Gross investment gains | Gross investment gains | | $ | 469 | | | $ | 232 | | | $ | 419 | | |
| Gross investment gains | |
| Gross investment gains | |
| Gross investment (losses) | |
| Gross investment (losses) | |
| Gross investment (losses) | Gross investment (losses) | | (1,221) | | | (256) | | | (376) | | |
| Realized gains (losses) on sales and disposals | Realized gains (losses) on sales and disposals | | (752) | | | (24) | | | 43 | | |
| Realized gains (losses) on sales and disposals | |
| Realized gains (losses) on sales and disposals | |
| Net credit loss (provision) release (change in ACL recognized in earnings) | |
| Net credit loss (provision) release (change in ACL recognized in earnings) | |
| Net credit loss (provision) release (change in ACL recognized in earnings) | Net credit loss (provision) release (change in ACL recognized in earnings) | | (61) | | | (1) | | | (51) | | |
| Impairment (losses) | Impairment (losses) | | (38) | | | (24) | | | (50) | | |
| Impairment (losses) | |
| Impairment (losses) | |
| Net credit loss (provision) release and impairment (losses) | Net credit loss (provision) release and impairment (losses) | | (99) | | | (25) | | | (101) | | |
| Net credit loss (provision) release and impairment (losses) | |
| Net credit loss (provision) release and impairment (losses) | |
| Net investment gains (losses) | |
| Net investment gains (losses) | |
| Net investment gains (losses) | Net investment gains (losses) | | $ | (851) | | | $ | (49) | | | $ | (58) | | |
| | Equity Securities | Equity Securities | | |
| | Equity Securities | |
| | Equity Securities | |
| Realized gains (losses) on sales and disposals | |
| Realized gains (losses) on sales and disposals | |
| Realized gains (losses) on sales and disposals | Realized gains (losses) on sales and disposals | | $ | (6) | | | $ | (61) | | | $ | 10 | | |
| Unrealized net gains (losses) recognized in earnings | Unrealized net gains (losses) recognized in earnings | | 12 | | | 101 | | | (86) | | |
| Unrealized net gains (losses) recognized in earnings | |
| Unrealized net gains (losses) recognized in earnings | |
| Net investment gains (losses) | Net investment gains (losses) | | $ | 6 | | | $ | 40 | | | $ | (76) | | |
| Net investment gains (losses) | |
| Net investment gains (losses) | |
Related Party Investment Transactions
The Company transfers invested assets primarily consisting of fixed maturity securities AFS, mortgage loans and real estate and real estate joint ventures to and from affiliates. Invested assets transferred were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | (In millions) |
| Estimated fair value of invested assets transferred to affiliates | | $ | 472 | | | $ | 795 | | | $ | 393 | |
| Amortized cost of invested assets transferred to affiliates | | $ | 432 | | | $ | 776 | | | $ | 379 | |
| Net investment gains (losses) recognized on transfers | | $ | 40 | | | $ | 19 | | | $ | 14 | |
| | | | | | |
| Estimated fair value of invested assets transferred from affiliates | | $ | 497 | | | $ | 1,346 | | | $ | 381 | |
| Estimated fair value of derivative liabilities transferred from affiliates | | $ | 64 | | | $ | — | | | $ | — | |
Recurring related party investments and related net investment income were as follows at and for the periods ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, | | Years Ended December 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 | | 2020 |
| Investment Type/Balance Sheet Category | | Related Party | | Carrying Value | | Net Investment Income |
| | | | (In millions) |
| Affiliated investments (1) | | MetLife, Inc. | | $ | 1,207 | | | $ | 1,399 | | | $ | 16 | | | $ | 31 | | | $ | 35 | |
| Affiliated investments (2) | | American Life Insurance Company | | 100 | | | 100 | | | 1 | | | 2 | | | 3 | |
| Other invested assets | | | | $ | 1,307 | | | $ | 1,499 | | | $ | 17 | | | $ | 33 | | | $ | 38 | |
________________ | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (In millions) |
| Estimated fair value of invested assets transferred to affiliates | | $ | 718 | | | $ | 472 | | | $ | 795 | |
| Amortized cost of invested assets transferred to affiliates | | $ | 756 | | | $ | 432 | | | $ | 776 | |
| Net investment gains (losses) recognized on transfers | | $ | (38) | | | $ | 40 | | | $ | 19 | |
| | | | | | |
| Estimated fair value of invested assets transferred from affiliates | | $ | 1,178 | | | $ | 497 | | | $ | 1,346 | |
| Estimated fair value of derivative liabilities transferred from affiliates | | $ | — | | | $ | 64 | | | $ | — | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
7.10. Investments (continued)
Recurring related party investments and related net investment income were as follows at and for the periods ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, | | Years Ended December 31, |
| | | | 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
| Investment Type/Balance Sheet Category | | Related Party | | Carrying Value | | Net Investment Income |
| | | | (In millions) |
| Affiliated investments (1) | | MetLife, Inc. | | $ | 1,130 | | | $ | 1,207 | | | $ | 20 | | | $ | 16 | | | $ | 31 | |
| Affiliated investments (2) | | American Life Insurance Company | | — | | | 100 | | | 1 | | | 1 | | | 2 | |
| Affiliated investments (3) | | Metropolitan General Insurance Company | | 150 | | | — | | | — | | | — | | | — | |
| Other invested assets | | | | $ | 1,280 | | | $ | 1,307 | | | $ | 21 | | | $ | 17 | | | $ | 33 | |
________________
(1)Represents an investment in affiliated senior unsecured notes which have maturity dates from July 20232026 to December 2031 and bear interest, payable semi-annually, at rates per annum ranging from 1.60%1.61% to 1.85%2.16%. In July 2021, ¥38.42023, ¥37.3 billion (the equivalent of $351$258 million) of 2.97%1.60% affiliated senior unsecured notes matured and were refinanced with the following senior unsecured notes: (i) ¥7.8¥37.3 billion 1.61% due July 2026, (ii) ¥11.5 billion 1.76% due July 2028 and (iii) ¥19.1 billion 1.85% due July 2031. In December 2021, ¥51.0 billion (the equivalent of $467 million) of 3.14%2.16% affiliated senior unsecured notes matured of which ¥40.9 billion (the equivalent of $372 million) were refinanced with the following senior unsecured notes: (i) ¥19.1 billion 1.72% due December 2028, (ii) ¥21.8 billion 1.85% due December 2031, and, of which ¥10.1 billion (the equivalent of $95 million) were paid off at maturity.July 2030.
(2)Represents an affiliated surplus note which matureswas prepaid in June 2023. The surplus note had an original maturity date in June 2025 and bearsbore interest, payable semi-annually, at a rate per annum of 1.88%.
(3)Represents an investment in affiliated preferred stock with a dividend yield of 7.50% that will be cumulative and payable annually in arrears. The shares can be redeemed, at MetLife General Insurance Company’s option, after December 15, 2028.
The Company incurred investment advisory charges from an affiliate of $301 million, $272 million $292 million and $280$292 million for the years ended December 31, 2023, 2022, 2021, and 2020,2021, respectively.
See “— Variable Interest Entities” for information on investments in affiliated real estate joint ventures and affiliated mortgage loan joint ventures.
See Note 58 “— Related Party Reinsurance Transactions” for information about affiliated funds withheld.
8.11. Derivatives
Accounting for Derivatives
See Note 1 for a description of the Company’s accounting policies for derivatives and Note 912 for information about the fair value hierarchy for derivatives.
Derivative Strategies
The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company uses credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the cash markets.
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
11. Derivatives (continued)
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.
The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. government and agency, or other fixed maturity securities AFS. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Derivatives (continued)
Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.
A synthetic GIC is a contractSynthetic GICs are contracts that simulatessimulate the performance of a traditional GICGICs through the use of financial instruments. The contractholder owns the underlying assets, and the Company provides a guarantee (or “wrap”) on the participant funds for an annual risk charge. The Company’s maximum exposure to loss on synthetic GICs is the notional amount, in the event the values of all of the underlying assets were reduced to zero. The Company’s risk is substantially lower due to contractual provisions that limit the portfolio to high quality assets, which are pre-approved and monitored for compliance, as well as the collection of risk charges. In addition, the crediting rates reset periodically to amortize market value gains and losses over a period equal to the duration of the wrapped portfolio, subject to a 0% floor. While plan participants may transact at book value, contractholder withdrawals may only occur immediately at market value, or at book value paid over a period of time per contract provisions. Synthetic GICs are not designated as hedging instruments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
11. Derivatives (continued)
Foreign Currency Exchange Rate Derivatives
The Company uses foreign currency exchange rate derivatives, including foreign currency swaps and foreign currency forwards, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies.
In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow and nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Derivatives (continued)
In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company utilizes foreign currency forwards in nonqualifying hedging relationships.
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. In each case, payout on a credit default swap is triggered only after the relevant third party,third-party, Credit Derivatives Determinations Committee determines that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency, or other fixed maturity securities AFS. These credit default swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the underlying equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. The Company utilizes equity index options in nonqualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. The Company utilizes equity variance swaps in nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
11. Derivatives (continued)
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Derivatives (continued)
In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
11. Derivatives (continued)
Primary Risks Managed by Derivatives
The following table presents the primary underlying risk exposure, gross notional amount and estimated fair value of the Company’s derivatives, excluding embedded derivatives, held at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary Underlying Risk Exposure | | December 31, |
| 2022 | | 2021 |
| | | Estimated Fair Value | | | | Estimated Fair Value |
| Gross
Notional
Amount | | Assets | | Liabilities | | Gross
Notional
Amount | | Assets | | Liabilities |
| | | (In millions) |
| Derivatives Designated as Hedging Instruments: | | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | $ | 4,036 | | | $ | 1,353 | | | $ | 443 | | | $ | 3,540 | | | $ | 2,163 | | | $ | 6 | |
| Foreign currency swaps | Foreign currency exchange rate | | 565 | | | 74 | | | — | | | 764 | | | 8 | | | 22 | |
| Subtotal | | 4,601 | | | 1,427 | | | 443 | | | 4,304 | | | 2,171 | | | 28 | |
| Cash flow hedges: | | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | 3,739 | | | 7 | | | 239 | | | 4,079 | | | 4 | | | 1 | |
| Interest rate forwards | Interest rate | | 2,227 | | | — | | | 404 | | | 3,058 | | | 69 | | | 1 | |
| Foreign currency swaps | Foreign currency exchange rate | | 29,290 | | | 2,453 | | | 1,364 | | | 28,772 | | | 1,317 | | | 966 | |
| Subtotal | | 35,256 | | | 2,460 | | | 2,007 | | | 35,909 | | | 1,390 | | | 968 | |
| Total qualifying hedges | | 39,857 | | | 3,887 | | | 2,450 | | | 40,213 | | | 3,561 | | | 996 | |
| Derivatives Not Designated or Not Qualifying as Hedging Instruments: | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | 15,358 | | | 1,579 | | | 704 | | | 21,565 | | | 3,206 | | | 59 | |
| Interest rate floors | Interest rate | | 23,371 | | | 114 | | | — | | | 7,701 | | | 145 | | | — | |
| Interest rate caps | Interest rate | | 46,666 | | | 903 | | | — | | | 64,309 | | | 117 | | | — | |
| Interest rate futures | Interest rate | | 414 | | | — | | | 1 | | | 515 | | | — | | | — | |
| Interest rate options | Interest rate | | 39,712 | | | 434 | | | 36 | | | 9,703 | | | 364 | | | — | |
| Interest rate forwards | Interest rate | | — | | | — | | | — | | | 265 | | | — | | | 20 | |
| Interest rate total return swaps | Interest rate | | — | | | — | | | — | | | 1,048 | | | 9 | | | 4 | |
| Synthetic GICs | Interest rate | | 13,044 | | | — | | | — | | | 11,307 | | | — | | | — | |
| Foreign currency swaps | Foreign currency exchange rate | | 4,739 | | | 720 | | | 5 | | | 4,800 | | | 340 | | | 75 | |
| Foreign currency forwards | Foreign currency exchange rate | | 1,328 | | | 16 | | | 25 | | | 1,902 | | | 11 | | | 13 | |
| | | | | | | | | | | | | |
| Credit default swaps — purchased | Credit | | 843 | | | 16 | | | — | | | 956 | | | 12 | | | 8 | |
| Credit default swaps — written | Credit | | 9,074 | | | 113 | | | 26 | | | 6,074 | | | 111 | | | 12 | |
| Equity futures | Equity market | | 1,063 | | | 2 | | | — | | | 1,751 | | | 5 | | | — | |
| Equity index options | Equity market | | 14,143 | | | 585 | | | 179 | | | 26,800 | | | 714 | | | 166 | |
| Equity variance swaps | Equity market | | 90 | | | 4 | | | — | | | 425 | | | 12 | | | 10 | |
| Equity total return swaps | Equity market | | 1,922 | | | 23 | | | 103 | | | 2,148 | | | 11 | | | 46 | |
| Total non-designated or nonqualifying derivatives | | 171,767 | | | 4,509 | | | 1,079 | | | 161,269 | | | 5,057 | | | 413 | |
| Total | | $ | 211,624 | | | $ | 8,396 | | | $ | 3,529 | | | $ | 201,482 | | | $ | 8,618 | | | $ | 1,409 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8. Derivatives (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary Underlying Risk Exposure | | December 31, |
| 2023 | | 2022 |
| | | Estimated Fair Value | | | | Estimated Fair Value |
| Gross
Notional
Amount | | Assets | | Liabilities | | Gross
Notional
Amount | | Assets | | Liabilities |
| | | (In millions) |
| Derivatives Designated as Hedging Instruments: | | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | $ | 4,443 | | | $ | 1,257 | | | $ | 508 | | | $ | 4,036 | | | $ | 1,353 | | | $ | 443 | |
| Foreign currency swaps | Foreign currency exchange rate | | 1,459 | | | 55 | | | 1 | | | 565 | | | 74 | | | — | |
| Subtotal | | 5,902 | | | 1,312 | | | 509 | | | 4,601 | | | 1,427 | | | 443 | |
| Cash flow hedges: | | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | 3,789 | | | 1 | | | 246 | | | 3,739 | | | 7 | | | 239 | |
| Interest rate forwards | Interest rate | | 970 | | | — | | | 175 | | | 2,227 | | | — | | | 404 | |
| Foreign currency swaps | Foreign currency exchange rate | | 30,342 | | | 1,977 | | | 846 | | | 29,290 | | | 2,453 | | | 1,364 | |
| Subtotal | | 35,101 | | | 1,978 | | | 1,267 | | | 35,256 | | | 2,460 | | | 2,007 | |
| Total qualifying hedges | | 41,003 | | | 3,290 | | | 1,776 | | | 39,857 | | | 3,887 | | | 2,450 | |
| Derivatives Not Designated or Not Qualifying as Hedging Instruments: | | | | | | | | | | | | |
| Interest rate swaps | Interest rate | | 15,516 | | | 1,476 | | | 638 | | | 15,358 | | | 1,579 | | | 704 | |
| Interest rate floors | Interest rate | | 13,921 | | | 39 | | | — | | | 23,371 | | | 114 | | | — | |
| Interest rate caps | Interest rate | | 28,890 | | | 355 | | | — | | | 46,666 | | | 903 | | | — | |
| Interest rate futures | Interest rate | | 25 | | | — | | | — | | | 414 | | | — | | | 1 | |
| Interest rate options | Interest rate | | 39,226 | | | 361 | | | 27 | | | 39,712 | | | 434 | | | 36 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Synthetic GICs | Interest rate | | 6,145 | | | — | | | — | | | 13,044 | | | — | | | — | |
| Foreign currency swaps | Foreign currency exchange rate | | 4,304 | | | 446 | | | 24 | | | 4,739 | | | 720 | | | 5 | |
| Foreign currency forwards | Foreign currency exchange rate | | 1,176 | | | 8 | | | 10 | | | 1,328 | | | 16 | | | 25 | |
| | | | | | | | | | | | | |
| Credit default swaps — purchased | Credit | | 809 | | | 3 | | | 7 | | | 843 | | | 16 | | | — | |
| Credit default swaps — written | Credit | | 10,007 | | | 186 | | | 4 | | | 9,074 | | | 113 | | | 26 | |
| Equity futures | Equity market | | 941 | | | 3 | | | — | | | 1,063 | | | 2 | | | — | |
| Equity index options | Equity market | | 17,703 | | | 339 | | | 193 | | | 14,143 | | | 585 | | | 179 | |
| Equity variance swaps | Equity market | | — | | | — | | | — | | | 90 | | | 4 | | | — | |
| Equity total return swaps | Equity market | | 1,912 | | | — | | | 218 | | | 1,922 | | | 23 | | | 103 | |
| Total non-designated or nonqualifying derivatives | | 140,575 | | | 3,216 | | | 1,121 | | | 171,767 | | | 4,509 | | | 1,079 | |
| Total | | $ | 181,578 | | | $ | 6,506 | | | $ | 2,897 | | | $ | 211,624 | | | $ | 8,396 | | | $ | 3,529 | |
Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 20222023 and 2021.2022. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives that economically hedge embedded derivativesMRBs that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivativesMRBs are already recorded in net income; and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
The Effects of Derivatives on the Consolidated Statements of Operations and Comprehensive Income (Loss)
The following table presents the consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow, nonqualifying hedging relationships and embedded derivatives:
| | Year Ended December 31, 2022 |
| Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| (In millions) |
| | Year Ended December 31, 2023 | | | | Year Ended December 31, 2023 |
| | Net Investment Income | | | | Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| | (In millions) | | | | (In millions) |
| Gain (Loss) on Fair Value Hedges: | Gain (Loss) on Fair Value Hedges: | |
| Interest rate derivatives: | Interest rate derivatives: | |
| Interest rate derivatives: | |
| Interest rate derivatives: | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | $ | 8 | | | $ | — | | | $ | — | | | $ | (1,164) | | | $ | (26) | | | N/A | | $ | (3) | | | $ | | $ | — | | | N/A | | N/A | | $ | — | | | $ | | $ | 29 | | | N/A | | N/A |
| Hedged items | Hedged items | | (8) | | | — | | | — | | | 1,104 | | | 27 | | | N/A | Hedged items | | 3 | | | — | | — | | | N/A | | N/A | | (26) | | | (31) | | (31) | | | N/A | | N/A |
| Foreign currency exchange rate derivatives: | Foreign currency exchange rate derivatives: | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | 105 | | | — | | | — | | | — | | | — | | | N/A |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | | | (39) | | | — | | | N/A | | — | | | 20 | | | N/A |
| Hedged items | Hedged items | | (105) | | | — | | | — | | | — | | | — | | | N/A | Hedged items | | 38 | | | — | | — | | | N/A | | N/A | | — | | | (24) | | (24) | | | N/A | | N/A |
| | Subtotal | Subtotal | | — | | | — | | | — | | | (60) | | | 1 | | | N/A |
| Subtotal | |
| Subtotal | | | (1) | | | — | | | N/A | | (26) | | | (6) | | | N/A |
| Gain (Loss) on Cash Flow Hedges: | Gain (Loss) on Cash Flow Hedges: | |
| Interest rate derivatives: (1) | Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | $ | (1,467) | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 59 | | | 51 | | | — | | | — | | | — | | | (110) | |
| Foreign currency exchange rate derivatives: (1) | Foreign currency exchange rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | 766 | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 5 | | | (417) | | | — | | | — | | | — | | | 412 | |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | 411 | | | — | | | — | | | — | | | — | |
| Credit derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | |
| | Subtotal | |
| Subtotal | |
| Subtotal | Subtotal | | 64 | | | 45 | | | — | | | — | | | — | | | (399) | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | Interest rate derivatives (1) | | 3 | | | — | | | (2,190) | | | — | | | — | | | N/A | | — | | | N/A | | N/A | | (842) | | | N/A | | N/A |
| Foreign currency exchange rate derivatives (1) | Foreign currency exchange rate derivatives (1) | | 2 | | | — | | | 564 | | | — | | | — | | | N/A | Foreign currency exchange rate derivatives (1) | | — | | | N/A | | N/A | | (288) | | | N/A | | N/A |
| Credit derivatives — purchased (1) | Credit derivatives — purchased (1) | | — | | | — | | | 44 | | | — | | | — | | | N/A | Credit derivatives — purchased (1) | | — | | | N/A | | N/A | | (22) | | | N/A | | N/A |
| Credit derivatives — written (1) | Credit derivatives — written (1) | | — | | | — | | | (66) | | | — | | | — | | | N/A | Credit derivatives — written (1) | | — | | | N/A | | N/A | | 113 | | | N/A | | N/A |
| Equity derivatives (1) | Equity derivatives (1) | | 29 | | | — | | | 251 | | | 240 | | | — | | | N/A | Equity derivatives (1) | | (52) | | | N/A | | N/A | | (1,042) | | | N/A | | N/A |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | — | | | (300) | | | — | | | — | | | N/A | Foreign currency transaction gains (losses) on hedged items | | — | | | N/A | | N/A | | 85 | | | N/A | | N/A |
| Subtotal | Subtotal | | 34 | | | — | | | (1,697) | | | 240 | | | — | | | N/A | Subtotal | | (52) | | | N/A | | N/A | | (1,996) | | | N/A | | N/A |
| Earned income on derivatives | Earned income on derivatives | | 370 | | | — | | | 585 | | | 151 | | | (145) | | | — | |
| Embedded derivatives (2) | | N/A | | N/A | | 1,584 | | | — | | | N/A | | N/A |
| Synthetic GICs | | Synthetic GICs | | N/A | | 17 | | | N/A |
| Embedded derivatives | | Embedded derivatives | | N/A | | (366) | | | N/A |
| Total | Total | | $ | 468 | | | $ | 45 | | | $ | 472 | | | $ | 331 | | | $ | (144) | | | $ | (399) | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
| | Year Ended December 31, 2021 |
| Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| (In millions) |
| | Year Ended December 31, 2022 | | | | Year Ended December 31, 2022 |
| | Net Investment Income | | | | Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| | (In millions) | | | | (In millions) |
| Gain (Loss) on Fair Value Hedges: | Gain (Loss) on Fair Value Hedges: | |
| Interest rate derivatives: | Interest rate derivatives: | |
| Interest rate derivatives: | |
| Interest rate derivatives: | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | $ | 6 | | | $ | — | | | $ | — | | | $ | (455) | | | $ | — | | | N/A | | $ | 8 | | | $ | | $ | — | | | N/A | | N/A | | $ | (959) | | | $ | | $ | (231) | | | N/A | | N/A |
| Hedged items | Hedged items | | (6) | | | — | | | — | | | 405 | | | — | | | N/A | Hedged items | | (8) | | | — | | — | | | N/A | | N/A | | 905 | | | 226 | | 226 | | | N/A | | N/A |
| Foreign currency exchange rate derivatives: | Foreign currency exchange rate derivatives: | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | 49 | | | — | | | — | | | — | | | — | | | N/A |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | | | 105 | | | — | | | N/A | | — | | | — | | | N/A |
| Hedged items | Hedged items | | (43) | | | — | | | — | | | — | | | — | | | N/A | Hedged items | | (105) | | | — | | — | | | N/A | | N/A | | — | | | — | | — | | | N/A | | N/A |
| | Subtotal | Subtotal | | 6 | | | — | | | — | | | (50) | | | — | | | N/A |
| Subtotal | |
| Subtotal | | | — | | | — | | | N/A | | (54) | | | (5) | | | N/A |
| Gain (Loss) on Cash Flow Hedges: | Gain (Loss) on Cash Flow Hedges: | |
| Interest rate derivatives: (1) | Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | $ | (570) | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 57 | | | 87 | | | — | | | — | | | — | | | (144) | |
| Foreign currency exchange rate derivatives: (1) | Foreign currency exchange rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | 600 | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 4 | | | (229) | | | — | | | — | | | — | | | 225 | |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | 227 | | | — | | | — | | | — | | | — | |
| Credit derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | |
| | Subtotal | |
| Subtotal | |
| Subtotal | Subtotal | | 61 | | | 85 | | | — | | | — | | | — | | | 111 | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | Interest rate derivatives (1) | | 2 | | | — | | | (1,523) | | | — | | | — | | | N/A | | 3 | | | N/A | | N/A | | (2,190) | | | N/A | | N/A |
| Foreign currency exchange rate derivatives (1) | Foreign currency exchange rate derivatives (1) | | — | | | — | | | 264 | | | — | | | — | | | N/A | Foreign currency exchange rate derivatives (1) | | 2 | | | N/A | | N/A | | 564 | | | N/A | | N/A |
| Credit derivatives — purchased (1) | Credit derivatives — purchased (1) | | — | | | — | | | 2 | | | — | | | — | | | N/A | Credit derivatives — purchased (1) | | — | | | N/A | | N/A | | 44 | | | N/A | | N/A |
| Credit derivatives — written (1) | Credit derivatives — written (1) | | — | | | — | | | 23 | | | — | | | — | | | N/A | Credit derivatives — written (1) | | — | | | N/A | | N/A | | (66) | | | N/A | | N/A |
| Equity derivatives (1) | Equity derivatives (1) | | (1) | | | — | | | (1,043) | | | (265) | | | — | | | N/A | Equity derivatives (1) | | 29 | | | N/A | | N/A | | 491 | | | N/A | | N/A |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | — | | | (65) | | | — | | | — | | | N/A | Foreign currency transaction gains (losses) on hedged items | | — | | | N/A | | N/A | | (300) | | | N/A | | N/A |
| Subtotal | Subtotal | | 1 | | | — | | | (2,342) | | | (265) | | | — | | | N/A | Subtotal | | 34 | | | N/A | | N/A | | (1,457) | | | N/A | | N/A |
| Earned income on derivatives | Earned income on derivatives | | 167 | | | — | | | 645 | | | 206 | | | (159) | | | — | |
| Embedded derivatives (2) | | N/A | | N/A | | 733 | | | — | | | N/A | | N/A |
| Synthetic GICs | | Synthetic GICs | | N/A | | — | | | N/A |
| Embedded derivatives | | Embedded derivatives | | N/A | | 1,610 | | | N/A |
| Total | Total | | $ | 235 | | | $ | 85 | | | $ | (964) | | | $ | (109) | | | $ | (159) | | | $ | 111 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
| | Year Ended December 31, 2020 |
| Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| (In millions) |
| | Year Ended December 31, 2021 | | | | Year Ended December 31, 2021 |
| | Net Investment Income | | | | Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | OCI |
| | (In millions) | | | | (In millions) |
| Gain (Loss) on Fair Value Hedges: | Gain (Loss) on Fair Value Hedges: | |
| Interest rate derivatives: | Interest rate derivatives: | |
| Interest rate derivatives: | |
| Interest rate derivatives: | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | $ | (10) | | | $ | — | | | $ | — | | | $ | 360 | | | $ | — | | | N/A | | $ | 6 | | | $ | | $ | — | | | N/A | | N/A | | $ | (372) | | | $ | | $ | (83) | | | N/A | | N/A |
| Hedged items | Hedged items | | 12 | | | — | | | — | | | (399) | | | — | | | N/A | Hedged items | | (6) | | | — | | — | | | N/A | | N/A | | 327 | | | 78 | | 78 | | | N/A | | N/A |
| Foreign currency exchange rate derivatives: | Foreign currency exchange rate derivatives: | |
| Derivatives designated as hedging instruments (1) | Derivatives designated as hedging instruments (1) | | (45) | | | — | | | — | | | — | | | — | | | N/A |
| Derivatives designated as hedging instruments (1) | |
| Derivatives designated as hedging instruments (1) | | | 49 | | | — | | | N/A | | — | | | — | | | N/A |
| Hedged items | Hedged items | | 43 | | | — | | | — | | | — | | | — | | | N/A | Hedged items | | (43) | | | — | | — | | | N/A | | N/A | | — | | | — | | — | | | N/A | | N/A |
| | Subtotal | Subtotal | | — | | | — | | | — | | | (39) | | | — | | | N/A |
| Subtotal | |
| Subtotal | | | 6 | | | — | | | N/A | | (45) | | | (5) | | | N/A |
| Gain (Loss) on Cash Flow Hedges: | Gain (Loss) on Cash Flow Hedges: | |
| Interest rate derivatives: (1) | Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Interest rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | $ | 1,268 | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 36 | | | 121 | | | — | | | — | | | — | | | (157) | |
| Foreign currency exchange rate derivatives: (1) | Foreign currency exchange rate derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | (124) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | Amount of gains (losses) reclassified from AOCI into income | | 3 | | | 768 | | | — | | | — | | | — | | | (771) | |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | (680) | | | — | | | — | | | — | | | — | |
| Credit derivatives: (1) | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) deferred in AOCI | |
| Amount of gains (losses) reclassified from AOCI into income | |
| | Subtotal | |
| Subtotal | |
| Subtotal | Subtotal | | 39 | | | 209 | | | — | | | — | | | — | | | 216 | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| | Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | |
| Interest rate derivatives (1) | Interest rate derivatives (1) | | (6) | | | — | | | 1,999 | | | — | | | — | | | N/A | | 2 | | | N/A | | N/A | | (1,523) | | | N/A | | N/A |
| Foreign currency exchange rate derivatives (1) | Foreign currency exchange rate derivatives (1) | | — | | | — | | | (371) | | | — | | | — | | | N/A | Foreign currency exchange rate derivatives (1) | | — | | | N/A | | N/A | | 264 | | | N/A | | N/A |
| Credit derivatives — purchased (1) | Credit derivatives — purchased (1) | | — | | | — | | | (6) | | | — | | | — | | | N/A | Credit derivatives — purchased (1) | | — | | | N/A | | N/A | | 2 | | | N/A | | N/A |
| Credit derivatives — written (1) | Credit derivatives — written (1) | | — | | | — | | | (78) | | | — | | | — | | | N/A | Credit derivatives — written (1) | | — | | | N/A | | N/A | | 23 | | | N/A | | N/A |
| Equity derivatives (1) | Equity derivatives (1) | | (2) | | | — | | | (973) | | | (238) | | | — | | | N/A | Equity derivatives (1) | | (1) | | | N/A | | N/A | | (1,308) | | | N/A | | N/A |
| Foreign currency transaction gains (losses) on hedged items | Foreign currency transaction gains (losses) on hedged items | | — | | | — | | | 91 | | | — | | | — | | | N/A | Foreign currency transaction gains (losses) on hedged items | | — | | | N/A | | N/A | | (65) | | | N/A | | N/A |
| Subtotal | Subtotal | | (8) | | | — | | | 662 | | | (238) | | | — | | | N/A | Subtotal | | 1 | | | N/A | | N/A | | (2,607) | | | N/A | | N/A |
| Earned income on derivatives | Earned income on derivatives | | 239 | | | — | | | 633 | | | 186 | | | (152) | | | — | |
| Embedded derivatives (2) | | N/A | | N/A | | (557) | | | — | | | N/A | | N/A |
| Synthetic GICs | | Synthetic GICs | | N/A | | — | | | N/A |
| Embedded derivatives | | Embedded derivatives | | N/A | | 330 | | | — | | | N/A |
| Total | Total | | $ | 270 | | | $ | 209 | | | $ | 738 | | | $ | (91) | | | $ | (152) | | | $ | 216 | |
__________________
(1)Excludes earned income on derivatives.
(2)The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were $21 million, $27 million and $7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; and (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities.
The following table presents the balance sheet classification, carrying amount and cumulative fair value hedging adjustments for items designated and qualifying as hedged items in fair value hedges:
| | Balance Sheet Line Item | Balance Sheet Line Item | | Carrying Amount of the
Hedged
Assets/(Liabilities) | | Cumulative Amount
of Fair Value Hedging Adjustments
Included in the Carrying Amount of Hedged
Assets/(Liabilities) (1) | |
| | December 31, 2022 | | | December 31, 2021 | | December 31, 2022 | | December 31, 2021 | |
| (In millions) | |
| Balance Sheet Line Item | |
| Balance Sheet Line Item | |
| | December 31, 2023 | |
| | December 31, 2023 | |
| | December 31, 2023 | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
| Fixed maturity securities AFS | |
| Fixed maturity securities AFS | |
| Fixed maturity securities AFS | Fixed maturity securities AFS | | $ | 247 | | | | $ | 366 | | | $ | 1 | | | $ | (1) | | |
| Mortgage loans | Mortgage loans | | $ | 319 | | | | $ | 617 | | | $ | (18) | | | $ | 3 | | |
| Mortgage loans | |
| Mortgage loans | |
| Future policy benefits | |
| Future policy benefits | |
| Future policy benefits | Future policy benefits | | $ | (3,471) | | | | $ | (4,735) | | | $ | 253 | | | $ | (877) | | |
| Policyholder account balances | Policyholder account balances | | $ | (1,080) | | | | $ | — | | | $ | 27 | | | $ | — | | |
| Policyholder account balances | |
| Policyholder account balances | |
__________________
(1)Includes ($136)113) million and ($161)136) million of hedging adjustments on discontinued hedging relationships at December 31, 20222023 and 2021,2022, respectively.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; and (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed rate investments.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into income. These amounts were $23 million, $25 million, $6 million, and $45$6 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
At December 31, 20222023 and 2021,2022, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed sixfive years and sevensix years, respectively.
At December 31, 20222023 and 2021,2022, the balance in AOCI associated with cash flow hedges was $2.0 billion$894 million and $2.4$2.0 billion, respectively.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2022,2023, the Company expected to reclassify $129$210 million of deferred net gains (losses) on derivatives in AOCI to earnings within the next 12 months.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the effects of derivatives on the consolidated statements of operations and comprehensive income (loss) table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps.
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
| | December 31, |
| 2022 | | 2021 |
| | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
Rating Agency Designation of Referenced
Credit Obligations (1) | Rating Agency Designation of Referenced
Credit Obligations (1) | | Estimated
Fair Value
of Credit
Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps | | Weighted
Average
Years to
Maturity (2) | | Estimated
Fair Value
of Credit
Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps | | Weighted
Average
Years to
Maturity (2) | Rating Agency Designation of Referenced
Credit Obligations (1) | | Estimated
Fair Value
of Credit
Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps | | Weighted
Average
Years to
Maturity (2) | | Estimated
Fair Value
of Credit
Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps | | Weighted
Average
Years to
Maturity (2) |
| | (Dollars in millions) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Aaa/Aa/A | Aaa/Aa/A | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | Single name credit default swaps (3) | | $ | 1 | | | $ | 10 | | | 1.5 | | $ | — | | | $ | 10 | | | 2.5 | | $ | — | | | $ | | $ | 10 | | | 0.5 | | 0.5 | | $ | 1 | | | $ | | $ | 10 | | | 1.5 | | 1.5 |
| Credit default swaps referencing indices | Credit default swaps referencing indices | | 79 | | | 4,251 | | | 3.4 | | 17 | | | 1,191 | | | 2.5 | Credit default swaps referencing indices | | 80 | | | 3,831 | | 3,831 | | | 2.7 | | 2.7 | | 79 | | | 4,251 | | 4,251 | | | 3.4 | | 3.4 |
| Subtotal | Subtotal | | 80 | | | 4,261 | | | 3.4 | | 17 | | | 1,201 | | | 2.5 | Subtotal | | 80 | | | 3,841 | | 3,841 | | | 2.7 | | 2.7 | | 80 | | | 4,261 | | 4,261 | | | 3.4 | | 3.4 |
| Baa | Baa | | | | | | | | | |
| Single name credit default swaps (3) | Single name credit default swaps (3) | | — | | | 40 | | | 2.5 | | 1 | | | 60 | | | 3.3 |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | | | 1 | | | 55 | | | 2.3 | | — | | | 40 | | | 2.5 |
| Credit default swaps referencing indices | Credit default swaps referencing indices | | 13 | | | 4,598 | | | 5.9 | | 90 | | | 4,698 | | | 5.1 | Credit default swaps referencing indices | | 102 | | | 5,982 | | 5,982 | | | 5.6 | | 5.6 | | 13 | | | 4,598 | | 4,598 | | | 5.9 | | 5.9 |
| Subtotal | Subtotal | | 13 | | | 4,638 | | | 5.8 | | 91 | | | 4,758 | | | 5.1 | Subtotal | | 103 | | | 6,037 | | 6,037 | | | 5.5 | | 5.5 | | 13 | | | 4,638 | | 4,638 | | | 5.8 | | 5.8 |
| Ba | Ba | | | | | | | | | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | Single name credit default swaps (3) | | 1 | | | 45 | | | 0.7 | | 1 | | | 65 | | | 0.5 | | — | | | — | | — | | | 0.0 | | 0.0 | | 1 | | | 45 | | 45 | | | 0.7 | | 0.7 |
| Credit default swaps referencing indices | Credit default swaps referencing indices | | 2 | | | 25 | | | 4.0 | | (1) | | | 20 | | | 5.0 | Credit default swaps referencing indices | | 2 | | | 25 | | 25 | | | 3.0 | | 3.0 | | 2 | | | 25 | | 25 | | | 4.0 | | 4.0 |
| Subtotal | Subtotal | | 3 | | | 70 | | | 1.9 | | — | | | 85 | | | 1.5 | Subtotal | | 2 | | | 25 | | 25 | | | 3.0 | | 3.0 | | 3 | | | 70 | | 70 | | | 1.9 | | 1.9 |
| B | B | | | | | | | | | |
| Credit default swaps referencing indices | Credit default swaps referencing indices | | 1 | | | 75 | | | 4.5 | | — | | | — | | | — | |
| Credit default swaps referencing indices | |
| Credit default swaps referencing indices | | | 1 | | | 74 | | | 5.0 | | 1 | | | 75 | | | 4.5 |
| Subtotal | Subtotal | | 1 | | 75 | | 4.5 | | — | | | — | | | — | | Subtotal | | 1 | | 74 | | 5.0 | | 1 | | 75 | | 4.5 |
| Caa | Caa | | | | | | | | | |
| | Credit default swaps referencing indices | Credit default swaps referencing indices | | (10) | | | 30 | | | 3.5 | | (9) | | | 30 | | | 4.5 |
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | | | (4) | | | 30 | | | 2.5 | | (10) | | | 30 | | | 3.5 |
| Subtotal | Subtotal | | (10) | | | 30 | | | 3.5 | | (9) | | | 30 | | | 4.5 | Subtotal | | (4) | | | 30 | | 30 | | | 2.5 | | 2.5 | | (10) | | | 30 | | 30 | | | 3.5 | | 3.5 |
| Total | Total | | $ | 87 | | | $ | 9,074 | | | 4.6 | | $ | 99 | | | $ | 6,074 | | | 4.6 | Total | | $ | 182 | | | $ | | $ | 10,007 | | | 4.4 | | 4.4 | | $ | 87 | | | $ | | $ | 9,074 | | | 4.6 | | 4.6 |
__________________
(1)The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2)The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
(3)Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or municipals.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.
The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties in jurisdictions in which it understands that close-out netting should be enforceable and establishing and monitoring exposure limits. The Company’s OTC-bilateral derivative transactions are governed by International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, close-out netting permits the Company (subject to financial regulations such as the Orderly Liquidation Authority under Title II of Dodd-Frank) to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions and to apply collateral to the obligations without application of the automatic stay, upon the counterparty’s bankruptcy. All of the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its OTC-bilateral derivatives as required by applicable law. Additionally, effective September 1, 2021, the Company is required to pledge initial margin for certain new OTC-bilateral derivative transactions to third partythird-party custodians.
The Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by brokers and central clearinghouses to such derivatives.
See Note 912 for a description of the impact of credit risk on the valuation of derivatives.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
| | December 31, |
| 2022 | | 2021 |
| | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement | Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement | | Assets | | Liabilities | | Assets | | Liabilities | Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement | | Assets | | Liabilities | | Assets | | Liabilities |
| | (In millions) |
| | (In millions) | | | | (In millions) |
| Gross estimated fair value of derivatives: | Gross estimated fair value of derivatives: | |
| OTC-bilateral (1) | |
| OTC-bilateral (1) | |
| OTC-bilateral (1) | OTC-bilateral (1) | | $ | 8,456 | | | $ | 3,499 | | | $ | 8,602 | | | $ | 1,379 | |
| OTC-cleared (1) | OTC-cleared (1) | | 57 | | | 29 | | | 104 | | | 8 | |
| Exchange-traded | Exchange-traded | | 2 | | | 1 | | | 5 | | | — | |
| Total gross estimated fair value of derivatives presented on the consolidated balance sheets (1) | Total gross estimated fair value of derivatives presented on the consolidated balance sheets (1) | | 8,515 | | | 3,529 | | | 8,711 | | | 1,387 | |
| Gross amounts not offset on the consolidated balance sheets: | Gross amounts not offset on the consolidated balance sheets: | |
| Gross estimated fair value of derivatives: (2) | Gross estimated fair value of derivatives: (2) | |
| Gross estimated fair value of derivatives: (2) | |
| Gross estimated fair value of derivatives: (2) | |
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-bilateral | OTC-bilateral | | (3,317) | | | (3,317) | | | (1,364) | | | (1,364) | |
| OTC-cleared | OTC-cleared | | (14) | | | (14) | | | (3) | | | (3) | |
| Cash collateral: (3), (4) | Cash collateral: (3), (4) | |
| OTC-bilateral | OTC-bilateral | | (4,044) | | | — | | | (6,414) | | | — | |
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-cleared | OTC-cleared | | (18) | | | (1) | | | (91) | | | — | |
| Securities collateral: (5) | Securities collateral: (5) | |
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-bilateral | OTC-bilateral | | (1,078) | | | (182) | | | (767) | | | (14) | |
| OTC-cleared | OTC-cleared | | — | | | (14) | | | — | | | (5) | |
| Exchange-traded | Exchange-traded | | — | | | (1) | | | — | | | — | |
| Net amount after application of master netting agreements and collateral | Net amount after application of master netting agreements and collateral | | $ | 44 | | | $ | — | | | $ | 72 | | | $ | 1 | |
__________________
(1)At December 31, 20222023 and 2021,2022, derivative assets included income (expense) accruals reported in accrued investment income or in other liabilities of $119$143 million and $93$119 million, respectively, and derivative liabilities included (income) expense accruals reported in accrued investment income or in other liabilities of $0$8 million and ($22) million,$0, respectively.
(2)Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
(3)Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives, where the centralizedcentral clearinghouse treats variation margin as collateral, is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.
(4)The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 20222023 and 2021,2022, the Company received excess cash collateral of $210$154 million and $60$210 million, respectively, and provided excess cash collateral of $4 million and $1 million, and $0, respectively.respectively, which are not included in the table above due to the foregoing limitation.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
(5)Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2022,2023, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At December 31, 20222023 and 2021,2022, the Company received excess securities collateral with an estimated fair value of $366$286 million and $47$366 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 20222023 and 2021,2022, the Company provided excess securities collateral with an estimated fair value of $934 million$1.1 billion and $95$934 million, respectively, for its OTC-bilateral derivatives, $442$495 million and $584$442 million, respectively, for its OTC-cleared derivatives, and $96$56 million and $106$96 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. All of the Company’s netting agreements for derivatives contain provisions that require both Metropolitan Life Insurance Company and the counterparty to maintain a specific investment grade financial strength or credit rating from each of Moody’s and S&P. If a party’s financial strength or credit rating were to fall below that specific investment grade financial strength or credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives.
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged.
| | December 31, |
| 2022 | | | 2021 | |
| Derivatives Subject to Financial
Strength-Contingent Provisions | |
| (In millions) |
| | December 31, | |
| | December 31, | |
| | December 31, | |
| | 2023 | |
| | Derivatives Subject to Financial Strength-Contingent Provisions | |
| | Derivatives Subject to Financial Strength-Contingent Provisions | |
| | Derivatives Subject to Financial Strength-Contingent Provisions | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
| Estimated fair value of derivatives in a net liability position (1) | Estimated fair value of derivatives in a net liability position (1) | | $ | 182 | | | | $ | 15 | | |
| Estimated fair value of collateral provided: | Estimated fair value of collateral provided: | | | | |
| Estimated fair value of collateral provided: | |
| Estimated fair value of collateral provided: | |
| Fixed maturity securities AFS | Fixed maturity securities AFS | | $ | 221 | | | | $ | 17 | | |
| | Fixed maturity securities AFS | |
| Fixed maturity securities AFS | |
__________________
(1)After taking into consideration the existence of netting agreements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
8.11. Derivatives (continued)
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives.
The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:
| | December 31, |
| Balance Sheet Location | | 2022 | | 2021 |
| | | (In millions) |
| | | December 31, | | | | | December 31, |
| Balance Sheet Location | | | Balance Sheet Location | | 2023 | | 2022 |
| | | (In millions) | | | | | (In millions) |
| Embedded derivatives within asset host contracts: | Embedded derivatives within asset host contracts: | |
| Assumed on affiliated reinsurance | Assumed on affiliated reinsurance | Other invested assets | | $ | 149 | | | $ | — | |
| Assumed on affiliated reinsurance | |
| Assumed on affiliated reinsurance | |
| Funds withheld on affiliated reinsurance | |
| Total | |
| Embedded derivatives within liability host contracts: | Embedded derivatives within liability host contracts: | | | | |
| Direct guaranteed minimum benefits | Policyholder account balances | | $ | 444 | | | $ | 257 | |
| Assumed guaranteed minimum benefits | Policyholder account balances | | 5 | | | 5 | |
| Funds withheld on ceded reinsurance (including affiliated) | Other liabilities | | (450) | | | 1,072 | |
| | Assumed on affiliated reinsurance | |
| | Assumed on affiliated reinsurance | |
| | Assumed on affiliated reinsurance | |
| Funds withheld on affiliated reinsurance | |
| Fixed annuities with equity indexed returns | Fixed annuities with equity indexed returns | Policyholder account balances | | 141 | | | 165 | |
| | Total | Total | | $ | 140 | | | $ | 1,499 | |
| Total | |
| Total | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value
When developing estimated fair values, the Company considers three broad valuation approaches: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation approach to use, given what is being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows:
| | | | | |
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities AFS. |
| | | | | |
| Level 2 | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. |
| | | | | |
| Level 3 | Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. |
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. The Company’s ability to sell securities, as well as the price ultimately realized for these securities, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities.
Considerable judgment is often required in interpreting the market data used to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:
| | December 31, 2022 |
| Fair Value Hierarchy | |
| Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| (In millions) |
| December 31, 2023 | | | December 31, 2023 |
| Fair Value Hierarchy | |
| Level 1 | |
| Level 1 | |
| Level 1 | | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| (In millions) | | | (In millions) |
| Assets | Assets | |
| Fixed maturity securities AFS: | Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | U.S. corporate | $ | — | | | $ | 43,147 | | | $ | 7,943 | | | $ | 51,090 | |
| Foreign corporate | Foreign corporate | — | | | 17,203 | | | 6,790 | | | 23,993 | |
| U.S. government and agency | U.S. government and agency | 9,126 | | | 13,232 | | | — | | | 22,358 | |
| RMBS | RMBS | 4 | | | 17,804 | | | 1,525 | | | 19,333 | |
| ABS & CLO | ABS & CLO | — | | | 10,329 | | | 1,507 | | | 11,836 | |
| Municipals | Municipals | — | | | 7,464 | | | — | | | 7,464 | |
| CMBS | CMBS | — | | | 5,702 | | | 341 | | | 6,043 | |
| Foreign government | Foreign government | — | | | 3,444 | | | 15 | | | 3,459 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | 9,130 | | | 118,325 | | | 18,121 | | | 145,576 | |
| | Short-term investments | Short-term investments | 2,677 | | | 35 | | | 47 | | | 2,759 | |
| Residential mortgage loans — FVO | — | | | — | | | — | | | — | |
| Short-term investments | |
| Short-term investments | |
| Other investments | Other investments | 246 | | | 212 | | | 1,022 | | | 1,480 | |
| Derivative assets: (1) | Derivative assets: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | Interest rate | — | | | 4,390 | | | — | | | 4,390 | |
| Foreign currency exchange rate | Foreign currency exchange rate | — | | | 3,263 | | | — | | | 3,263 | |
| Credit | Credit | — | | | 47 | | | 82 | | | 129 | |
| Equity market | Equity market | 2 | | | 605 | | | 7 | | | 614 | |
| Total derivative assets | Total derivative assets | 2 | | | 8,305 | | | 89 | | | 8,396 | |
| Embedded derivatives within asset host contracts (4) | Embedded derivatives within asset host contracts (4) | — | | | — | | | 149 | | | 149 | |
| Market risk benefits | |
| Separate account assets (2) | Separate account assets (2) | 16,206 | | | 72,022 | | | 1,013 | | | 89,241 | |
| Total assets (3) | Total assets (3) | $ | 28,261 | | | $ | 198,899 | | | $ | 20,441 | | | $ | 247,601 | |
| Liabilities | Liabilities | | | | | | | |
| Derivative liabilities: (1) | Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | Interest rate | $ | 1 | | | $ | 1,421 | | | $ | 405 | | | $ | 1,827 | |
| Foreign currency exchange rate | Foreign currency exchange rate | — | | | 1,394 | | | — | | | 1,394 | |
| Credit | Credit | — | | | 11 | | | 15 | | | 26 | |
| Equity market | Equity market | — | | | 282 | | | — | | | 282 | |
| Total derivative liabilities | Total derivative liabilities | 1 | | | 3,108 | | | 420 | | | 3,529 | |
| Embedded derivatives within liability host contracts (4) | Embedded derivatives within liability host contracts (4) | — | | | — | | | 140 | | | 140 | |
| | Market risk benefits | |
| Separate account liabilities (2) | Separate account liabilities (2) | 8 | | | 15 | | | 18 | | | 41 | |
| Total liabilities | Total liabilities | $ | 9 | | | $ | 3,123 | | | $ | 578 | | | $ | 3,710 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
| | December 31, 2021 |
| Fair Value Hierarchy | |
| Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| (In millions) |
| December 31, 2022 | | | December 31, 2022 |
| Fair Value Hierarchy | |
| Level 1 | |
| Level 1 | |
| Level 1 | | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| (In millions) | | | (In millions) |
| Assets | Assets | |
| Fixed maturity securities AFS: | Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | U.S. corporate | $ | — | | | $ | 51,290 | | | $ | 7,112 | | | $ | 58,402 | |
| Foreign corporate | Foreign corporate | — | | | 21,862 | | | 7,823 | | | 29,685 | |
| U.S. government and agency | U.S. government and agency | 15,041 | | | 16,181 | | | — | | | 31,222 | |
| RMBS | RMBS | 7 | | | 20,333 | | | 2,805 | | | 23,145 | |
| ABS & CLO | ABS & CLO | — | | | 11,455 | | | 1,424 | | | 12,879 | |
| Municipals | Municipals | — | | | 8,728 | | | — | | | 8,728 | |
| CMBS | CMBS | — | | | 6,507 | | | 371 | | | 6,878 | |
| Foreign government | Foreign government | — | | | 4,934 | | | 12 | | | 4,946 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | 15,048 | | | 141,290 | | | 19,547 | | | 175,885 | |
| | Short-term investments | Short-term investments | 4,187 | | | 677 | | | 2 | | | 4,866 | |
| Residential mortgage loans — FVO | — | | | — | | | 127 | | | 127 | |
| Short-term investments | |
| Short-term investments | |
| Other investments | Other investments | 328 | | | 192 | | | 894 | | | 1,414 | |
| Derivative assets: (1) | Derivative assets: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | Interest rate | — | | | 5,982 | | | 95 | | | 6,077 | |
| Foreign currency exchange rate | Foreign currency exchange rate | — | | | 1,676 | | | — | | | 1,676 | |
| Credit | Credit | — | | | 106 | | | 17 | | | 123 | |
| Equity market | Equity market | 5 | | | 730 | | | 7 | | | 742 | |
| Total derivative assets | Total derivative assets | 5 | | | 8,494 | | | 119 | | | 8,618 | |
| Embedded derivatives within asset host contracts (4) | Embedded derivatives within asset host contracts (4) | — | | | — | | | — | | | — | |
| Market risk benefits | |
| Separate account assets (2) | Separate account assets (2) | 28,231 | | | 93,656 | | | 1,964 | | | 123,851 | |
| Total assets (3) | Total assets (3) | $ | 47,799 | | | $ | 244,309 | | | $ | 22,653 | | | $ | 314,761 | |
| Liabilities | Liabilities | | | | | | | |
| Derivative liabilities: (1) | Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | Interest rate | $ | — | | | $ | 70 | | | $ | 21 | | | $ | 91 | |
| Foreign currency exchange rate | Foreign currency exchange rate | — | | | 1,076 | | | — | | | 1,076 | |
| Credit | Credit | — | | | 8 | | | 12 | | | 20 | |
| Equity market | Equity market | — | | | 222 | | | — | | | 222 | |
| Total derivative liabilities | Total derivative liabilities | — | | | 1,376 | | | 33 | | | 1,409 | |
| Embedded derivatives within liability host contracts (4) | Embedded derivatives within liability host contracts (4) | — | | | — | | | 1,499 | | | 1,499 | |
| | Market risk benefits | |
| Separate account liabilities (2) | Separate account liabilities (2) | 7 | | | 12 | | | 6 | | | 25 | |
| Total liabilities | Total liabilities | $ | 7 | | | $ | 1,388 | | | $ | 1,538 | | | $ | 2,933 | |
__________________
(1)Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.
(2)Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets. Separate account liabilities presented in the tables above represent derivative liabilities.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
(3)Total assets included in the fair value hierarchy exclude other limited partnership interestsOLPI that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient. At December 31, 20222023 and 2021,2022, the estimated fair value of such investments was $61$48 million and $9561 million, respectively.
(4)Embedded derivatives within asset host contracts are presented within other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balancesPABs and other liabilities on the consolidated balance sheets.
The following describes the valuation methodologies used to measure assets and liabilities at fair value.
Investments
Securities, Short-term Investments and Other Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management’s judgment.
When quoted prices in active markets are not available, the determination of estimated fair value of securities is based on market standard valuation methodologies, giving priority to observable inputs. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. When observable inputs are not available, the market standard valuation methodologies rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs can be based, in large part, on management’s judgment or estimation and cannot be supported by reference to market activity. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such investments.
The estimated fair value of short-term investments and other investments is determined on a basis consistent with the methodologies described herein.
The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below. The primary valuation approaches are the market approach, which considers recent prices from market transactions involving identical or similar assets or liabilities, and the income approach, which converts expected future amounts (e.g., cash flows) to a single current, discounted amount. The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable inputs.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
| | | | | | | | | | | | | | | | | |
| Instrument | | Level 2 Observable Inputs | Level 3 Unobservable Inputs |
| Fixed maturity securities AFS |
| U.S. corporate and Foreign corporate securities |
| Valuation Approaches: Principally the market and income approaches. | Valuation Approaches: Principally the market approach. |
| Key Inputs: | Key Inputs: |
| • | quoted prices in markets that are not active | • | illiquidity premium |
| • | benchmark yields; spreads off benchmark yields; new issuances; issuer ratings | • | delta spread adjustments to reflect specific credit-related issues |
| • | trades of identical or comparable securities; duration | • | credit spreads |
| • | privately-placed securities are valued using the additional key inputs: | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| | • | market yield curve; call provisions | |
| | • | observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer | •
| independent non-binding broker quotations |
| | • | delta spread adjustments to reflect specific credit-related issues | | |
| U.S. government and agency securities, Municipals and Foreign government securities |
| Valuation Approaches: Principally the market approach. | Valuation Approaches: Principally the market approach. |
| Key Inputs: | Key Inputs: |
| • | quoted prices in markets that are not active | • | independent non-binding broker quotations |
| • | benchmark U.S. Treasury yield or other yields | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| • | the spread off the U.S. Treasury yield curve for the identical security | |
| • | issuer ratings and issuer spreads; broker-dealer quotations | • | credit spreads |
| • | comparable securities that are actively traded | | |
| Structured Products |
| Valuation Approaches: Principally the market and income approaches. | Valuation Approaches: Principally the market and income approaches. |
| Key Inputs: | Key Inputs: |
| • | quoted prices in markets that are not active | • | credit spreads |
| • | spreads for actively traded securities; spreads off benchmark yields | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| • | expected prepayment speeds and volumes | |
| • | current and forecasted loss severity; ratings; geographic region | • | independent non-binding broker quotations |
| • | weighted average coupon and weighted average maturity | • | credit ratings |
| • | average delinquency rates; DSCR | | |
| • | credit ratings | | |
| • | issuance-specific information, including, but not limited to: | | |
| | • | collateral type; structure of the security; vintage of the loans | | |
| | • | payment terms of the underlying assets | | |
| | • | payment priority within the tranche; deal performance | | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
| | | | | | | | | | | | | | | | | |
| Instrument | Level 2 Observable Inputs | Level 3 Unobservable Inputs |
| Short-term investments and Other investments |
| • | Certain short-term investments and certain other investments are of a similar nature and class to the fixed maturity securities AFS described above; while certain other investments are similar to equity securities. The valuation approaches and observable inputs used in their valuation are also similar to those described above. Other investments contain equity securities valued using quoted prices in markets that are not considered active. | • | Certain short-term investments and certain other investments are of a similar nature and class to the fixed maturity securities AFS described above, while certain other investments are similar to equity securities. The valuation approaches and unobservable inputs used in their valuation are also similar to those described above. Other investments contain equity securities that use key unobservable inputs such as credit ratings; issuance structures, in addition to those described above for fixed maturities AFS. Other investments also include certain real estate joint venturesREJV and use the valuation approach and key inputs as described for other limited partnership interestsOLPI below. |
| Residential mortgage loans — FVO
| | • | N/A | Valuation Approaches: Principally the market approach.
| | | | |
| | | | | Valuation Techniques and Key Inputs: These investments are based primarily on matrix pricing or other similar techniques that utilize inputs from mortgage servicers that are unobservable or cannot be derived principally from, or corroborated by, observable market data.
| Separate account assets and Separate account liabilities (1) |
| Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly |
| Key Input: | • | N/A |
| • | quoted prices or reported NAV provided by the fund managers | | |
| OLPI |
| Other limited partnership interests
| •
| N/A | Valued giving consideration to the underlying holdings of the partnerships and adjusting, if appropriate. |
| | | Key Inputs: |
| | | • | liquidity; bid/ask spreads; performance record of the fund manager |
| | | • | other relevant variables that may impact the exit value of the particular partnership interest |
__________________
(1)Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, other limited partnership interests,OLPI, short-term investments and cash and cash equivalents. The estimated fair value of fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents is determined on a basis consistent with the assets described under “— Securities, Short-term Investments and Other Investments” and “— Derivatives — Freestanding Derivatives.”
Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models.
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. CertainWith respect to certain OTC-bilateral and OTC-cleared derivatives, management may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Unobservable inputs are based on management’s assumptions about the inputs market participants would use in pricing such derivatives.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
The credit risk of both the counterparty and the Company areis considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is, in part, due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Freestanding Derivatives
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2 measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data.
Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | Interest Rate | | Foreign Currency
Exchange Rate | | Credit | | Equity Market |
| Inputs common to Level 2 and Level 3 by instrument type | • | swap yield curves | • | swap yield curves | • | swap yield curves | • | swap yield curves |
| • | basis curves | • | basis curves | • | credit curves | • | spot equity index levels |
| • | interest rate volatility (1) | • | currency spot rates | • | recovery rates | • | dividend yield curves |
| | | •
| cross currency basis curves | | | •
| equity volatility (1) |
| | | | | | | | |
| Level 3 | • | swap yield curves (2) | • | swap yield curves (2) | • | swap yield curves (2) | • | dividend yield curves (2) |
| • | basis curves (2) | • | basis curves (2) | • | credit curves (2) | • | equity volatility (1), (2) |
| • | repurchase rates | • | cross currency basis curves (2) | • | credit spreads | • | correlation between model inputs (1) |
| • | interest rate volatility (1), (2) | • | currency correlation | • | repurchase rates | | |
| | | | | • | independent non-binding broker quotations | | |
__________________
(1)Option-based only.
(2)Extrapolation beyond the observable limits of the curve(s).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
Embedded Derivatives
Embedded derivatives principally include certain direct and assumed variable annuity guarantees, equity-indexed annuity contracts and investment risk within funds withheld related to certain reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The Company calculates the fair value of these embedded derivatives, which is estimated as the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, projecting future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance and experience refund related to certain assumed reinsurance is determined based on the change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the reinsurance liability. The estimated fair value of the underlying assets is determined as described in “— Investments — Securities, Short-term Investments and Other Investments.” The estimated fair value of these embedded derivatives is included, along with their underlying hosts,host contracts, in other liabilities and other invested assets on the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses). Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
The Company issues certain annuity contracts which allow the policyholder to participate in returns from equity indices. These equity indexed features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9. Fair Value (continued)
The estimated fair value of the embedded equity indexed derivatives, based on the present value of future equity returns to the policyholder using actuarial and present value assumptions including expectations concerning policyholder behavior, is calculated by the Company’s actuarial department. The calculation is based on in-force business and uses standard capital market techniques, such as Black-Scholes, to calculate the value of the portion of the embedded derivative for which the terms are set. The portion of the embedded derivative covering the period beyond where terms are set is calculated as the present value of amounts expected to be spent to provide equity indexed returns in those periods. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.
Embedded Derivatives Within AssetMarket Risk Benefits
See Note 5 for information on the Company’s valuation approaches and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which utilize significantkey inputs that may include swap yield curves, currency exchange rates and implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield curves and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Embedded derivatives within funds withheld related to certain ceded reinsurance
These embedded derivatives are principally valued using the income approach. The valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curves and the fair value of assets within the reference portfolio. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include the fair value of certain assets within the reference portfolio which are not observable in the market and cannot be derived principally from, or corroborated by, observable market data.MRBs.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity.
Transfers into or out of Level 3:
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
| | December 31, 2022 | | December 31, 2021 | | Impact of
Increase in Input
on Estimated
Fair Value (2) |
| Valuation Techniques | | Significant
Unobservable Inputs | | Range | | Weighted
Average (1) | | Range | | Weighted
Average (1) | |
| | | | | | | December 31, 2023 | | | | | | | | | December 31, 2023 | | December 31, 2022 | | Impact of
Increase in Input
on Estimated
Fair Value (2) |
| Valuation Techniques | |
| Fixed maturity securities AFS (3) | |
| Fixed maturity securities AFS (3) | |
| Fixed maturity securities AFS (3) | Fixed maturity securities AFS (3) | | | | | | | | | | | | |
| U.S. corporate and foreign corporate | U.S. corporate and foreign corporate | • | Matrix pricing | | • | Offered quotes (4) | | — | - | 126 | | 89 | | 1 | - | 165 | | 110 | | Increase |
| • | Market pricing | | • | Quoted prices (4) | | 20 | - | 107 | | 92 | | — | - | 117 | | 101 | | Increase |
| U.S. corporate and foreign corporate | |
| U.S. corporate and foreign corporate | | • | Matrix pricing | | • | Offered quotes (4) | | 4 | - | 131 | | 95 | | — | - | 126 | | 89 | | Increase |
| • | | | • | Market pricing | | • | Quoted prices (4) | | — | - | 110 | | 93 | | 20 | - | 107 | | 92 | | Increase |
| RMBS | RMBS | • | Market pricing | | • | Quoted prices (4) | | — | - | 106 | | 93 | | — | - | 121 | | 99 | | Increase (5) | RMBS | • | Market pricing | | • | Quoted prices (4) | | — | - | 112 | | 93 | | — | - | 106 | | 93 | | Increase (5) |
| ABS & CLO | ABS & CLO | • | Market pricing | | • | Quoted prices (4) | | 74 | - | 101 | | 91 | | 91 | - | 110 | | 102 | | Increase (5) | ABS & CLO | • | Market pricing | | • | Quoted prices (4) | | 78 | - | 101 | | 94 | | 74 | - | 101 | | 91 | | Increase (5) |
| Derivatives | Derivatives | |
| Interest rate | Interest rate | • | Present value techniques | | • | Swap yield (6) | | 372 | - | 392 | | 381 | | 151 | - | 200 | | 188 | | Increase (7) |
| | Interest rate | |
| Interest rate | | • | Present value techniques | | • | Swap yield (6) | | 367 | - | 399 | | 385 | | 372 | - | 392 | | 381 | | Increase (7) |
| | • | Volatility (8) | | —% | - | —% | | —% | | 1% | - | 1% | | 1% | | Increase (7) |
| | Credit | Credit | • | Present value techniques | | • | Credit spreads (9) | | 84 | - | 138 | | 101 | | 96 | - | 133 | | 109 | | Decrease (7) |
| | • | Consensus pricing | | • | Offered quotes (10) | |
| Credit | |
| | Credit | | • | Present value techniques | | • | Credit spreads (8) | | — | - | — | | — | | 84 | - | 138 | | 101 | | Decrease (7) |
| • | |
| | Embedded derivatives | |
| Direct and assumed guaranteed minimum benefits | • | Option pricing techniques | | • | Mortality rates: | |
| Market Risk Benefits | |
| | Ages 0 - 40 | | 0.01% | - | 0.08% | | 0.05% | | 0.01% | - | 0.12% | | 0.08% | | Decrease (11) |
| | Ages 41 - 60 | | 0.05% | - | 0.43% | | 0.20% | | 0.05% | - | 0.65% | | 0.27% | | Decrease (11) |
| Market Risk Benefits | |
| | Ages 61 - 115 | | 0.34% | - | 100% | | 1.44% | | 0.32% | - | 100% | | 2.08% | | Decrease (11) |
| | • | Lapse rates: | |
| Durations 1 - 10 | | 0.50% | - | 37.50% | | 8.96% | | 0.25% | - | 100% | | 6.30% | | Decrease (12) |
| Durations 11 - 20 | | 0.70% | - | 35.75% | | 6.52% | | 0.70% | - | 100% | | 5.22% | | Decrease (12) |
| Durations 21 - 116 | | 1.60% | - | 35.75% | | 2.89% | | 1.60% | - | 100% | | 5.22% | | Decrease (12) |
| • | Utilization rates | | 0.20% | - | 22% | | 0.38% | | 0% | - | 22% | | 0.22% | | Increase (13) |
| • | Withdrawal rates | | 0.25% | - | 10% | | 4.02% | | 0.25% | - | 10% | | 3.72% | | (14) |
| • | Long-term equity volatilities | | 16.46% | - | 22.01% | | 18.49% | | 16.44% | - | 22.16% | | 18.60% | | Increase (15) |
| • | Nonperformance risk spread | | 0.34% | - | 0.74% | | 0.75% | | 0.04% | - | 0.40% | | 0.35% | | Decrease (16) |
| Market Risk Benefits | |
| Direct and assumed guaranteed minimum benefits | |
| Direct and assumed guaranteed minimum benefits | |
| Direct and assumed guaranteed minimum benefits | |
| | | | | Ages 0 - 40 | |
| | | | | Ages 0 - 40 | |
| | | | | Ages 0 - 40 | | | 0.01% | - | 0.13% | | 0.05% | | 0.01% | - | 0.08% | | 0.05% | | (10) |
| | | | | Ages 41 - 60 | | | | | | | Ages 41 - 60 | | 0.05% | - | 0.67% | | 0.22% | | 0.05% | - | 0.43% | | 0.20% | | (10) |
| | | | | Ages 61 - 115 | | | | | | | Ages 61 - 115 | | 0.35% | - | 100% | | 1.23% | | 0.34% | - | 100% | | 1.44% | | (10) |
| | | | • | |
| | | | | Durations 1 - 10 | |
| | | | | Durations 1 - 10 | |
| | | | | Durations 1 - 10 | | | 0.80% | - | 20.10% | | 8.72% | | 0.50% | - | 37.50% | | 8.96% | | Decrease (11) |
| | | | | Durations 11 - 20 | | | | | | | Durations 11 - 20 | | 3.10% | - | 10.10% | | 4.34% | | 0.70% | - | 35.75% | | 6.52% | | Decrease (11) |
| | | | | Durations 21 - 116 | | | | | | | Durations 21 - 116 | | 0.10% | - | 10.10% | | 4.59% | | 1.60% | - | 35.75% | | 2.89% | | Decrease (11) |
| | | | • | | | | | | • | Utilization rates | | 0.20% | - | 22% | | 0.44% | | 0.20% | - | 22% | | 0.38% | | Increase (12) |
| | | | • | | | | | | • | Withdrawal rates | | 0.25% | - | 7.75% | | 4.47% | | 0.25% | - | 10% | | 4.02% | | (13) |
| | | | • | | | | | | • | Long-term equity volatilities | | 16.37% | - | 21.85% | | 18.55% | | 16.46% | - | 22.01% | | 18.49% | | Increase (14) |
| | | | • | | | | | | • | Nonperformance risk spread | | 0.38% | - | 0.70% | | 0.73% | | 0.34% | - | 0.74% | | 0.75% | | Decrease (15) |
__________________
(1)The weighted average for fixed maturity securities AFS and derivatives is determined based on the estimated fair value of the securities and derivatives. The weighted average for embedded derivativesMRBs is determined based on a combination of account values and experience data.
(2)The impact of a decrease in input would have resulted in the opposite impact on estimated fair value. For embedded derivatives,MRBs, changes to direct and assumed guaranteed minimum benefits are based on liability positions.
(3)Significant increases (decreases) in expected default rates in isolation would have resulted in substantially lower (higher) valuations.
(4)Range and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars of par.
(5)Changes in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
(6)Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
(7)Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
(8)Ranges represent the underlying interest rate volatility quoted in percentage points. Since this valuation methodology uses an equivalent of LIBOR for secured overnight financing rate volatility, presenting a range is more representative of the unobservable input used in the valuation.
(9)Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps.
(10)(9)At both December 31, 20222023 and 2021,2022, independent non-binding broker quotations were used in the determination of less than 1% or lessand 1%, respectively, of the total net derivative estimated fair value.
(11)(10)Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.MRBs. For contracts that contain only a GMDB, any increase (decrease) in mortality rates result in an increase (decrease) in the estimated fair value of MRBs. Generally, for contracts that contain both a GMDB and a living benefit (e.g., GMIB, GMWB, GMAB), any increase (decrease) in mortality rates result in a decrease (increase) in the estimated fair value of MRBs.
(12)(11)Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.MRBs.
(13)(12)The utilization rate assumption estimates the percentage of contractholders with GMIBs or a lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.MRBs.
(14)(13)The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.MRB. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(15)(14)Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.MRBs.
(16)(15)Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.MRBs.
All other classes of securities classified within Level 3, including those within otherOther investments, separateSeparate account assets, and embeddedEmbedded derivatives within funds withheld related to certain ceded reinsurance, use the same valuation techniques and significant unobservable inputs as previously described for Level 3 securities. Generally, all other classes of assets and liabilities classified within Level 3 that are not included above use the same valuation techniques and significant unobservable inputs as previously described for Level 3. The sensitivity of the estimated fair value to changes in the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in the preceding table. The valuation techniques and significant unobservable inputs used in the fair value measurement for the more significant assets measured at estimated fair value on a nonrecurring basis and determined using significant unobservable inputs (Level 3) are summarized in “— Nonrecurring Fair Value Measurements.”
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
The following tables summarize the change of all assets (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | Fixed Maturity Securities AFS | | |
| | | | Corporate (6) | | | Structured Products | | | Foreign
Government | | | Short-term Investments | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | (In millions) |
| Balance, January 1, 2021 | | $ | 14,873 | | | | $ | 4,465 | | | | $ | 5 | | | | $ | 1 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | (40) | | | | 45 | | | | — | | | | — | |
| Total realized/unrealized gains (losses) included in AOCI | | (745) | | | | 8 | | | | (1) | | | | — | |
| Purchases (3) | | 2,369 | | | | 1,247 | | | | — | | | | 2 | |
| Sales (3) | | (1,211) | | | | (1,239) | | | | (2) | | | | — | |
| Issuances (3) | | — | | | | — | | | | — | | | | — | |
| Settlements (3) | | — | | | | — | | | | — | | | | — | |
| Transfers into Level 3 (4) | | 162 | | | | 332 | | | | 10 | | | | — | |
| Transfers out of Level 3 (4) | | (473) | | | | (258) | | | | — | | | | (1) | |
| Balance, December 31, 2021 | | 14,935 | | | | 4,600 | | | | 12 | | | | 2 | |
| | |
| | |
| | | | Corporate (6) | | | | Structured Products | | | | Foreign
Government | | | | Short-term Investments |
| | | | | (In millions) |
| Balance, January 1, 2022 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | (25) | | | | 38 | | | | (37) | | | | — | |
| Total realized/unrealized gains (losses) included in AOCI | Total realized/unrealized gains (losses) included in AOCI | | (3,334) | | | | (356) | | | | 6 | | | | — | |
| Purchases (3) | Purchases (3) | | 3,168 | | | | 750 | | | | — | | | | 47 | |
| Sales (3) | Sales (3) | | (1,231) | | | | (795) | | | | (2) | | | | (2) | |
| Issuances (3) | Issuances (3) | | — | | | | — | | | | — | | | | — | |
| Settlements (3) | Settlements (3) | | — | | | | — | | | | — | | | | — | |
| Transfers into Level 3 (4) | Transfers into Level 3 (4) | | 1,614 | | | | 204 | | | | 45 | | | | — | |
| Transfers out of Level 3 (4) | Transfers out of Level 3 (4) | | (394) | | | | (1,068) | | | | (9) | | | | — | |
| Balance, December 31, 2022 | Balance, December 31, 2022 | | $ | 14,733 | | | | $ | 3,373 | | | | $ | 15 | | | | $ | 47 | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2020: (5) | | $ | (53) | | | | $ | 52 | | | | $ | — | | | | $ | — | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Purchases (3) | |
| Sales (3) | |
| Issuances (3) | |
| Settlements (3) | |
| Transfers into Level 3 (4) | |
| Transfers out of Level 3 (4) | |
| Balance, December 31, 2023 | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | | $ | (7) | | | | $ | 41 | | | | $ | — | | | | $ | — | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | | $ | (21) | | | | $ | 32 | | | | $ | (37) | | | | $ | — | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2020: (5) | | $ | 963 | | | | $ | 22 | | | | $ | — | | | | $ | — | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2023: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | | $ | (731) | | | | $ | 10 | | | | $ | (1) | | | | $ | — | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | | $ | (3,326) | | | | $ | (341) | | | | $ | 7 | | | | $ | — | |
Gains (Losses) Data for the year ended December 31, 2020 | | | | | | | | | | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2023: (5) | |
Gains (Losses) Data for the year ended December 31, 2021 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | $ | (91) | | | | $ | 46 | | | | $ | — | | | | $ | — | |
Total realized/unrealized gains (losses) included in AOCI | Total realized/unrealized gains (losses) included in AOCI | | $ | 979 | | | | $ | 22 | | | | $ | — | | | | $ | — | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
| | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | Residential Mortgage
Loans - FVO | | Other Investments | | Net Derivatives (7) | | Net Embedded Derivatives (8) | | Separate
Accounts (9) | |
| | (In millions) | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Balance, January 1, 2021 | | $ | 165 | | | $ | 565 | | | $ | 452 | | | $ | (2,061) | | | $ | 939 | | |
| | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
| Balance, January 1, 2022 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | (5) | | | 183 | | | (69) | | | 733 | | | 8 | | |
| Total realized/unrealized gains (losses) included in AOCI | Total realized/unrealized gains (losses) included in AOCI | | — | | | — | | | (352) | | | — | | | — | | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Purchases (3) | |
| Purchases (3) | |
| Purchases (3) | Purchases (3) | | — | | | 139 | | | 28 | | | — | | | 1,044 | | |
| Sales (3) | Sales (3) | | (11) | | | (38) | | | — | | | — | | | (44) | | |
| Sales (3) | |
| Sales (3) | |
| Issuances (3) | |
| Issuances (3) | |
| Issuances (3) | Issuances (3) | | — | | | — | | | (13) | | | — | | | (2) | | |
| Settlements (3) | Settlements (3) | | (22) | | | — | | | 38 | | | (171) | | | 6 | | |
| Settlements (3) | |
| Settlements (3) | |
| Transfers into Level 3 (4) | |
| Transfers into Level 3 (4) | |
| Transfers into Level 3 (4) | Transfers into Level 3 (4) | | — | | | 74 | | | 1 | | | — | | | 10 | | |
| Transfers out of Level 3 (4) | Transfers out of Level 3 (4) | | — | | | (29) | | | 1 | | | — | | | (3) | | |
| Balance, December 31, 2021 | | 127 | | | 894 | | | 86 | | | (1,499) | | | 1,958 | | |
| Transfers out of Level 3 (4) | |
| Transfers out of Level 3 (4) | |
| Balance, December 31, 2022 | |
| Balance, December 31, 2022 | |
| Balance, December 31, 2022 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | (8) | | | (16) | | | (140) | | | 1,584 | | | 25 | | |
| Total realized/unrealized gains (losses) included in AOCI | Total realized/unrealized gains (losses) included in AOCI | | — | | | — | | | (547) | | | — | | | — | | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Purchases (3) | |
| Purchases (3) | |
| Purchases (3) | Purchases (3) | | — | | | 262 | | | 82 | | | — | | | 196 | | |
| Sales (3) | Sales (3) | | (108) | | | (19) | | | — | | | — | | | (1,164) | | |
| Sales (3) | |
| Sales (3) | |
| Issuances (3) | |
| Issuances (3) | |
| Issuances (3) | Issuances (3) | | — | | | — | | | (3) | | | — | | | (2) | | |
| Settlements (3) | Settlements (3) | | (11) | | | — | | | 191 | | | (76) | | | 4 | | |
| Settlements (3) | |
| Settlements (3) | |
| Transfers into Level 3 (4) | |
| Transfers into Level 3 (4) | |
| Transfers into Level 3 (4) | Transfers into Level 3 (4) | | — | | | 3 | | | — | | | — | | | 1 | | |
| Transfers out of Level 3 (4) | Transfers out of Level 3 (4) | | — | | | (102) | | | — | | | — | | | (23) | | |
| Balance, December 31, 2022 | | $ | — | | | $ | 1,022 | | | $ | (331) | | | $ | 9 | | | $ | 995 | | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2020: (5) | | $ | 3 | | | $ | 67 | | | $ | (76) | | | $ | (565) | | | $ | — | | |
| Transfers out of Level 3 (4) | |
| Transfers out of Level 3 (4) | |
| Balance, December 31, 2023 | |
| Balance, December 31, 2023 | |
| Balance, December 31, 2023 | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2021: (5) | | $ | (10) | | | $ | 170 | | | $ | (7) | | | $ | 735 | | | $ | — | | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | | $ | — | | | $ | (22) | | | $ | (17) | | | $ | 1,586 | | | $ | — | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2020: (5) | | $ | — | | | $ | — | | | $ | 579 | | | $ | — | | | $ | — | | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2022: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2023: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2023: (5) | |
| Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2023: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2021: (5) | | $ | — | | | $ | — | | | $ | (128) | | | $ | — | | | $ | — | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | | $ | — | | | $ | — | | | $ | (454) | | | $ | — | | | $ | — | | |
Gains (Losses) Data for the year ended December 31, 2020 | | | | | | | | | | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2022: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2023: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2023: (5) | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at December 31, 2023: (5) | |
Gains (Losses) Data for the year ended December 31, 2021 | |
Gains (Losses) Data for the year ended December 31, 2021 | |
Gains (Losses) Data for the year ended December 31, 2021 | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | |
Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | $ | 9 | | | $ | 73 | | | $ | 176 | | | $ | (557) | | | $ | — | | |
| Total realized/unrealized gains (losses) included in AOCI | Total realized/unrealized gains (losses) included in AOCI | | $ | — | | | $ | — | | | $ | 772 | | | $ | — | | | $ | — | | |
| Total realized/unrealized gains (losses) included in AOCI | |
| Total realized/unrealized gains (losses) included in AOCI | |
__________________
(1)Amortization of premium/accretion of discount is included within net investment income. Impairments and changes in ACL charged to net income (loss) on certain securities are included in net investment gains (losses), while changes in estimated fair value of residential mortgage loans — FVO are included in net investment income. Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
(2)Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
(3)Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.
(4)Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(5)Changes in unrealized gains (losses) included in net income (loss) and included in AOCI relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(6)Comprised of U.S. and foreign corporate securities.
(7)Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
(8)Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
(9)Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net income (loss). Separate account assets and liabilities are presented net for the purposes of the rollforward.
Fair Value Option
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The following table presents information for residential mortgage loans which are accounted for under the FVO and were initially measured at fair value.
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| (In millions) |
| Unpaid principal balance | $ | — | | | $ | 130 | |
| Difference between estimated fair value and unpaid principal balance | — | | | (3) | |
| Carrying value at estimated fair value | $ | — | | | $ | 127 | |
| Loans in nonaccrual status | $ | — | | | $ | 32 | |
| Loans more than 90 days past due | $ | — | | | $ | 14 | |
| Loans in nonaccrual status or more than 90 days past due, or both — difference between aggregate estimated fair value and unpaid principal balance | $ | — | | | $ | (7) | |
Nonrecurring Fair Value Measurements
The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods and still held at the reporting dates (for example, when there is evidence of impairment), using significant unobservable inputs (Level 3).
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (in millions) |
| Carrying value after measurement |
| Mortgage loans (1) | $ | 222 | | | $ | 266 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9. Fair Value (continued)
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (In millions) |
| Carrying value after measurement: |
| Mortgage loans (1) | $ | 295 | | | $ | 222 | |
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 | |
| (in millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | |
| (In millions) | |
| (In millions) | |
| (In millions) | |
| Realized gains (losses) net: | Realized gains (losses) net: | |
| Mortgage loans (1) | Mortgage loans (1) | $ | (13) | | | $ | (91) | | | $ | (110) | | |
| Mortgage loans (1) | |
| Mortgage loans (1) | |
__________________
(1)Estimated fair values forof impaired mortgage loans are based on estimated fair value of the underlying collateral.collateral or discounted cash flows. See Note 10.
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are not included in the three-level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The Company believes that due to the short-term nature of these excluded assets, which are primarily classified in Level 2, the estimated fair value approximates carrying value. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | | |
| Mortgage loans (1) | | $ | 62,570 | | | $ | — | | | $ | — | | | $ | 58,858 | | | $ | 58,858 | |
| Policy loans | | $ | 5,729 | | | $ | — | | | $ | — | | | $ | 6,143 | | | $ | 6,143 | |
| | | | | | | | | | |
| Other invested assets | | $ | 1,978 | | | $ | — | | | $ | 1,979 | | | $ | — | | | $ | 1,979 | |
| Premiums, reinsurance and other receivables | | $ | 12,036 | | | $ | — | | | $ | 454 | | | $ | 11,826 | | | $ | 12,280 | |
| Liabilities | | | | | | | | | | |
| Policyholder account balances | | $ | 81,618 | | | $ | — | | | $ | — | | | $ | 78,938 | | | $ | 78,938 | |
| Long-term debt | | $ | 1,676 | | | $ | — | | | $ | 1,758 | | | $ | — | | | $ | 1,758 | |
| Other liabilities | | $ | 12,546 | | | $ | — | | | $ | 671 | | | $ | 11,842 | | | $ | 12,513 | |
| Separate account liabilities | | $ | 38,391 | | | $ | — | | | $ | 38,391 | | | $ | — | | | $ | 38,391 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
9.12. Fair Value (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | | |
| Mortgage loans (1) | | $ | 60,092 | | | $ | — | | | $ | — | | | $ | 63,094 | | | $ | 63,094 | |
| Policy loans | | $ | 5,816 | | | $ | — | | | $ | — | | | $ | 6,710 | | | $ | 6,710 | |
| | | | | | | | | | |
| Other invested assets | | $ | 2,230 | | | $ | — | | | $ | 1,932 | | | $ | 356 | | | $ | 2,288 | |
| Premiums, reinsurance and other receivables | | $ | 12,101 | | | $ | — | | | $ | 156 | | | $ | 12,375 | | | $ | 12,531 | |
| Liabilities | | | | | | | | | | |
| Policyholder account balances | | $ | 76,387 | | | $ | — | | | $ | — | | | $ | 79,182 | | | $ | 79,182 | |
| Long-term debt | | $ | 1,659 | | | $ | — | | | $ | 2,000 | | | $ | — | | | $ | 2,000 | |
| Other liabilities | | $ | 12,357 | | | $ | — | | | $ | 159 | | | $ | 12,412 | | | $ | 12,571 | |
| Separate account liabilities | | $ | 54,254 | | | $ | — | | | $ | 54,254 | | | $ | — | | | $ | 54,254 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | | |
| Mortgage loans (1) | | $ | 62,584 | | | $ | — | | | $ | — | | | $ | 59,511 | | | $ | 59,511 | |
| Policy loans | | $ | 5,671 | | | $ | — | | | $ | — | | | $ | 6,042 | | | $ | 6,042 | |
| | | | | | | | | | |
| Other invested assets | | $ | 1,778 | | | $ | — | | | $ | 1,794 | | | $ | — | | | $ | 1,794 | |
| Premiums, reinsurance and other receivables | | $ | 14,028 | | | $ | — | | | $ | 221 | | | $ | 14,053 | | | $ | 14,274 | |
| Liabilities | | | | | | | | | | |
| Policyholder account balances | | $ | 87,518 | | | $ | — | | | $ | — | | | $ | 86,093 | | | $ | 86,093 | |
| Long-term debt | | $ | 1,886 | | | $ | — | | | $ | 1,958 | | | $ | — | | | $ | 1,958 | |
| Other liabilities | | $ | 11,481 | | | $ | — | | | $ | 141 | | | $ | 11,333 | | | $ | 11,474 | |
| Separate account liabilities | | $ | 29,204 | | | $ | — | | | $ | 29,204 | | | $ | — | | | $ | 29,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | | |
| Mortgage loans (1) | | $ | 62,570 | | | $ | — | | | $ | — | | | $ | 58,858 | | | $ | 58,858 | |
| Policy loans | | $ | 5,729 | | | $ | — | | | $ | — | | | $ | 6,143 | | | $ | 6,143 | |
| | | | | | | | | | |
| Other invested assets | | $ | 1,978 | | | $ | — | | | $ | 1,979 | | | $ | — | | | $ | 1,979 | |
| Premiums, reinsurance and other receivables | | $ | 12,036 | | | $ | — | | | $ | 454 | | | $ | 11,826 | | | $ | 12,280 | |
| | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| Policyholder account balances | | $ | 85,957 | | | $ | — | | | $ | — | | | $ | 83,594 | | | $ | 83,594 | |
| Long-term debt | | $ | 1,676 | | | $ | — | | | $ | 1,758 | | | $ | — | | | $ | 1,758 | |
| Other liabilities | | $ | 12,546 | | | $ | — | | | $ | 671 | | | $ | 11,842 | | | $ | 12,513 | |
| Separate account liabilities | | $ | 38,391 | | | $ | — | | | $ | 38,391 | | | $ | — | | | $ | 38,391 | |
_________________
(1)Includes mortgage loans measured at estimated fair value on a nonrecurring basis and excludes mortgage loans measured at estimated fair value on a recurring basis.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10.13. Leases
The Company, as lessee, has entered into various lease and sublease agreements primarily for office space. The Company has operating leases and subleases with remaining lease terms of less than one year to eightseven years. The remaining lease terms for the subleases are less than one year to eight years.
ROU Assets and Lease Liabilities
ROU assets and lease liabilities for operating leases were:
| | December 31, 2022 | | December 31, 2021 |
| (In millions) |
| | December 31, 2023 | | | | December 31, 2023 | | December 31, 2022 |
| | (In millions) | | | | (In millions) |
| ROU assets | ROU assets | | $ | 498 | | | $ | 601 | |
| Lease liabilities | Lease liabilities | | $ | 589 | | | $ | 701 | |
Lease Costs
The components of operating lease costs were as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| Operating lease cost | Operating lease cost | | $ | 116 | | | $ | 120 | | | $ | 117 | |
| Sublease income | Sublease income | | (73) | | | (91) | | | (89) | |
Other Information
Supplemental other information related to operating leases was as follows:
| | December 31, 2022 | | December 31, 2021 |
| (Dollars in millions) |
| | December 31, 2023 | | | | December 31, 2023 | | December 31, 2022 |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Cash paid for amounts included in the measurement of lease liability - operating cash flows | Cash paid for amounts included in the measurement of lease liability - operating cash flows | | $ | 124 | | | $ | 122 | |
| ROU assets obtained in exchange for new lease liabilities | ROU assets obtained in exchange for new lease liabilities | | $ | 4 | | | $ | 4 | |
| Weighted-average remaining lease term | Weighted-average remaining lease term | | 6 years | | 7 years | Weighted-average remaining lease term | | 6 years |
| Weighted-average discount rate | Weighted-average discount rate | | 4.0 | % | | 4.0 | % | Weighted-average discount rate | | 4.0 | % | | 4.0 | % |
Maturities of Lease Liabilities
Maturities of operating lease liabilities were as follows:
| | December 31, 2022 |
| (In millions) |
| 2023 | | $ | 117 | |
| | December 31, 2023 | | | | December 31, 2023 |
| | (In millions) | | | | (In millions) |
| 2024 | 2024 | | 106 | |
| 2025 | 2025 | | 107 | |
| 2026 | 2026 | | 102 | |
| 2027 | 2027 | | 91 | |
| 2028 | |
| Thereafter | Thereafter | | 162 | |
| Total undiscounted cash flows | Total undiscounted cash flows | | 685 | |
| Less: interest | Less: interest | | 96 | |
| Present value of lease liability | Present value of lease liability | | $ | 589 | |
See Note 10 for information about the Company’s investments in leased real estate.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
10. Leases (continued)
See Note 7 for information about the Company’s investments in leased real estate and leveraged and direct financing leases.
11.14. Long-term and Short-term Debt
Long-term and short-term debt outstanding was as follows:
| | December 31, |
| Interest Rates (1) | | 2022 | | 2021 |
| Range | | Weighted Average | | Maturity | | Face
Value | | Unamortized
Discount and Issuance Costs | | Carrying
Value | | Face
Value | | Unamortized
Discount and Issuance Costs | | Carrying
Value |
| | | | | | | (In millions) |
| | | | | | | | | | | December 31, | | | | | | | | | | | | | December 31, |
| Interest Rates (1) | | | Interest Rates (1) | | | | | | 2023 | | 2022 |
| Range | | | Range | | Maturity | | Face
Value | | Unamortized
Discount and Issuance Costs | | Carrying
Value | | Face
Value | | Unamortized
Discount and Issuance Costs | | Carrying
Value |
| | | | | | | | | | | (In millions) | | | | | | | | | | | | | (In millions) |
| Surplus notes - affiliated | Surplus notes - affiliated | 7.38% | - | 7.38% | | 7.38% | | 2037 | | $ | 700 | | | $ | (7) | | | $ | 693 | | | $ | 700 | | | $ | (8) | | | $ | 692 | |
| Surplus notes | Surplus notes | 7.80% | - | 7.88% | | 7.83% | | 2024 | - | 2025 | | 400 | | | (1) | | | 399 | | | 400 | | | (1) | | | 399 | |
| Other notes | Other notes | 0.45% | - | 7.50% | | 4.55% | | 2023 | - | 2027 | | 586 | | | (2) | | | 584 | | | 571 | | | (3) | | | 568 | |
| Financing lease obligations | |
| Total long-term debt | Total long-term debt | | 1,686 | | | (10) | | | 1,676 | | | 1,671 | | | (12) | | | 1,659 | |
| Total short-term debt | Total short-term debt | | 99 | | | — | | | 99 | | | 100 | | | — | | | 100 | |
| Total | Total | | $ | 1,785 | | | $ | (10) | | | $ | 1,775 | | | $ | 1,771 | | | $ | (12) | | | $ | 1,759 | |
__________________
(1)Range of interest rates and weighted average interest rates are for the year ended December 31, 2022.2023.
The aggregate maturities of long-term debt at December 31, 20222023 for the next five years and thereafter are $90 million in 2023, $245$335 million in 2024, $250 million in 2025, $348 million$0 in 2026, $50$51 million in 2027, $427 million in 2028 and $693$824 million thereafter.
Unsecured senior debt which consists of senior notesFinancing lease obligations are collateralized and other notes rank highest in priority.priority, followed by other notes. Payments of interest and principal on Metropolitan Life Insurancethe Company’s surplus notes, which are subordinate to all other obligations of Metropolitan Life Insurance Company, and are senior to obligations of MetLife, Inc., may be made only with the prior approval of the New York State Department of Financial Services (“NYDFS”).
Other Notes
In March 2023, MoRe borrowed funds from MetLife, Inc. under a term loan agreement, interest on which is payable semi-annually. The terms of the promissory notes are as follows:
•$80 million 5.34% fixed rate due March 2028;
•$80 million 5.68% fixed rate due March 2033; and
•$50 million 6.05% fixed rate due March 2038.
In December 2022 and 2021, Missouri Reinsurance, Inc., a wholly-owned subsidiary of the Company,MoRe issued to MetLife, Inc. a $60 million 5.23% promissory note and a $35 million 2.12% promissory note, respectively. Both notes are payable semi-annually and mature in December 2024.
At December 31, 2022, MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of Metropolitan Life Insurance Company, was party to a credit agreement providing for $350 million of term loans and $75 million of a revolving loan (the “Credit Agreement”), which matures in September 2026. In March 2020, MPEH borrowed $75 million on a revolving loan under the Credit Agreement and repaid this loan in July 2020. Simultaneously, in July 2020, MPEH borrowed $50 million on the term loan under the Credit Agreement. MPEH has pledged invested assets to secure the loans; however, these loans are non-recourse to Metropolitan Life Insurance Company.
Short-term Debt
Short-term debt with maturities of one year or less was as follows:
| | December 31, |
| 2022 | | 2021 |
| (Dollars in millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| (Dollars in millions) | | | (Dollars in millions) |
| Commercial paper | Commercial paper | $ | 99 | | | $ | 100 | |
| Average daily balance | Average daily balance | $ | 100 | | | $ | 105 | |
| Average days outstanding | Average days outstanding | 131 days | | 104 days | Average days outstanding | 80 days | | 131 days |
For the years ended December 31, 2023, 2022 2021 and 2020,2021, the weighted average interest rate on short-term debt was 1.60%4.80%, 0.23%1.60% and 1.51%0.23%, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
11.14. Long-term and Short-term Debt (continued)
Interest Expense
Interest expense included in other expenses was $132 million, $104 million $96 million and $99$96 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively. These amounts include $53$65 million, $52$53 million and $52 million of interest expense related to affiliated debt for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
Credit Facility
At December 31, 2022,2023, MetLife, Inc. and MetLife Funding, Inc., a wholly-owned subsidiary of Metropolitan Life Insurance Company (“MetLife Funding”), maintained a $3.0 billion unsecured revolving credit facility (the “Credit Facility”). When drawn upon, this facility bears interest at varying rates in accordance with the agreement.
The Credit Facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the issuance of letters of credit. TotalThe Company’s total fees associated with the Credit Facility were $4$2 million, $7$4 million and $7 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively, and were included in other expenses.
Information on the Credit Facility at December 31, 20222023 was as follows:
| | Borrower(s) | Borrower(s) | | Expiration | | Maximum
Capacity | | Letters of Credit Used by the Company (1) | | Letters of Credit Used by Affiliates (1) | | Drawdowns | | Unused
Commitments | Borrower(s) | | Expiration | | Maximum
Capacity | | Letters of Credit Used by the Company (1) | | Letters of Credit Used by Affiliates (1) | | Drawdowns | | Unused
Commitments |
| | | | (In millions) |
| | | | (In millions) | | | | | | (In millions) |
| MetLife, Inc. and MetLife Funding, Inc. | MetLife, Inc. and MetLife Funding, Inc. | | February 2026 (2) | | $ | 3,000 | | | $ | 7 | | | $ | 256 | | | $ | — | | | $ | 2,737 | |
__________________
(1)MetLife, Inc. and MetLife Funding are severally liable for their respective obligations under the Credit Facility. MetLife Funding was not an applicant under letters of credit outstanding as of December 31, 20222023 and is not responsible for any reimbursement obligations under such letters of credit.
(2)In May 2023, the Credit Facility was amended and restated to, among other things, extend the maturity date. All borrowings under the Credit Facility must be repaid by February 26, 2026,May 8, 2028, except that letters of credit outstanding upon terminationon that date may remain outstanding until February 26, 2027.no later than May 8, 2029.
Debt and Facility Covenants
Certain of the Company’s debt instruments and the Credit Facility contain various administrative, reporting, legal and financial covenants. The Company believes it was in compliance with all applicable financial covenants at December 31, 2022.2023.
12.15. Equity
Statutory Equity and Income
Metropolitan Life Insurance Company prepares statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the NYDFS. The National Association of Insurance Commissioners (“NAIC”) has adopted the Codification of Statutory Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by the NYDFS may impact the effect of Statutory Codification on the statutory capital and surplus of Metropolitan Life Insurance Company.
New York, the state of domicile of Metropolitan Life Insurance Company, imposes risk-based capital (“RBC”) requirements that were developed by the NAIC. Regulatory compliance is determined by a ratio of a company’s total adjusted capital, calculated in the manner prescribed by the NAIC (“TAC”), with modifications by the state insurance department, to its authorized control level RBC, calculated in the manner prescribed by the NAIC (“ACL RBC”), based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC (“CAL RBC”). The CAL RBC ratios for Metropolitan Life Insurance Company were in excess of 340%370% and in excess of 360%340% at December 31, 20222023 and 2021,2022, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
12.15. Equity (continued)
Metropolitan Life Insurance Company’s ancillary foreign insurance operations are regulated by applicable authorities of the jurisdictions in which each entity operates and are subject to minimum capital and solvency requirements in those jurisdictions before corrective action commences. The aggregate required capital and surplus of Metropolitan Life Insurance Company’s foreign insurance operations was $423$293 million and the aggregate actual regulatory capital and surplus of such operations was $758 million$1.5 billion as of the date of the most recently required capital adequacy calculation for each jurisdiction. The Company’s foreign insurance operations exceeded the minimum capital and solvency requirements as of the date of the most recent fiscal year-end capital adequacy calculation for each jurisdiction.
Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilitiesFPBs using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis.
In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by Metropolitan Life Insurance Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not give recognition to purchase accounting adjustments.
New York has adopted certain prescribed accounting practices, primarily consisting of the continuous Commissioners’ Annuity Reserve Valuation Method, which impacts deferred annuities, and the New York Special Considerations Letter, which mandates certain assumptions in asset adequacy testing. The collective impact of these prescribed accounting practices decreased the statutory capital and surplus of Metropolitan Life Insurance Company by $1.3$1.4 billion and $1.2$1.3 billion at December 31, 20222023 and 2021,2022, respectively, compared to what capital and surplus would have been had it been measured under NAIC guidance.
Statutory net income (loss) of Metropolitan Life Insurance Company, a New York domiciled insurer, was $3.4 billion, $2.7 billion $3.5 billion and $3.4$3.5 billion at December 31, 2023, 2022 2021 and 2020,2021, respectively. Statutory capital and surplus, including the aforementioned prescribed practice, was $10.9$11.6 billion and $11.8$10.9 billion at December 31, 20222023 and 2021,2022, respectively. All such amounts are derived from the statutory–basis financial statements as filed with the NYDFS.
Dividend Restrictions
Under the New York State Insurance Law, Metropolitan Life Insurance Company is permitted, without prior insurance regulatory clearance, to pay stockholder dividends to MetLife, Inc. in any calendar year based on either of two standards. Under one standard, Metropolitan Life Insurance Company is permitted, without prior insurance regulatory clearance, to pay dividends out of earned surplus (defined as positive unassigned funds (surplus), excluding 85% of the change in net unrealized capital gains or losses (less capital gains tax), for the immediately preceding calendar year), in an amount up to the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not to exceed 30% of surplus to policyholders as of the end of the immediately preceding calendar year. In addition, under this standard, Metropolitan Life Insurance Company may not, without prior insurance regulatory clearance, pay any dividends in any calendar year immediately following a calendar year for which its net gain from operations, excluding realized capital gains, was negative. Under the second standard, if dividends are paid out of other than earned surplus, Metropolitan Life Insurance Company may, without prior insurance regulatory clearance, pay an amount up to the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). In addition, Metropolitan Life Insurance Company will be permitted to pay a dividend to MetLife, Inc. in excess of the amounts allowed under both standards only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Financial Services (the “Superintendent”) and the Superintendent either approves the distribution of the dividend or does not disapprove the dividend within 30 days of its filing. Under the New York State Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholder.
Metropolitan Life Insurance Company paid $3.5$2.5 billion and $3.4$3.5 billion in dividends to MetLife, Inc. for the years ended December 31, 20222023 and 2021,2022, respectively, including amounts where regulatory approval was obtained as required. Under
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
12.15. Equity (continued)
New York State Insurance Law, Metropolitan Life Insurance Company has calculated that it may pay approximately $2.4$3.5 billion to MetLife, Inc. without prior regulatory approval by the end of 2023.2024.
Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to Metropolitan Life Insurance Company was as follows:
| | Unrealized
Investment Gains
(Losses), Net of
Related Offsets | | Unrealized
Gains (Losses)
on Derivatives | | Foreign
Currency
Translation
Adjustments | | Defined
Benefit
Plans
Adjustment | | Total |
| (In millions) |
| Balance at December 31, 2019 | $ | 8,876 | | | $ | 1,620 | | | $ | (97) | | | $ | (374) | | | $ | 10,025 | |
| Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | | Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | Deferred
Gains (Losses)
on Derivatives | | Future Policy Benefits Discount Rate Remeasurement Gains (Losses) | | Market Risk Benefits Instrument-Specific Credit Risk Remeasurement Gains(Losses) | | Foreign
Currency
Translation
Adjustments | | Defined
Benefit
Plans
Adjustment | | Total |
| (In millions) | | | (In millions) |
| Balance at December 31, 2020 | |
| Cumulative effects of changes in accounting principles, net of income tax | |
| Balance at January 1, 2021 | |
| OCI before reclassifications | OCI before reclassifications | 1,852 | | | 1,144 | | | 54 | | | (145) | | | 2,905 | |
| Deferred income tax benefit (expense) | Deferred income tax benefit (expense) | (391) | | | (240) | | | (10) | | | 30 | | | (611) | |
| AOCI before reclassifications, net of income tax | AOCI before reclassifications, net of income tax | 10,337 | | | 2,524 | | | (53) | | | (489) | | | 12,319 | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 59 | | | (928) | | | — | | | 37 | | | (832) | |
| Deferred income tax benefit (expense) | Deferred income tax benefit (expense) | (12) | | | 195 | | | — | | | (8) | | | 175 | |
| Amounts reclassified from AOCI, net of income tax | Amounts reclassified from AOCI, net of income tax | 47 | | | (733) | | | — | | | 29 | | | (657) | |
| | Balance at December 31, 2020 | 10,384 | | | 1,791 | | | (53) | | | (460) | | | 11,662 | |
| OCI before reclassifications | (2,564) | | | 30 | | | 9 | | | 44 | | | (2,481) | |
| Deferred income tax benefit (expense) | 586 | | | (8) | | | (1) | | | (9) | | | 568 | |
| AOCI before reclassifications, net of income tax | 8,406 | | | 1,813 | | | (45) | | | (425) | | | 9,749 | |
| Amounts reclassified from AOCI | 102 | | | 81 | | | — | | | 38 | | | 221 | |
| Deferred income tax benefit (expense) | (23) | | | (22) | | | — | | | (8) | | | (53) | |
| Amounts reclassified from AOCI, net of income tax | 79 | | | 59 | | | — | | | 30 | | | 168 | |
| Balance at December 31, 2021 | |
| | | Balance at December 31, 2021 | |
| | Balance at December 31, 2021 | Balance at December 31, 2021 | 8,485 | | | 1,872 | | | (45) | | | (395) | | | 9,917 | |
| OCI before reclassifications | OCI before reclassifications | (24,428) | | | (701) | | | (177) | | | 278 | | | (25,028) | |
| Deferred income tax benefit (expense) | Deferred income tax benefit (expense) | 5,134 | | | 147 | | | 35 | | | (58) | | | 5,258 | |
| AOCI before reclassifications, net of income tax | AOCI before reclassifications, net of income tax | (10,809) | | | 1,318 | | | (187) | | | (175) | | | (9,853) | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | 862 | | | 302 | | | — | | | 47 | | | 1,211 | |
| Deferred income tax benefit (expense) | Deferred income tax benefit (expense) | (181) | | | (63) | | | — | | | (10) | | | (254) | |
| Amounts reclassified from AOCI, net of income tax | Amounts reclassified from AOCI, net of income tax | 681 | | | 239 | | | — | | | 37 | | | 957 | |
| | | Balance at December 31, 2022 | Balance at December 31, 2022 | $ | (10,128) | | | $ | 1,557 | | | $ | (187) | | | $ | (138) | | | $ | (8,896) | |
| | Balance at December 31, 2022 | |
| | Balance at December 31, 2022 | |
| OCI before reclassifications | |
| Deferred income tax benefit (expense) | |
| AOCI before reclassifications, net of income tax | |
| Amounts reclassified from AOCI | |
| Deferred income tax benefit (expense) | |
| Amounts reclassified from AOCI, net of income tax | |
| | Balance at December 31, 2023 | |
| | Balance at December 31, 2023 | |
| | Balance at December 31, 2023 | |
For information__________________
(1)Primarily unrealized gains (losses) on offsets to investments related to policyholder liabilities, DAC, VOBA and DSI, see “— Net Unrealized Investment Gains (Losses).”fixed maturity securities.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
12.15. Equity (continued)
Information regarding amounts reclassified out of each component of AOCI was as follows:
| | Years Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| | Years Ended December 31, | |
| | 2023 | |
| | 2023 | |
| | 2023 | |
| AOCI Components | AOCI Components | | Amounts Reclassified from AOCI | | Consolidated Statements of
Operations Locations |
| | (In millions) | | |
| AOCI Components | |
| AOCI Components | | | Amounts Reclassified from AOCI | | Consolidated Statements of
Operations Locations |
| | (In millions) | |
| Net unrealized investment gains (losses): | Net unrealized investment gains (losses): | |
| Net unrealized investment gains (losses): | |
| Net unrealized investment gains (losses): | |
| Net unrealized investment gains (losses) | |
| Net unrealized investment gains (losses) | |
| Net unrealized investment gains (losses) | Net unrealized investment gains (losses) | | $ | (810) | | | $ | (67) | | | $ | (30) | | | Net investment gains (losses) | | $ | (1,404) | | | $ | | $ | (810) | | | $ | | $ | (67) | | | Net investment gains (losses) | | Net investment gains (losses) |
| Net unrealized investment gains (losses) | Net unrealized investment gains (losses) | | 6 | | | (13) | | | (18) | | | Net investment income | Net unrealized investment gains (losses) | | 5 | | | 6 | | 6 | | | (13) | | (13) | | | Net investment income | | Net investment income |
| Net unrealized investment gains (losses) | Net unrealized investment gains (losses) | | (58) | | | (22) | | | (11) | | | Net derivative gains (losses) | Net unrealized investment gains (losses) | | (22) | | | (58) | | (58) | | | (22) | | (22) | | | Net derivative gains (losses) | | Net derivative gains (losses) |
| Net unrealized investment gains (losses), before income tax | Net unrealized investment gains (losses), before income tax | | (862) | | | (102) | | | (59) | | |
| Income tax (expense) benefit | Income tax (expense) benefit | | 181 | | | 23 | | | 12 | | |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Net unrealized investment gains (losses), net of income tax | Net unrealized investment gains (losses), net of income tax | | (681) | | | (79) | | | (47) | | |
| Unrealized gains (losses) on derivatives - cash flow hedges: | | | | | | | |
| Net unrealized investment gains (losses), net of income tax | |
| Net unrealized investment gains (losses), net of income tax | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Interest rate derivatives | |
| Interest rate derivatives | |
| Interest rate derivatives | Interest rate derivatives | | 59 | | | 57 | | | 36 | | | Net investment income | | 50 | | | 59 | | 59 | | | 57 | | 57 | | | Net investment income | | Net investment income |
| Interest rate derivatives | Interest rate derivatives | | 51 | | | 87 | | | 121 | | | Net investment gains (losses) | Interest rate derivatives | | 87 | | | 51 | | 51 | | | 87 | | 87 | | | Net investment gains (losses) | | Net investment gains (losses) |
| | | Foreign currency exchange rate derivatives | |
| | Foreign currency exchange rate derivatives | |
| | Foreign currency exchange rate derivatives | Foreign currency exchange rate derivatives | | 5 | | | 4 | | | 3 | | | Net investment income | | 4 | | | 5 | | 5 | | | 4 | | 4 | | | Net investment income | | Net investment income |
| Foreign currency exchange rate derivatives | Foreign currency exchange rate derivatives | | (417) | | | (229) | | | 768 | | | Net investment gains (losses) | Foreign currency exchange rate derivatives | | 684 | | | (417) | | (417) | | | (229) | | (229) | | | Net investment gains (losses) | | Net investment gains (losses) |
| | Credit derivatives | |
| | Credit derivatives | |
| | Credit derivatives | | | 1 | | | — | | | — | | | Net investment gains (losses) |
| | Gains (losses) on cash flow hedges, before income tax | |
| Gains (losses) on cash flow hedges, before income tax | |
| Gains (losses) on cash flow hedges, before income tax | Gains (losses) on cash flow hedges, before income tax | | (302) | | | (81) | | | 928 | | |
| Income tax (expense) benefit | Income tax (expense) benefit | | 63 | | | 22 | | | (195) | | |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Gains (losses) on cash flow hedges, net of income tax | |
| Gains (losses) on cash flow hedges, net of income tax | |
| Gains (losses) on cash flow hedges, net of income tax | Gains (losses) on cash flow hedges, net of income tax | | (239) | | | (59) | | | 733 | | |
| Defined benefit plans adjustment: (1) | Defined benefit plans adjustment: (1) | | | | | | | |
| Defined benefit plans adjustment: (1) | |
| Defined benefit plans adjustment: (1) | |
| Amortization of net actuarial gains (losses) | |
| Amortization of net actuarial gains (losses) | |
| Amortization of net actuarial gains (losses) | Amortization of net actuarial gains (losses) | | (49) | | | (43) | | | (39) | | |
| Amortization of prior service (costs) credit | Amortization of prior service (costs) credit | | 2 | | | 5 | | | 2 | | |
| Amortization of prior service (costs) credit | |
| Amortization of prior service (costs) credit | |
| Amortization of defined benefit plan items, before income tax | |
| Amortization of defined benefit plan items, before income tax | |
| Amortization of defined benefit plan items, before income tax | Amortization of defined benefit plan items, before income tax | | (47) | | | (38) | | | (37) | | |
| Income tax (expense) benefit | Income tax (expense) benefit | | 10 | | | 8 | | | 8 | | |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Amortization of defined benefit plan items, net of income tax | |
| Amortization of defined benefit plan items, net of income tax | |
| Amortization of defined benefit plan items, net of income tax | Amortization of defined benefit plan items, net of income tax | | (37) | | | (30) | | | (29) | | |
| Total reclassifications, net of income tax | Total reclassifications, net of income tax | | $ | (957) | | | $ | (168) | | | $ | 657 | | |
| Total reclassifications, net of income tax | |
| Total reclassifications, net of income tax | |
__________________
(1)These AOCI components are included in the computation of net periodic benefit costs. See Note 14.17.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
12. Equity (continued)
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities AFS, derivatives and other investments and the effect on policyholder liabilities, DAC, VOBA and DSI that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Fixed maturity securities AFS | $ | (14,741) | | | $ | 17,586 | | | $ | 24,954 | |
| | | | | |
| | | | | |
| | | | | |
| Derivatives | 1,971 | | | 2,370 | | | 2,259 | |
| Other | 455 | | | 377 | | | 235 | |
| Subtotal | (12,315) | | | 20,333 | | | 27,448 | |
| Amounts allocated from: | | | | | |
| Policyholder liabilities | 52 | | | (5,962) | | | (10,572) | |
| | | | | |
| DAC, VOBA and DSI | 1,312 | | | (1,357) | | | (1,511) | |
| | | | | |
| Subtotal | 1,364 | | | (7,319) | | | (12,083) | |
| | | | | |
| Deferred income tax benefit (expense) | 2,380 | | | (2,657) | | | (3,190) | |
| Net unrealized investment gains (losses) | $ | (8,571) | | | $ | 10,357 | | | $ | 12,175 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
13.16. Other Revenues and Other Expenses
Other Revenues
Information on other revenues, which primarily includes fees related to service contracts from customers, was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| | Years Ended December 31, | | | | Years Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
| | (In millions) | | | | (In millions) |
| Prepaid legal plans | Prepaid legal plans | | $ | 421 | | | $ | 395 | | | $ | 371 | |
| Administrative services-only contracts | |
| Recordkeeping and administrative services (1) | Recordkeeping and administrative services (1) | | 166 | | | 211 | | | 194 | |
| Administrative services-only contracts | | 226 | | | 219 | | | 218 | |
| Other revenue from service contracts from customers | Other revenue from service contracts from customers | | 34 | | | 35 | | | 36 | |
| Total revenues from service contracts from customers | Total revenues from service contracts from customers | | 847 | | | 860 | | | 819 | |
| Other (2) | Other (2) | | 851 | | | 756 | | | 842 | |
| Total other revenues | Total other revenues | | $ | 1,698 | | | $ | 1,616 | | | $ | 1,661 | |
__________________
(1)Related to products and businesses no longer actively marketed by the Company.
(2)Primarily includes reinsurance ceded. See Note 5.8.
Other Expenses
Information on other expenses was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| General and administrative expenses (1) | General and administrative expenses (1) | $ | 2,743 | | | $ | 2,331 | | | $ | 2,285 | |
| Pension, postretirement and postemployment benefit costs | Pension, postretirement and postemployment benefit costs | 116 | | | 112 | | | 33 | |
| Premium taxes, other taxes, and licenses & fees | Premium taxes, other taxes, and licenses & fees | 342 | | | 332 | | | 399 | |
| Commissions and other variable expenses | Commissions and other variable expenses | 2,290 | | | 2,551 | | | 1,842 | |
| Capitalization of DAC | Capitalization of DAC | (184) | | | (64) | | | (51) | |
| Amortization of DAC and VOBA | Amortization of DAC and VOBA | 144 | | | 259 | | | 406 | |
| Interest expense on debt | Interest expense on debt | 104 | | | 96 | | | 99 | |
| Total other expenses | Total other expenses | $ | 5,555 | | | $ | 5,617 | | | $ | 5,013 | |
__________________
(1)Includes $52($116) million, ($113)$52 million and ($104)113) million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively, for the net change in cash surrender value of investments in certain life insurance policies, net of premiums paid.
Capitalization of DAC and Amortization of DAC and VOBA
See Note 47 for additional information on DAC and VOBA including impacts of capitalization and amortization. See also Note 69 for a description of the DAC amortization impact associated with the closed block.
Expenses related to Debt
See Note 1114 for additional information on interest expense on debt, including affiliated interest expense.
Affiliated Expenses
See Notes 58 and 1721 for a discussion of affiliated expenses related to reinsurance and service agreement transactions, respectively, included in the table above.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
14.17. Employee Benefit Plans
Pension Benefit Plans
The Company sponsors a U.S. nonqualified defined benefit pension plan covering MetLife employees who meet specified eligibility requirements of the sponsor and its participating affiliates. Participating affiliates are allocated a proportionate share of net expense related to the plan. Pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits that are primarily based upon years of credited service and final average earnings. The cash balance formula utilizes hypothetical or notional accounts which credit participants with benefits equal to a percentage of eligible pay, as well as interest credits, determined annually based upon the annual rate of interest on 30-year U.S. Treasury securities, for each account balance. In September 2018, the nonqualified defined benefit pension plan was amended, effective January 1, 2023, to provide benefit accruals for all active participants under the cash balance formula and to cease future accruals under the traditional formula. The pension plan sponsored by the Company provides supplemental benefits in excess of limits applicable to a qualified plan which is sponsored by an affiliate.
Obligations and Funded Status
| | December 31, |
| 2022 | | 2021 |
| Pension Benefits |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Pension Benefits | | | Pension Benefits |
| (In millions) | | | (In millions) |
| Change in benefit obligations: | Change in benefit obligations: | |
| Benefit obligations at January 1, | Benefit obligations at January 1, | $ | 1,274 | | | $ | 1,343 | |
| | Benefit obligations at January 1, | |
| Benefit obligations at January 1, | |
| Service costs | Service costs | 15 | | | 17 | |
| Interest costs | Interest costs | 37 | | | 37 | |
| | Net actuarial (gains) losses (1) | Net actuarial (gains) losses (1) | (280) | | | (42) | |
| Settlements and curtailments | Settlements and curtailments | — | | | (1) | |
| Benefits paid | Benefits paid | (84) | | | (80) | |
| | Benefit obligations at December 31, | Benefit obligations at December 31, | 962 | | | 1,274 | |
| Change in plan assets: | Change in plan assets: | | | |
| Estimated fair value of plan assets at January 1, | Estimated fair value of plan assets at January 1, | — | | | — | |
| | Estimated fair value of plan assets at January 1, | |
| Estimated fair value of plan assets at January 1, | |
| Employer contributions | Employer contributions | 84 | | | 80 | |
| Benefits paid | Benefits paid | (84) | | | (80) | |
| Estimated fair value of plan assets at December 31, | Estimated fair value of plan assets at December 31, | — | | | — | |
| Over (under) funded status at December 31, | Over (under) funded status at December 31, | $ | (962) | | | $ | (1,274) | |
| Amounts recognized on the consolidated balance sheets: | Amounts recognized on the consolidated balance sheets: | | | |
| | Other liabilities | Other liabilities | $ | (962) | | | $ | (1,274) | |
| | Other liabilities | |
| Other liabilities | |
| Amount recognized | |
| AOCI: | AOCI: | |
| Net actuarial (gains) losses | |
| Net actuarial (gains) losses | |
| Net actuarial (gains) losses | Net actuarial (gains) losses | $ | 189 | | | $ | 510 | |
| Prior service costs (credit) | Prior service costs (credit) | (7) | | | (9) | |
| AOCI, before income tax | AOCI, before income tax | $ | 182 | | | $ | 501 | |
| Accumulated benefit obligation | Accumulated benefit obligation | $ | 940 | | | $ | 1,220 | |
__________________
(1)For the yearyears ended December 31, 2023 and 2022, significant sources of actuarial (gains) losses for pension benefits include the impact of changes to the financial assumptions of $32 million and ($291) million, andrespectively, plan experience of $21 million and $11 million. For the year ended December 31, 2021, significant sources of actuarial (gains) losses for pension benefits include the impact of changes to the financialmillion, respectively, and demographic assumptions of ($47)10) million and plan experience of $5 million.$0, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
14.17. Employee Benefit Plans (continued)
Information forregarding pension plans with PBOs and/or accumulated benefit obligations (“ABO”) in excess of plan assets was as follows at:
| | December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| PBO Exceeds Estimated Fair Value
of Plan Assets | | ABO Exceeds Estimated Fair Value
of Plan Assets |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 | | 2023 | | 2022 |
| PBO Exceeds Estimated Fair Value
of Plan Assets | | | PBO Exceeds Estimated Fair Value
of Plan Assets | | ABO Exceeds Estimated Fair Value
of Plan Assets |
| (In millions) | | | (In millions) |
| Projected benefit obligations | Projected benefit obligations | $ | 961 | | | $ | 1,274 | | | $ | 961 | | | $ | 1,274 | |
| Accumulated benefit obligations | Accumulated benefit obligations | $ | 940 | | | $ | 1,220 | | | $ | 940 | | | $ | 1,220 | |
Net Periodic Benefit Costs
The components of net periodic benefit costs and benefit obligations recognized in OCI were as follows for pension benefits:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Net periodic benefit costs: | Net periodic benefit costs: | |
| Service costs | |
| Service costs | |
| Service costs | Service costs | $ | 15 | | | $ | 17 | | | $ | 17 | |
| Interest costs | Interest costs | 37 | | | 37 | | | 40 | |
| Settlement and curtailment (gains) losses | Settlement and curtailment (gains) losses | — | | | (3) | | | — | |
| | Amortization of net actuarial (gains) losses | Amortization of net actuarial (gains) losses | 41 | | | 43 | | | 39 | |
| Amortization of prior service costs (credit) | Amortization of prior service costs (credit) | (2) | | | (2) | | | (2) | |
| | Total net periodic benefit costs (credit) | Total net periodic benefit costs (credit) | 91 | | | 92 | | | 94 | |
| Other changes in plan assets and benefit obligations recognized in OCI: | Other changes in plan assets and benefit obligations recognized in OCI: | | | | | |
| Net actuarial (gains) losses | Net actuarial (gains) losses | (280) | | | (42) | | | 143 | |
| Net actuarial (gains) losses | |
| Net actuarial (gains) losses | |
| Prior service costs (credit) | Prior service costs (credit) | — | | | — | | | — | |
| Settlement and curtailment (gains) losses | Settlement and curtailment (gains) losses | — | | | 1 | | | — | |
| Amortization of net actuarial (gains) losses | (41) | | | (43) | | | (39) | |
| Amortization of prior service costs (credit) | 2 | | | 2 | | | 2 | |
| Amortization of net actuarial gains (losses) | |
| Amortization of prior service (costs) credit | |
| Total recognized in OCI | Total recognized in OCI | (319) | | | (82) | | | 106 | |
| Total recognized in net periodic benefit costs and OCI | Total recognized in net periodic benefit costs and OCI | $ | (228) | | | $ | 10 | | | $ | 200 | |
Assumptions
Assumptions used in determining the benefit obligation for the plan were as follows:
| | Pension Benefits |
| December 31, 2022 | |
| Pension Benefits | | | Pension Benefits |
| December 31, 2023 | |
| Weighted average discount rate | |
| Weighted average discount rate | |
| Weighted average discount rate | Weighted average discount rate | 5.60% | 5.25% |
| Weighted average interest crediting rate | Weighted average interest crediting rate | 4.00% | Weighted average interest crediting rate | 4.00% |
| Rate of compensation increase | Rate of compensation increase | 2.50% | - | 8.00% | Rate of compensation increase | 2.50% | - | 8.00% |
| December 31, 2021 | |
| December 31, 2022 | |
| Weighted average discount rate | |
| Weighted average discount rate | |
| Weighted average discount rate | Weighted average discount rate | 2.95% | 5.60% |
| Weighted average interest crediting rate | Weighted average interest crediting rate | 3.18% | Weighted average interest crediting rate | 4.00% |
| Rate of compensation increase | Rate of compensation increase | 2.50% | - | 8.00% | Rate of compensation increase | 2.50% | - | 8.00% |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
14.17. Employee Benefit Plans (continued)
Assumptions used in determining the net periodic benefit cost for the plan were as follows:
| | Pension Benefits |
| Pension Benefits | | | Pension Benefits |
| Year Ended December 31, 2023 | |
| Weighted average discount rate | |
| Weighted average discount rate | |
| Weighted average discount rate | | 5.60% |
| Weighted average interest crediting rate | | Weighted average interest crediting rate | 4.00% |
| Rate of compensation increase | | Rate of compensation increase | 2.50% | - | 8.00% |
| Year Ended December 31, 2022 | Year Ended December 31, 2022 | |
| Weighted average discount rate | |
| Weighted average discount rate | |
| Weighted average discount rate | Weighted average discount rate | 2.95% | 2.95% |
| Weighted average interest crediting rate | Weighted average interest crediting rate | 3.46% | Weighted average interest crediting rate | 3.46% |
| Rate of compensation increase | Rate of compensation increase | 2.50% | - | 8.00% | Rate of compensation increase | 2.50% | - | 8.00% |
| Year Ended December 31, 2021 | Year Ended December 31, 2021 | |
| Weighted average discount rate | Weighted average discount rate | 3.01% |
| Weighted average interest crediting rate | 3.24% |
| Rate of compensation increase | 2.50% | - | 8.00% |
| Year Ended December 31, 2020 | |
| Weighted average discount rate | |
| Weighted average discount rate | Weighted average discount rate | 3.30% | 3.01% |
| Weighted average interest crediting rate | Weighted average interest crediting rate | 3.38% | Weighted average interest crediting rate | 3.24% |
| Rate of compensation increase | Rate of compensation increase | 2.25% | - | 8.50% | Rate of compensation increase | 2.50% | - | 8.00% |
The weighted average discount rate for the plan is determined annually based on the yield, measured on a yield to worst basis, of a hypothetical portfolio constructed of high quality debt instruments available on the measurement date, which would provide the necessary future cash flows to pay the aggregate PBO when due.
The weighted average interest crediting rate is determined annually based on the plan selected rate, long-term financial forecasts of that rate and the demographics of the plan participants.
Expected Future Contributions and Benefit Payments
Benefit payments due under the nonqualified pension plan are primarily funded from the Company’s general assets as they become due under the provisions of the plan. The Company expects to make benefit payments of $90$80 million in 2023.2024.
Gross benefit payments for the next 10 years, which reflect expected future service where appropriate, are expected to be as follows:
| | Pension Benefits |
| (In millions) |
| 2023 | $ | 85 | |
| Pension Benefits | | | Pension Benefits |
| (In millions) | | | (In millions) |
| 2024 | 2024 | $ | 79 | |
| 2025 | 2025 | $ | 75 | |
| 2026 | 2026 | $ | 81 | |
| 2027 | 2027 | $ | 77 | |
| 2028-2032 | $ | 411 | |
| 2028 | |
| 2029-2033 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
15.18. Income Tax
The Company’s provision for income tax was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Current: | Current: | |
| U.S. federal | |
| U.S. federal | |
| U.S. federal | U.S. federal | $ | 309 | | | $ | (89) | | | $ | 527 | |
| U.S. state and local | U.S. state and local | 11 | | | 5 | | | 3 | |
| Non-U.S. | Non-U.S. | 14 | | | 43 | | | (2) | |
| Subtotal | Subtotal | 334 | | | (41) | | | 528 | |
| Deferred: | Deferred: | | | | | |
| U.S. federal | U.S. federal | 305 | | | 577 | | | (18) | |
| U.S. federal | |
| U.S. federal | |
| Non-U.S. | Non-U.S. | — | | | (6) | | | 24 | |
| Subtotal | Subtotal | 305 | | | 571 | | | 6 | |
| Provision for income tax expense (benefit) | Provision for income tax expense (benefit) | $ | 639 | | | $ | 530 | | | $ | 534 | |
The Company’s income (loss) before income tax expense (benefit) was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Income (loss): | Income (loss): | |
| U.S. | |
| U.S. | |
| U.S. | U.S. | $ | 3,876 | | | $ | 4,143 | | | $ | 3,984 | |
| Non-U.S. | Non-U.S. | 34 | | | 105 | | | 94 | |
| Total | Total | $ | 3,910 | | | $ | 4,248 | | | $ | 4,078 | |
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Tax provision at U.S. statutory rate | Tax provision at U.S. statutory rate | $ | 821 | | | $ | 892 | | | $ | 856 | |
| Tax effect of: | Tax effect of: | |
| Dividend received deduction | |
| Dividend received deduction | |
| Dividend received deduction | Dividend received deduction | (19) | | | (39) | | | (32) | |
| Tax-exempt income | Tax-exempt income | 7 | | | (27) | | | (26) | |
| Prior year tax | Prior year tax | 22 | | | (13) | | | 22 | |
| Low income housing tax credits | Low income housing tax credits | (143) | | | (178) | | | (202) | |
| Other tax credits | Other tax credits | (36) | | | (38) | | | (37) | |
| Foreign tax rate differential | Foreign tax rate differential | (10) | | | (7) | | | (13) | |
| Change in valuation allowance | — | | | — | | | (1) | |
| Other, net (1) | Other, net (1) | (3) | | | (60) | | | (33) | |
| Provision for income tax expense (benefit) | Provision for income tax expense (benefit) | $ | 639 | | | $ | 530 | | | $ | 534 | |
__________________
(1)For the year ended December 31, 2021, Other, net primarily includes a tax benefit of $53 million related to a non-cash transfer of assets from a wholly-owned United Kingdom subsidiary to Metropolitan Life Insurance Company.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
15.18. Income Tax (continued)
(1)For the year ended December 31, 2021, other primarily includes a tax benefit of $53 million related to a non-cash transfer of assets from a wholly-owned United Kingdom (“U.K.”) subsidiary to Metropolitan Life Insurance Company.
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:
| | December 31, |
| 2022 | | 2021 |
| (In millions) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| (In millions) | | | (In millions) |
| Deferred income tax assets: | Deferred income tax assets: | |
| Policyholder liabilities and receivables | Policyholder liabilities and receivables | $ | 834 | | | $ | 1,622 | |
| Policyholder liabilities and receivables | |
| Policyholder liabilities and receivables | |
| | Net operating loss carryforwards (1) | |
| Net operating loss carryforwards (1) | |
| Net operating loss carryforwards (1) | Net operating loss carryforwards (1) | 72 | | | 75 | |
| Employee benefits | Employee benefits | 457 | | | 535 | |
| | Tax credit carryforwards (2) | 508 | | | 741 | |
| Tax credit carryforwards | |
| | Tax credit carryforwards | |
| | Tax credit carryforwards | |
| Litigation-related and government mandated | Litigation-related and government mandated | 74 | | | 84 | |
| Net unrealized investment losses | Net unrealized investment losses | 2,424 | | | — | |
| Other | Other | 76 | | | 118 | |
| Total gross deferred income tax assets | Total gross deferred income tax assets | 4,445 | | | 3,175 | |
| Less: Valuation allowance | Less: Valuation allowance | 71 | | | 74 | |
| Total net deferred income tax assets | Total net deferred income tax assets | 4,374 | | | 3,101 | |
| Deferred income tax liabilities: | Deferred income tax liabilities: | | | |
| | Investments, including derivatives | Investments, including derivatives | 1,441 | | | 2,147 | |
| | Investments, including derivatives | |
| | Investments, including derivatives | |
| Intangibles | Intangibles | 23 | | | 28 | |
| DAC | DAC | 249 | | | 317 | |
| Net unrealized investment gains | — | | | 2,645 | |
| Total deferred income tax liabilities | Total deferred income tax liabilities | 1,713 | | | 5,137 | |
| Net deferred income tax asset (liability) | Net deferred income tax asset (liability) | $ | 2,661 | | | $ | (2,036) | |
__________________
(1)The Company has recorded a deferred tax asset of $72$76 million primarily related to U.S. state net operating loss carryforwards and an offsetting valuation allowance for the year ended December 31, 2022.2023. U.S. state net operating loss carryforwards will expire between 2023 and 2042.
(2)Tax credit carryforwards for the year ended December 31, 2022 primarily reflect general business credits expiring between 20392024 and 2042, and are increased by $47 million related to unrecognized tax benefits.whereas other jurisdictions have an unlimited carryforward period.
The Company participates in a tax sharing agreement with MetLife, Inc., as described in Note 1. Pursuant to this tax sharing agreement, the amounts due to (from)from MetLife, Inc. included ($52)$57 million and ($120)$52 million at December 31, 20222023 and 2021,2022, respectively.
The Company files income tax returns with the U.S. federal government and various U.S. state and local jurisdictions, as well as non-U.S. jurisdictions. The Company is under continuous examination by the Internal Revenue Service (“IRS”) and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2017.
In 2022, the IRS began a federal income tax audit of MetLife, Inc. and subsidiaries for tax years 2017-2019. The audit is ongoing and to date, no material issues have been raised and no adjustments have been proposed.
In 2021, the Company filed amended Federalfederal income tax returns with the IRS for MetLife, Inc. and subsidiaries for tax years 2014 through 2016. In 2022, the IRS reviewed and acknowledged acceptance of the 2014 through 2016 amended Federalfederal income tax returns and closed the years to further audit.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
15.18. Income Tax (continued)
The Company filed refund claims in 2017 with the IRS for 2000 through 2002 to recover tax and interest predominantly related to the disallowance of certain foreign tax credits for which the Company received a statutory notice of deficiency in 2015 and paid the tax thereon. The disallowed foreign tax credits relate to certain non-U.S. investments held by MLIC in support of its life insurance business through a U.K. investment subsidiary that was structured as a joint venture until early 2009. In 2020, the Company received refunds from these claims filed in 2017, and as a result, the Company recorded a $28 million interest benefit ($22 million, net of tax) included in other expenses.
The Company’s overall liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, U.S. federal tax legislation and regulation could impact unrecognized tax benefits. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
| | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions) |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions) | | | (In millions) |
| Balance at January 1, | Balance at January 1, | $ | 23 | | | $ | 35 | | | $ | 33 | |
| Additions for tax positions of prior years | Additions for tax positions of prior years | 24 | | | — | | | 1 | |
| Reductions for tax positions of prior years (1) | Reductions for tax positions of prior years (1) | (12) | | | (14) | | | — | |
| Additions for tax positions of current year | Additions for tax positions of current year | 2 | | | 2 | | | 1 | |
| | Balance at December 31, | Balance at December 31, | $ | 37 | | | $ | 23 | | | $ | 35 | |
| Balance at December 31, | |
| Balance at December 31, | |
| Unrecognized tax benefits that, if recognized, would impact the effective rate | Unrecognized tax benefits that, if recognized, would impact the effective rate | $ | 37 | | | $ | 23 | | | $ | 35 | |
__________________
(1)The decreases in 2022 and 2021 are primarily related to non-cash benefits from tax audit settlements.
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
16.19. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed below and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor, broker-dealer, and taxpayer.
The Company also receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities and Exchange Commission; federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority, as well as from local and national regulators and government authorities in jurisdictions outside the United States where the Company conducts business. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. In certain circumstances where liabilities have been established there may be coverage under one or more corporate insurance policies, pursuant to which there may be an insurance recovery. Insurance recoveries are recognized as gains when any contingencies relating to the insurance claim have been resolved, which is the earlier of when the gains are realized or realizable. It is possible that some of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated at December 31, 2022.2023. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Matters as to Which an Estimate Can Be Made
For some matters, the Company is able to estimate a reasonably possible range of loss. For matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of December 31, 2022,2023, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $125 million.
Matters as to Which an Estimate Cannot Be Made
For other matters, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
16.19. Contingencies, Commitments and Guarantees (continued)
Asbestos-Related Claims
Metropolitan Life Insurance Company is and has been a defendant in a large number of asbestos-related suits filed primarily in state courts. These suits principally allege that the plaintiff or plaintiffs suffered personal injury resulting from exposure to asbestos and seek both actual and punitive damages. Metropolitan Life Insurance Company has never engaged in the business of manufacturing or selling asbestos-containing products, nor has Metropolitan Life Insurance Company issued liability or workers’ compensation insurance to companies in the business of manufacturing or selling asbestos-containing products. The lawsuits principally have focused on allegations with respect to certain research, publication and other activities of one or more of Metropolitan Life Insurance Company’s employees during the period from the 1920s through approximately the 1950s and allege that Metropolitan Life Insurance Company 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. Metropolitan Life Insurance Company believes that it should not have legal liability in these cases. The outcome of most asbestos litigation matters, however, is uncertain and can be impacted by numerous variables, including differences in legal rulings in various jurisdictions, the nature of the alleged injury and factors unrelated to the ultimate legal merit of the claims asserted against Metropolitan Life Insurance Company.
Metropolitan Life Insurance Company’s defenses include that: (i) Metropolitan Life Insurance Company owed no duty to the plaintiffs; (ii) plaintiffs did not rely on any actions of Metropolitan Life Insurance Company; (iii) Metropolitan Life Insurance Company’s conduct was not the cause of the plaintiffs’ injuries; and (iv) plaintiffs’ exposure occurred after the dangers of asbestos were known. During the course of the litigation, certain trial courts have granted motions dismissing claims against Metropolitan Life Insurance Company, while other trial courts have denied Metropolitan Life Insurance Company’s motions. There can be no assurance that Metropolitan Life Insurance Company will receive favorable decisions on motions in the future. While most cases brought to date have settled, Metropolitan Life Insurance Company intends to continue to defend aggressively against claims based on asbestos exposure, including defending claims at trials.
The approximate total number of asbestos personal injury claims pending against Metropolitan Life Insurance Company as of the dates indicated, the approximate number of new claims during the years ended on those dates and the approximate total settlement payments made to resolve asbestos personal injury claims at or during those years are set forth in the following table:
| | December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions, except number of claims) |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (In millions, except number of claims) | | | (In millions, except number of claims) |
| Asbestos personal injury claims at year end | Asbestos personal injury claims at year end | 58,073 | | | 58,785 | | | 60,618 | |
| Number of new claims during the year | Number of new claims during the year | 2,610 | | | 2,824 | | | 2,496 | |
| Settlement payments during the year (1) | Settlement payments during the year (1) | $ | 50.5 | | | $ | 53.0 | | | $ | 52.9 | |
(1)Settlement payments represent payments made by Metropolitan Life Insurance Company during the year in connection with settlements made in that year and in prior years. Amounts do not include Metropolitan Life Insurance Company’s attorneys’ fees and expenses.
The number of asbestos cases that may be brought, the aggregate amount of any liability that Metropolitan Life Insurance Company may incur, and the total amount paid in settlements in any given year are uncertain and may vary significantly from year to year.
The ability of Metropolitan Life Insurance Company to estimate its ultimate asbestos exposure is subject to considerable uncertainty, and the conditions impacting its liability can be dynamic and subject to change. The availability of reliable data is limited and it is difficult to predict the numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future claims, the willingness of courts to allow plaintiffs to pursue claims against Metropolitan Life Insurance Company when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
16.19. Contingencies, Commitments and Guarantees (continued)
The ability to make estimates regarding ultimate asbestos exposure declines significantly as the estimates relate to years further in the future. In the Company’s judgment, there is a future point after which losses cease to be probable and reasonably estimable. It is reasonably possible that the Company’s total exposure to asbestos claims may be materially greater than the asbestos liability currently accrued and that future charges to income may be necessary, but management does not believe any such charges are likely to have a material effect on the Company’s financial position.
The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. Metropolitan Life Insurance Company’s recorded asbestos liability covers pending claims, claims not yet asserted, and legal defense costs and is based on estimates and includes significant assumptions underlying its analysis.
Metropolitan Life Insurance Company reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing external literature regarding asbestos claims experience in the United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. Based upon its regular reevaluation of its exposure from asbestos litigation, Metropolitan Life Insurance Company has updated its recorded liability for asbestos-related claims. The frequency of severe claims relating to asbestos has not declined as expected, and MLIC has reflected this in its provisions. Accordingly, MLIC increased its recorded liability for asbestos-related claims to $364 million at December 31, 2023. The recorded liability was $320 million at December 31, 2022. The recorded liability was $372 million at December 31, 2021.
Total Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New York, filed December 27, 2017)
Total Asset Recovery Services (the “Relator”) brought an action under the qui tam provision of the New York False Claims Act (the “Act”) on behalf of itself and the State of New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator alleges that MetLife, Inc., Metropolitan Life Insurance Company, and several other insurance companies violated the Act by filing false unclaimed property reports with the State of New York from 1986 to 2017, to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part of their demutualizations in the late 1990s. The Relator seeks treble damages and other relief. The Appellate Division of the New York State Supreme Court, First Department, reversed the court’s order granting MetLife, Inc. and Metropolitan Life Insurance Company’s motion to dismiss and remanded the case to the trial court where the Relator has filed an amended complaint. The Company intends to defend the action vigorously.
Matters Related to Group Annuity Benefits
In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the practices and procedures for estimating reserves for certain group annuity benefits. Several regulators have made inquiries into thisthe issue and it is possible that other jurisdictions may pursue similar investigations or inquiries. The Company could be exposed to lawsuits and additional legal actions relating to thisthe issue. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, Employee Retirement Income Security Act of 1974, or other laws or regulations. The Company could incur significant costs in connection with these actions.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $2.7$3.3 billion and $3.1$2.7 billion at December 31, 20222023 and 2021,2022, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $4.8$4.4 billion and $4.5$4.8 billion at December 31, 20222023 and 2021,2022, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
16.19. Contingencies, Commitments and Guarantees (continued)
Guarantees
In the normal course of its business, the Company has provided certain indemnities and guarantees to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $250$208 million, with a cumulative maximum of $354$306 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities or guarantees.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.
The Company’s recorded liabilities were $2 million at both December 31, 20222023 and 2021,2022, for indemnities and guarantees.
17.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (continued)
20. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for 2023 and 2022 are summarized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, | | June 30, | | September 30, | | December 31, |
| | (In millions) |
| 2023 | | | | | | | | |
| Total revenues | | $ | 8,717 | | | $ | 8,776 | | | $ | 9,324 | | | $ | 9,532 | |
| Total expenses | | $ | 8,912 | | | $ | 8,188 | | | $ | 7,634 | | | $ | 10,420 | |
| Net income (loss) | | $ | (91) | | | $ | 510 | | | $ | 1,379 | | | $ | (663) | |
| Less: Net income (loss) attributable to noncontrolling interests | | $ | (2) | | | $ | 43 | | | $ | — | | | $ | — | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | | $ | (89) | | | $ | 467 | | | $ | 1,379 | | | $ | (663) | |
| 2022 | | | | | | | | |
| Total revenues | | $ | 9,517 | | | $ | 9,448 | | | $ | 17,646 | | | $ | 8,836 | |
| Total expenses | | $ | 7,232 | | | $ | 7,379 | | | $ | 15,793 | | | $ | 8,114 | |
| Net income (loss) | | $ | 1,882 | | | $ | 1,684 | | | $ | 1,510 | | | $ | 580 | |
| Less: Net income (loss) attributable to noncontrolling interests | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | 24 | |
| Net income (loss) attributable to Metropolitan Life Insurance Company | | $ | 1,882 | | | $ | 1,682 | | | $ | 1,508 | | | $ | 556 | |
21. Related Party Transactions
Service Agreements
The Company has entered into various agreements with affiliates for services necessary to conduct its activities. Typical services provided under these agreements include personnel, policy administrative functions and distribution services. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual cost incurred by the Company and/or its affiliates. Expenses and fees incurred with affiliates related to these agreements, recorded in other expenses, were $3.0 billion, $2.7 billion $2.5 billion and $2.4$2.5 billion for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively. Total revenues received from affiliates related to these agreements were $48$52 million, $40$48 million and $40 million for the years ended December 31, 2023, 2022 2021 and 2020,2021, respectively.
The Company had net payables to affiliates, related to the items discussed above, of $188$56 million and $143$188 million at December 31, 20222023 and 2021,2022, respectively.
See Notes 1, 5, 7, 118, 10, 14 and 1215 for additional information on related party transactions.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule I
Consolidated Summary of Investments —
Other Than Investments in Related Parties (1)
December 31, 20222023
(In millions)
| | Types of Investments | Types of Investments | Cost or
Amortized Cost (2) | | Estimated
Fair
Value | | Amount at
Which Shown on
Balance Sheet | Types of Investments | Cost or
Amortized Cost (2) | | Estimated
Fair
Value | | Amount at
Which Shown on
Balance Sheet |
| Fixed maturity securities AFS: | Fixed maturity securities AFS: | | | | | |
| Bonds: | Bonds: | |
| Bonds: | |
| Bonds: | |
| U.S. government and agency | |
| U.S. government and agency | |
| U.S. government and agency | U.S. government and agency | $ | 24,409 | | | $ | 22,358 | | | $ | 22,358 | |
| Public utilities | Public utilities | 6,107 | | | 5,684 | | | 5,684 | |
| Municipals | Municipals | 7,880 | | | 7,464 | | | 7,464 | |
| Foreign government | Foreign government | 3,711 | | | 3,459 | | | 3,459 | |
| All other corporate bonds | All other corporate bonds | 76,748 | | | 68,651 | | | 68,651 | |
| Total bonds | Total bonds | 118,855 | | | 107,616 | | | 107,616 | |
| Mortgage-backed, asset-backed and collateralized loan obligations securities | Mortgage-backed, asset-backed and collateralized loan obligations securities | 40,869 | | | 37,212 | | | 37,212 | |
| Redeemable preferred stock | Redeemable preferred stock | 753 | | | 748 | | | 748 | |
| Total fixed maturity securities AFS | Total fixed maturity securities AFS | 160,477 | | | 145,576 | | | 145,576 | |
| | Mortgage loans | Mortgage loans | 63,018 | | | | | 62,570 | |
| | Mortgage loans | |
| | Mortgage loans | |
| | Policy loans | |
| | Policy loans | |
| | Policy loans | Policy loans | 5,729 | | | 5,729 | |
| Real estate and real estate joint ventures | Real estate and real estate joint ventures | 8,237 | | | 8,237 | |
| Real estate acquired in satisfaction of debt | Real estate acquired in satisfaction of debt | 179 | | | 179 | |
| Other limited partnership interests | Other limited partnership interests | 7,887 | | | 7,887 | |
| Short-term investments | Short-term investments | 2,721 | | | 2,759 | |
| Other invested assets | Other invested assets | 19,167 | | | 19,148 | |
| Total investments | Total investments | $ | 267,415 | | | $ | 252,085 | |
(1)Includes investments in related parties of $4.5$4.1 billion; see Notes 5, 78, 10 and 811 of the Notes to Consolidated Financial Statements for further information.
(2)Amortized cost for fixed maturity securities AFS, mortgage loans, policy loans and short-term investments represents original cost reduced by repayments and adjusted for amortization of premium or accretion of discount; for real estate, cost represents original cost reduced by impairments and depreciation; for real estate joint ventures and other limited partnership interests, cost represents original cost reduced for impairments and adjusted for equity in earnings and distributions.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated Supplementary Insurance Information
December 31, 20222023 and 20212022
(In millions)
| | Segment | Segment | | DAC
and
VOBA | | Future Policy Benefits,
Other Policy-Related
Balances and
Policyholder Dividend
Obligation | | Policyholder
Account
Balances | | Policyholder
Dividends
Payable | | Unearned
Premiums (1), (2) | | Unearned
Revenue (1) | Segment | | DAC
and
VOBA | | Future Policy Benefits,
Other Policy-Related
Balances and
Policyholder Dividend
Obligation | | Policyholder
Account
Balances | | Market Risk Benefits (Assets) Liabilities (1) | | Policyholder
Dividends
Payable | | Unearned
Premiums (2), (3) | | Unearned
Revenue (2) |
| 2022 | | | | | | | | | | | | |
| U.S. | | $ | 411 | | | $ | 74,451 | | | $ | 73,609 | | | $ | — | | | $ | 300 | | | $ | 19 | |
| 2023 | |
| Group Benefits (4) | |
| Group Benefits (4) | |
| Group Benefits (4) | |
| RIS (4) | |
| MetLife Holdings | MetLife Holdings | | 4,732 | | | 67,006 | | | 20,278 | | | 240 | | | 155 | | | 157 | |
| Corporate & Other | Corporate & Other | | 120 | | | 131 | | | 6,080 | | | — | | | — | | | — | |
| Total | Total | | $ | 5,263 | | | $ | 141,588 | | | $ | 99,967 | | | $ | 240 | | | $ | 455 | | | $ | 176 | |
| 2021 | | | | | | | | | | | | |
| U.S. | | $ | 401 | | | $ | 72,530 | | | $ | 72,933 | | | $ | — | | | $ | 304 | | | $ | 21 | |
| 2022 | |
| Group Benefits (4) | |
| Group Benefits (4) | |
| Group Benefits (4) | |
| RIS (4) | |
| MetLife Holdings | MetLife Holdings | | 2,191 | | | 69,367 | | | 21,306 | | | 312 | | | 154 | | | 158 | |
| Corporate & Other | Corporate & Other | | 6 | | | 153 | | | 220 | | | — | | | — | | | — | |
| Total | Total | | $ | 2,598 | | | $ | 142,050 | | | $ | 94,459 | | | $ | 312 | | | $ | 458 | | | $ | 179 | |
|
_____________
(1)MRBs assets and liabilities are presented net.
(2)Amounts are included within the future policy benefits, other policy-related balances and policyholder dividend obligation column.
(2)(3)Includes premiums received in advance.
(4)See Note 2 for information on the reorganization of the Company’s segments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated Supplementary Insurance Information — (continued)
Years Ended December 31, 2023, 2022 2021 and 20202021
(In millions)
| | Segment | Segment | | Premiums and Universal Life
and Investment-Type
Product Policy Fees | | Net
Investment
Income | | Policyholder
Benefits and
Claims and
Interest Credited
to Policyholder
Account Balances | | Amortization of
DAC and
VOBA
Charged to
Other
Expenses | | Other
Expenses (1) | Segment | | Premiums and Universal Life
and Investment-Type
Product Policy Fees | | Net
Investment
Income | | Policyholder Benefits and
Claims, Policyholder Liability Remeasurement (Gains) Losses and Interest Credited to Policyholder Account Balances | | Market Risk Benefit Remeasurement (Gains) Losses | | Amortization of
DAC and
VOBA
Charged to
Other
Expenses | | Other
Expenses (1) |
| 2023 | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| RIS (2) | |
| MetLife Holdings | |
| Corporate & Other | |
| Total | |
| 2022 | 2022 | | | | | | | | | | |
| U.S. | | $ | 29,825 | | | $ | 6,056 | | | $ | 30,495 | | | $ | 55 | | | $ | 3,408 | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| RIS (2) | |
| MetLife Holdings | MetLife Holdings | | 3,370 | | | 4,188 | | | 4,774 | | | 84 | | | 1,368 | |
| Corporate & Other | Corporate & Other | | — | | | (122) | | | 67 | | | 5 | | | 1,194 | |
| Total | Total | | $ | 33,195 | | | $ | 10,122 | | | $ | 35,336 | | | $ | 144 | | | $ | 5,970 | |
| 2021 | 2021 | | | | | | | | | | |
| U.S. | | $ | 24,566 | | | $ | 6,960 | | | $ | 25,893 | | | $ | 56 | | | $ | 3,212 | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| Group Benefits (2) | |
| RIS (2) | |
| MetLife Holdings | MetLife Holdings | | 3,687 | | | 5,561 | | | 5,557 | | | 203 | | | 1,574 | |
| Corporate & Other | Corporate & Other | | — | | | (35) | | | — | | | — | | | 1,300 | |
| Total | Total | | $ | 28,253 | | | $ | 12,486 | | | $ | 31,450 | | | $ | 259 | | | $ | 6,086 | |
| 2020 | | | | | | | | | | |
| U.S. | | $ | 18,822 | | | $ | 6,053 | | | $ | 19,424 | | | $ | 56 | | | $ | 3,042 | |
| MetLife Holdings | | 3,914 | | | 4,355 | | | 5,897 | | | 350 | | | 1,707 | |
| Corporate & Other | | 1 | | | (158) | | | — | | | — | | | 759 | |
| Total | | $ | 22,737 | | | $ | 10,250 | | | $ | 25,321 | | | $ | 406 | | | $ | 5,508 | |
_____________
(1)Includes other expenses and policyholder dividends, excluding amortization of DAC and VOBA charged to other expenses.
(2)See Note 2 for information on the reorganization of the Company’s segments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule IV
Consolidated Reinsurance
December 31, 2023, 2022 2021 and 20202021
(Dollars in millions)
| | Gross Amount | | Ceded | | Assumed | | Net Amount | | % Amount
Assumed
to Net |
| | Gross Amount | | | | Gross Amount | | Ceded (1) | | Assumed (1) | | Net Amount | | % Amount
Assumed
to Net |
| 2023 | |
| Life insurance in-force | |
| Life insurance in-force | |
| Life insurance in-force | | | $ | 4,276,976 | | | $ | 160,983 | | | $ | 660,504 | | | $ | 4,776,497 | | | 13.8 | % |
| Insurance premium | |
| Life insurance (2) | |
| Life insurance (2) | |
| Life insurance (2) | | | $ | 14,418 | | | $ | 704 | | | $ | 807 | | | $ | 14,521 | | | 5.6 | % |
| Accident & health insurance | | Accident & health insurance | | 10,609 | | | 452 | | | 40 | | | 10,197 | | | 0.4 | % |
| Total insurance premium | | Total insurance premium | | $ | 25,027 | | | $ | 1,156 | | | $ | 847 | | | $ | 24,718 | | | 3.4 | % |
| 2022 | 2022 | | | | | | | | | | |
| Life insurance in-force | Life insurance in-force | | $ | 4,074,989 | | | $ | 149,129 | | | $ | 538,168 | | | $ | 4,464,028 | | | 12.1 | % |
| Life insurance in-force | |
| Life insurance in-force | | | $ | 4,074,989 | | | $ | 149,129 | | | $ | 538,168 | | | $ | 4,464,028 | | | 12.1 | % |
| Insurance premium | Insurance premium | | | | | | | | | |
| Life insurance (1) | | $ | 21,258 | | | $ | 769 | | | $ | 829 | | | $ | 21,318 | | | 3.9 | % |
| Life insurance (2) | |
| Life insurance (2) | |
| Life insurance (2) | | | $ | 21,248 | | | $ | 769 | | | $ | 830 | | | $ | 21,309 | | | 3.9 | % |
| Accident & health insurance | Accident & health insurance | | 10,017 | | | 179 | | | 42 | | | 9,880 | | | 0.4 | % | Accident & health insurance | | 10,017 | | | 179 | | 179 | | | 42 | | 42 | | | 9,880 | | 9,880 | | | 0.4 | | 0.4 | % |
| Total insurance premium | Total insurance premium | | $ | 31,275 | | | $ | 948 | | | $ | 871 | | | $ | 31,198 | | | 2.8 | % | Total insurance premium | | $ | 31,265 | | | $ | | $ | 948 | | | $ | | $ | 872 | | | $ | | $ | 31,189 | | | 2.8 | | 2.8 | % |
| 2021 | 2021 | | | | | | | | | |
| Life insurance in-force | Life insurance in-force | | $ | 3,991,763 | | | $ | 164,834 | | | $ | 546,176 | | | $ | 4,373,105 | | | 12.5 | % |
| Life insurance in-force | |
| Life insurance in-force | | | $ | 3,991,763 | | | $ | 164,834 | | | $ | 546,176 | | | $ | 4,373,105 | | | 12.5 | % |
| Insurance premium | Insurance premium | | | | | | | | | |
| Life insurance (1) | | $ | 13,631 | | | $ | 792 | | | $ | 4,080 | | | $ | 16,919 | | | 24.1 | % |
| Life insurance (2) | |
| Life insurance (2) | |
| Life insurance (2) | | | $ | 13,628 | | | $ | 792 | | | $ | 4,080 | | | $ | 16,916 | | | 24.1 | % |
| Accident & health insurance | Accident & health insurance | | 9,377 | | | 146 | | | 41 | | | 9,272 | | | 0.4 | % | Accident & health insurance | | 9,377 | | | 146 | | 146 | | | 41 | | 41 | | | 9,272 | | 9,272 | | | 0.4 | | 0.4 | % |
| Total insurance premium | Total insurance premium | | $ | 23,008 | | | $ | 938 | | | $ | 4,121 | | | $ | 26,191 | | | 15.7 | % | Total insurance premium | | $ | 23,005 | | | $ | | $ | 938 | | | $ | | $ | 4,121 | | | $ | | $ | 26,188 | | | 15.7 | | 15.7 | % |
| 2020 | | | | | | | | | |
| Life insurance in-force | | $ | 3,793,310 | | | $ | 178,420 | | | $ | 507,488 | | | $ | 4,122,378 | | | 12.3 | % |
| Insurance premium | | | | | | | | | |
| Life insurance (1) | | $ | 12,304 | | | $ | 862 | | | $ | 870 | | | $ | 12,312 | | | 7.1 | % |
| Accident & health insurance | | 8,517 | | | 127 | | | 39 | | | 8,429 | | | 0.5 | % |
| Total insurance premium | | $ | 20,821 | | | $ | 989 | | | $ | 909 | | | $ | 20,741 | | | 4.4 | % |
______________
(1) Includes annuities withFor the year ended December 31, 2023, reinsurance ceded and assumed included affiliated transactions for life contingencies.
insurance in-force of $12.1 billion and $338 million, respectively, and life insurance premiums of $372 million and ($19) million, respectively. For the year ended December 31, 2022, reinsurance ceded and assumed included affiliated transactions for life insurance in-force of $12.7 billion and $2$2.0 billion, respectively, and life insurance premiums of $139 million and $7 million, respectively. For the year ended December 31, 2021, reinsurance ceded and assumed included affiliated transactions for life insurance in-force of $13.7 billion and $1.9 billion, respectively, and life insurance premiums of $114 million and $3.2 billion, respectively. For the year ended December 31, 2020, reinsurance ceded and assumed included affiliated transactions for
(2) Includes annuities with life insurance in-force of $14.0 billion and $1.1 billion, respectively, and life insurance premiums of $113 million and $8 million, respectively.contingencies.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act.Act of 1934, as amended (“Exchange Act”). The Company has designed these controls and procedures to ensure that information the Company is required to disclose in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to Company management, including the CEO and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure.
Management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2022.2023.
During the first quarter of 2023, the Company adopted LDTI resulting in material changes to certain measurement models and disclosures for periodic results and balances related to long-duration insurance contracts. To address the additional requirements under LDTI, the Company implemented changes to policies and processes for the estimation and disclosure of these periodic results and balances.
There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act during the quarter ended December 31, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. In fulfilling this responsibility, management’s estimates and judgments must assess the expected benefits and related costs of control procedures. The Company’s internal control objectives include providing management with reasonable, but not absolute, assurance that the Company has safeguarded assets against loss from unauthorized use or disposition, and that the Company has executed transactions in accordance with management’s authorization and recorded them properly to permit the preparation of consolidated financial statements in conformity with GAAP.
Management evaluated the design and operating effectiveness of the Company’s internal control over financial reporting based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In the opinion of management, Metropolitan Life Insurance Company maintained effective internal control over financial reporting as of December 31, 2022.2023.
Item 9B. Other Information
None.Securities trading plans
During the three months ended December 31, 2023, none of our Section 16 officers or directors (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Section 408(c) of Regulation S-K).
Iran activity
Pursuant to Section 13(r) of the Exchange Act, the Company is required to disclose in its periodic reports whether it or any of its affiliates knowingly conducted transactions or dealings with the Government of Iran, or any person or entity owned or controlled, directly or indirectly, by the Government of Iran or any of its subdivisions, agencies or instrumentalities (a “Government Related Entity”). The activities described below and reportable under Section 13(r) took place during the nine months ended September 30, 2023, and were reported in the Quarterly Reports on Form 10-Q for the second and third fiscal quarters of 2023 after they became known to management.
In the second quarter of 2023, an affiliate of the Company that is a subsidiary of MetLife, Inc. but not the Company (the “Affiliate”) issued group medical policies to (i) the Iranian Khadije Kobra School in Dubai, United Arab Emirates (“UAE”), an educational organization that appears to be owned or controlled, directly or indirectly, by a Government Related Entity, and (ii) the Directorate of Iranian Schools in the UAE, an educational organization that appears to be owned or controlled, directly or indirectly, by a Government Related Entity. The Affiliate recorded in its consolidated financial statements for the year ended December 31, 2023 approximately $78 thousand of premiums related to these policies that were received during the year ended December 31, 2023. The Affiliate paid approximately seven thousand dollars in claims under these policies during the year ended December 31, 2023. These transactions did not have any impact on the Company’s consolidated financial statements.
In the third quarter of 2023, after further investigation, MetLife determined that two former policyholders, (i) the Al Adab Iranian Private School for Boys in Dubai, UAE (“Al Adab”), and (ii) the Iranian Towheed Boys School in Dubai, UAE (“Iranian Towheed”), may be owned or controlled, directly or indirectly, by a Government Related Entity. The Affiliate issued two group insurance policies to Al Adab in March 2021 and two group medical policies and one group life insurance policy to Iranian Towheed in March 2022, all of which terminated in March 2023 in accordance with their terms. The Affiliate did not receive any premiums and paid approximately $84 thousand in claims under these policies during the year ended December 31, 2023. These transactions did not have any impact on the Company’s consolidated financial statements.
In each case, MetLife does not intend to continue any services related to or involving the policies. MetLife has investigated the circumstances of the issuance of each policy. MetLife does not intend to conduct any transactions or dealings with a Government Related Entity not authorized by a U.S. federal department or agency.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
Item 14. Principal Accountant Fees and Services
Deloitte & Touche LLP (“Deloitte”), the independent auditor of MetLife, Inc., has served as the independent auditor of the Company since at least 1968. Its long-term knowledge of the MetLife group of companies, combined with its insurance industry expertise and global presence, has enabled it to carry out its audits of the Company’s consolidated financial statements with effectiveness and efficiency. Deloitte is a registered public accounting firm with the Public Company Accounting Oversight Board (United States) (“PCAOB”) as required by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Rules of the PCAOB.
Under current legal requirements, the lead or concurring audit partner for MetLife may not serve in that role for more than five consecutive fiscal years, and the Audit Committee ensures the regular rotation of the audit engagement team partners as required by law. The Chair of the Audit Committee, together with other members of the Audit Committee and management of MetLife, Inc., is actively involved in the selection process for the lead and concurring partners.
Independent Auditor’s Fees for 20222023 and 20212022
The table below presents fees for professional services rendered by Deloitte for the audit of the Company’s annual consolidated financial statements, audit-related services, tax services and all other services for the years ended December 31, 20222023 and 2021.2022. All fees shown in the table were related to services that were approved by the Audit Committee.
| | 2022 | | 2021 |
| (In millions) |
| 2023 | | | 2023 | | 2022 |
| (In millions) | | | (In millions) |
| Audit fees (1) | Audit fees (1) | $ | 44.3 | | | $ | 40.3 | |
| Audit-related fees (2) | Audit-related fees (2) | $ | 3.9 | | | $ | 3.9 | |
| Tax fees (3) | Tax fees (3) | $ | — | | | $ | — | |
| All other fees (4) | All other fees (4) | $ | 0.1 | | | $ | 0.7 | |
______________
(1)Fees for services to perform an audit or review in accordance with auditing standards of the PCAOB and services that generally only the Company’s independent auditor can reasonably provide, such as comfort letters, statutory audits, attest services, consents, and assistance with and review of documents filed with the SEC. The fees for the year ended December 31, 2023, reflect a refinement to the process of allocating total MetLife, Inc. fees to its subsidiaries. In addition, the trend of the audit fees from 2022 to 2023 reflects a decrease due to prior year fees associated with the adoption of targeted improvements to the accounting for long-duration contracts.
(2)Fees for assurance and related services, such as merger and acquisition due diligence requests, consultation services on internal control matters, and attestation services related to internal control over financial reporting, including System and Organization Control (SOC) audit reports, as mandated by Statement on Standards for Attestation Engagements No. 18 (SSAE 18)., as well as compliance reports and employee benefit plan audits.
(3)Fees for tax compliance, consultation, and planning services. Tax compliance generally involves preparation of original and amended tax returns, claims for refunds and tax payment planning services. Tax consultation and tax planning encompass a diverse range of advisory services, including assistance in connection with tax audits and filing appeals, transfer pricing, tax advice related to mergers, acquisitions and divestitures, advice related to employee benefit plans and requests for rulings or technical advice from taxing authorities.
(4)Fees for other types of permitted services, including consulting, financial advisory services, and actuarial services.
Approval of Fees
The Audit Committee approves Deloitte’s audit and non-audit services in advance as required under Sarbanes-Oxley and SEC rules. Before the commencement of each fiscal year, the Audit Committee appoints the independent auditor to perform pre-approved audit services and pre-approved audit-related, tax and other permitted non-audit services that MetLife expects to be performed for the fiscal year. The Audit Committee or a designated member of the Audit Committee to whom authority has been delegated may, from time to time, pre-approve additional audit and non-audit services to be performed by MetLife’s independent auditor. Any pre-approval of services between Audit Committee meetings must be reported to the full Audit Committee at its next scheduled meeting.
The Audit Committee is responsible for approving fees for the audit and for any audit-related, tax or other permitted non-audit services. If the audit, audit-related, tax and other permitted non-audit fees for a particular period or service exceed the amounts previously approved, the Audit Committee determines whether or not to approve the additional fees.
Part IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 74.68.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 74.68.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins on page 206.222.
Item 16. Form 10-K Summary
None.
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Metropolitan Life Insurance Company, its subsidiaries or affiliates, or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Metropolitan Life Insurance Company, its subsidiaries and affiliates may be found elsewhere in this Annual Report on Form 10-K and Metropolitan Life Insurance Company’s other public filings, which are available without charge through the SEC’s website at www.sec.gov.)
| | Incorporated By Reference | |
| | | | Incorporated By Reference | |
| Exhibit No. | |
| Exhibit No. | |
| Exhibit No. | Exhibit No. | | Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith | | Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith |
| | 2.1 | 2.1 | | | | S-1 | | 333-91517 | | 2.1 | | November 23, 1999 | |
| 2.1 | |
| 2.1 | |
| | 2.2 | |
| | 2.2 | |
| | 2.2 | 2.2 | | | | S-1/A | | 333-91517 | | 2.2 | | March 29, 2000 | |
| | 3.1 | 3.1 | | | | 8-K | | 000-55029 | | 3.2 | | May 19, 2016 | |
| | 3.1 | |
| | 3.1 | |
| | 3.2 | |
| | 3.2 | |
| | 3.2 | 3.2 | | | | 8-K | | 000-55029 | | 3.2 | | August 26, 2022 | |
| | 4.1 | 4.1 | | | | X |
| | 4.1 | |
| | 4.1 | | | | | | | | | | | | | X |
| | 10.1 | |
| 10.1 | |
| 10.1 | 10.1 | | Amended and Restated Credit Agreement, dated as of February 26, 2021, amending and restating the Five-Year Credit Agreement, dated as of August 4, 2017, among MetLife, Inc. and MetLife Funding, Inc., as borrowers, and the other parties signatory thereto. | | 8-K | | 001-15787 | | 10.1 | | March 2, 2021 | |
| | 23.1 | 23.1 | | | | X |
| | 23.1 | |
| | 23.1 | | | | | | | | | | | | | X |
| | 31.1 | |
| 31.1 | |
| 31.1 | | | | | | | | | | | | | X |
| | 31.2 | |
| 31.2 | |
| 31.2 | | | | | | | | | | | | | X |
| | 32.1 | |
| 32.1 | |
| 32.1 | | | | | | | | | | | | | X |
| | 32.2 | |
| 32.2 | |
| 32.2 | | | | | | | | | | | | | X |
| | 101.SCH | |
| 101.SCH | |
| 101.SCH | | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | X |
| | 101.CAL | |
| 101.CAL | |
| 101.CAL | | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | X |
| | 101.DEF | |
| 101.DEF | |
| 101.DEF | | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | X |
| | 101.LAB | |
| 101.LAB | |
| 101.LAB | | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | | | X |
| | 101.PRE | |
| 101.PRE | |
| 101.PRE | | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | X |
| | 101.INS | |
| 101.INS | |
| 101.INS | | | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
| | 104 | |
| 104 | |
| 104 | | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated By Reference | | |
Exhibit No. | | Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith |
31.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
32.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
32.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | X |
| | | | | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | X |
| | | | | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | X |
| | | | | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | | | X |
| | | | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | X |
| | | | | | | | | | | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
| | | | | | | | | | | | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). | | | | | | | | | | X |
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.
March 8, 20236, 2024
| | | | | | | | | | | |
| METROPOLITAN LIFE INSURANCE COMPANY |
| | | |
| By: | | /s/ Michel A. Khalaf |
| | Name: | Michel A. Khalaf |
| | Title: | 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/ Cheryl W. Grisé | | Director | | March 8, 20236, 2024 |
| Cheryl W. Grisé | | | | |
| | | | |
| /s/ Carlos M. Gutierrez | | Director | | March 8, 20236, 2024 |
| Carlos M. Gutierrez | | | | |
| | | | |
| /s/ Carla A. Harris | | Director | | March 8, 20236, 2024 |
| Carla A. Harris | | | | |
| | | | |
| /s/ Gerald L. Hassell | | Director | | March 8, 20236, 2024 |
| Gerald L. Hassell | | | | |
| | | | |
| /s/ David L. Herzog | | Director | | March 8, 20236, 2024 |
| David L. Herzog | | | | |
| | | | |
| /s/ R. Glenn Hubbard | | Chairman of the Board | | March 8, 20236, 2024 |
| R. Glenn Hubbard | | | | |
| | | | |
| /s/ Jeh C. Johnson | | Director | | | March 6, 2024 |
| Jeh C. Johnson | | | | |
| | | | |
| /s/ Edward J. Kelly, III | | Director | | March 8, 20236, 2024 |
| Edward J. Kelly, III | | | | |
| | | | |
| /s/ William E. Kennard | | Director | | March 8, 20236, 2024 |
| William E. Kennard | | | | |
| | | | |
| /s/ Catherine R. Kinney | | Director | | March 8, 20236, 2024 |
| Catherine R. Kinney | | | | |
| | | | |
| /s/ Diana L. McKenzie | | Director | | March 8, 20236, 2024 |
| Diana L. McKenzie | | | | |
| | | | |
| /s/ Denise M. Morrison | | Director | | March 8, 20236, 2024 |
| Denise M. Morrison | | | | |
| | | | |
| /s/ Mark A. Weinberger | | Director | | March 8, 20236, 2024 |
Mark A. Weinberger
| | | | |
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Michel A. Khalaf | | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 8, 20236, 2024 |
| Michel A. Khalaf | | | |
| | | | |
| /s/ John D. McCallion | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | March 8, 20236, 2024 |
| John D. McCallion | | | |
| | | | |
| /s/ Tamara L. Schock | | Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) | | March 8, 20236, 2024 |
| Tamara L. Schock | | | |