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METLIFE INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
Index to Management's Discussion and Analysis of Financial Condition and Results
of Operations
Page
Forward-Looking Statements and Other Financial Information 52
Executive Summary 52
Consolidated Company Outlook 54
Industry Trends 55
Summary of Critical Accounting Estimates 62
Acquisitions and Dispositions 70
Results of Operations 71
Investments 88
Derivatives 104
Policyholder Liabilities 106
Liquidity and Capital Resources 113
Adopted Accounting Pronouncements 129
Future Adoption of Accounting Pronouncements 129
Non-GAAP and Other Financial Disclosures 130
Risk Management 133
Subsequent Events 135
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Forward-Looking Statements and Other Financial Information
For purposes of this discussion, "MetLife ," the "Company," "we," "our" and "us" refer toMetLife, Inc. , aDelaware corporation incorporated in 1999, its subsidiaries and affiliates. This discussion should be read in conjunction with "Note Regarding Forward-Looking Statements," "Risk Factors," "Quantitative and Qualitative Disclosures About Market Risk" and the Company's consolidated financial statements included elsewhere herein. This Management's Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See "Note Regarding Forward-Looking Statements" for cautionary language regarding forward-looking statements. This Management's Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, adjusted earnings and adjusted earnings available to common shareholders, that are not based on GAAP. See "- Non-GAAP and Other Financial Disclosures" for definitions and a discussion of these and other financial measures, and "- Results of Operations" and "- Investments" for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures. For information relating to the Company's financial condition and results of operations as of and for the year endedDecember 31, 2020 , as well as for the year endedDecember 31, 2021 compared with the year endedDecember 31, 2020 , see "Management's Discussion and Analysis of Financial Condition and Results of Operations" inMetLife, Inc.'s Annual Report on Form 10-K for the year endedDecember 31, 2021 . Executive Summary OverviewMetLife is one of the world's leading financial services companies, providing insurance, annuities, employee benefits and asset management.MetLife is organized into five segments:U.S. ;Asia ;Latin America ; EMEA; andMetLife Holdings . In addition, the Company reports certain of its results of operations in Corporate & Other. See "Business - Segments and Corporate & Other" and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company's segments and Corporate & Other.
Current Year Highlights
During 2022, adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased compared to 2021 driven by growth in ourU.S. segment, primarily in our RIS business. Equity market returns had a less favorable impact on our private equity funds and hedge funds compared to 2021 and resulted in lower investment yields, however, positive net flows drove an increase in our investment portfolio. An unfavorable change in net investment gains (losses) primarily reflects 2022 losses versus 2021 gains on sales of fixed maturity securities and the 2021 gain on the sale ofMetropolitan Property and Casualty Insurance Company and certain of its wholly-owned subsidiaries (collectively, "MetLife P&C"), partially offset by the 2021 losses on the sale of certain subsidiaries. Higher long-term interest rates drove an unfavorable change in net derivative gains (losses). Underwriting experience was favorable and reflected an overall decline in COVID-19 related claims. Our actuarial assumption review resulted in a gain in 2022 versus a charge in 2021. In addition, 2022 results include the favorable impact from a reinsurance recapture and the unfavorable impact from model refinements. 52
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The following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year endedDecember 31, 2022 :
[[Image Removed: met-20221231_g4.jpg]]
(1) Excludes Corporate & Other adjusted loss available to common shareholders of
(2) Consistent with GAAP guidance for segment reporting, adjusted earnings is
our GAAP measure of segment performance. For additional information, see Note 2
of the Notes to the Consolidated Financial Statements.
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Year Ended
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.'s
common shareholders down $4.0 billion:
• Unfavorable change in net investment
gains (losses) of $2.8 billion ($2.2
billion, net of income tax)
• Unfavorable change in net derivative
gains (losses) of $144 million ($114
[[Image Removed: met-20221231_g5.jpg]] million, net of income tax)(2)
• Favorable change from actuarial
assumption reviews of $356 million
($269 million , net of income tax)(3)
• Adjusted earnings available to common
shareholders down $2.4 billion
(1) See "- Results of Operations - Consolidated Results" and "- Non-GAAP and Other Financial Disclosures" for reconciliations and
definitions of non-GAAP financial measures.
(2) Includes amounts relating to investment hedge adjustments, which are also included in adjusted earnings available to common
shareholders. See "- Investments - Current Environment - Investment Portfolio Results" for additional information.
(3) Includes amounts recognized in net derivative gains (losses) and adjusted earnings available to common shareholders. See "-
Results of Operations - Consolidated Results - Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021 - Actuarial
Assumption Review and Certain Other Insurance Adjustments" for additional information.
Consolidated Results - Adjusted Earnings Highlights
Adjusted earnings available to common shareholders was down $2.4 billion primarily due to (i) lower investment yields as a result of
the unfavorable impact of lower equity market returns on our private equity funds and hedge funds, (ii) higher interest credited
expense and (iii) higher expenses, partially offset by (i) higher net investment income due to a larger average invested asset base,
and (ii) favorable underwriting, primarily driven by an overall decline in COVID-19 related claims.
Our results for 2022 also included the favorable impacts from a reinsurance recapture in our U.S. segment, a reinsurance settlement in
our MetLife Holdings segment and our actuarial assumption review, as well as the unfavorable impact from model refinements in our
MetLife Holdings segment. Our results for 2021 included the favorable impacts of tax adjustments related to an IRS audit settlement
and the non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to its U.S. parent, as well as the release of a
legal reserve, all in Corporate & Other, and the unfavorable impact of our actuarial assumption review.
For a more in-depth discussion of our consolidated results, see "- Results of
Operations - Consolidated Results," "- Results of Operations - Consolidated
Results - Adjusted Earnings" and "- Results of Operations - Segment Results and
Corporate & Other."
Consolidated Company Outlook
Our outlook reflects the impacts of the adoption of targeted improvements to the
accounting for long-duration contracts ("LDTI"). We assume COVID-19 to be
endemic consistent with the recent trends that we have been experiencing. We
expect continued uncertainty to persist around inflation and a potential
recession.
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We expect interest rates to remain elevated relative toDecember 31, 2022 . We believe that our investment portfolio is highly diversified and positioned to perform well in a variety of economic scenarios. See "- Industry Trends - Impact of Market Interest Rates" for discussion of the mitigating actions the Company has taken to reduce interest rate sensitivity, as market interest rates are a key driver of our results. As ofDecember 31, 2022 , we had$5.4 billion of cash and liquid assets at the holding companies which is above the high end of our$3.0 billion to$4.0 billion holding company cash target. In 2023, we expect to maintain this holding company cash target. Our continued capital stress testing and longstanding commitment to liquidity position us to withstand a variety of economic conditions. We do not expect any material liquidity deficiencies, and we expect to remain able to comply with the financial covenants of our credit agreements. See "- Liquidity and Capital Resources." We will continue reviewing accounting estimates, asset valuations and various financial scenarios for capital and liquidity implications. See "- Investments - Current Environment" and "Risk Factors" for additional information. Assuming (i) interest rates following the observable forward yield curves as ofDecember 31, 2022 , including a 10-yearU.S. Treasury rate of 3.88% atDecember 31, 2022 , and 3.84% atDecember 31, 2023 , (ii) S&P 500 equity index annual return of 5% over the near-term, and (iii) private equity annual returns of 12% over the near-term consistent with historical long-term averages; we expect to maintain the two-year average annual ratio of free cash flow to adjusted earnings, excluding total notable items, at 65% to 75%. Further, based on the aforementioned assumptions, the growing impact of our mix of business and higher new business returns over the last several years, as well as the impact of LDTI, we are increasing our target for adjusted return on equity, excluding accumulated other comprehensive income ("AOCI") other than foreign currency translation adjustments ("FCTA") to 13% to 15% over the near-term. Lastly, we expect to exceed our goals to generate approximately$20.0 billion of free cash flow and make available an additional$1.0 billion to invest in growth and innovation, over the time period of 2020 through 2024. Our full year direct expense ratio target, excluding total notable items related to direct expenses and pension risk transfers, is 12.6% over the near-term. This increase from the previous target of 12.3% reflects a reduction in adjusted premiums, fees and other revenues, excluding pension risk transfers, due to the impact of the adoption of LDTI. Since this change in accounting will be applied retrospectively toJanuary 1, 2021 , our previously reported direct expense ratios will likewise be re-calibrated to put 2021 and 2022 on the same basis as 2023 and beyond. Our outlook relies on the accuracy of our assumptions about future economic and business conditions, which can be affected by known and unknown risks, uncertainties and other factors. We continually review our assumptions, implement mitigation plans, and take precautions. We may revise our outlook as we obtain more information regarding economic conditions, regulatory changes, and other events, and the impact of these events on our business operations, investment portfolio, derivatives, financial results and financial condition.
Industry Trends
We continue to be impacted by the changing global financial and economic
environment that has been affecting the industry.
Financial and Economic Environment
Our business and results of operations are materially affected by conditions in
the global financial markets and the economy generally due to our market
presence in numerous countries, our large investment portfolio and the
sensitivity of our insurance liabilities and derivatives to changing market
factors.
We are closely monitoring political and economic conditions that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives, such as global inflation, supply chain disruptions, theRussia -Ukraine conflict and the COVID-19 pandemic. We are also monitoring the imposition of tariffs, sanctions or other barriers to international trade, changes to international trade agreements, and their potential impacts on our business, results of operations and financial condition. See "- Impact of Market Interest Rates - Effects of Inflation," and "- Investments - Current Environment." 55
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Governments and central banks around the world are using fiscal and monetary policies to address uncertain economic conditions. In theU.S. , theFederal Reserve Board and theFederal Open Market Committee took various actions in 2022 to promote economic stability and combat inflation, including raising interest rates, although a heightened level of concern about an economic downturn in theU.S. remains. TheEuropean Central Bank andBank of England have been taking similar actions. In contrast, the Bank of Japan ("BoJ") has mostly kept its monetary policy settings on hold, reflecting a more cautious view on growth. The Japanese yen weakened to its lowest level against theU.S. dollar since the 1990s as monetary policy divergence has widened between the BoJ and theFederal Reserve Board .
Impact of Market Interest Rates
Market interest rates are a key driver of our results. Increases and decreases
in such rates, as well as extended periods of stagnation, may impact our
business and investments in various ways.
Effects of Inflation
Management believes that while inflation has not had a material effect on the Company's consolidated results of operations, except insofar as inflation may affect interest rates, both rising interest rates and inflation will have a neutral to modest impact on our business. See "- Impact of a Rising Interest Rate Environment" and "- Interest Rate Scenarios." An increase in inflation could affect our business in several ways. In our group life and disability businesses, premiums increase as compensation levels of our customers' employees increase. However, during inflationary periods 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. Inflation also increases expenses for labor and other costs, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.
Impact of a Sustained Low Interest Rate Environment
Sustained periods of low
•Reduce the difference between interest credited to policyholders and interest
earned on supporting assets ("gross margin");
•Reinvest investment proceeds in lower yielding assets and experience higher
frequency prepayment or redemption of assets in our portfolio;
•Increase our reserves related to policy liabilities and potentially impair
intangible assets;
•Reduce interest expense, change pension and other post-retirement benefit
calculations, and change derivative cash flows and market values;
•Change our product offerings, design features, crediting rates and sales mix;
and
•Experience changing policyholder behavior, including surrender or withdrawal
activity.
For additional discussion on gross margin and interest rate assumptions, as well as the potential impact of low interest rates, see "- Results of Operations - Consolidated Results - Year EndedDecember 31, 2022 Compared with the Year EndedDecember 31, 2021 -Actuarial Assumption Review and Certain Other Insurance Adjustments;" "Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions - Interest Rate Risks;" "Risk Factors - Business Risks - We May Be Required to Impair VOBA, VODA or VOCRA;" "Risk Factors - Business Risks - We May Be Required to Recognize an Impairment of OurGoodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against Our Deferred Income Tax Assets;" and "Risk Factors - Business Risks - We May Face Volatility, Higher Risk Management Costs, and Increased Counterparty Risk Due to Guarantees Within Certain of Our Products."
Impact of a Rising Interest Rate Environment
Periods of rising
•Reinvest investment proceeds in higher yielding assets and experience lower
frequency prepayment or redemption of assets in our portfolio;
•Decrease the value of our reserves related to policy liabilities;
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•Increase interest expense, change pension and other post-retirement benefit
calculations, and change derivative cash flows and market values; and
•Change our product offerings, design features, crediting rates and sales mix.
For additional discussion on the potential impact of rising interest rates, see "Risk Factors - Investment Risks - We May Change Our Securities and Investments Valuation, or Take Allowances and Impairments on Our Investments, or Change Our Methodologies, Estimations, and Assumptions."
Management Actions
To manage the impact of a changingU.S. interest rate environment, we maintain diversification across products, distribution channels, and geographies while proactively evaluating interest rate and product strategies. In addition, we apply disciplined asset/liability management ("ALM") strategies, including the use of derivatives. Our ability to take such actions may be limited by competition, regulatory approval requirements, or minimum crediting rate guarantees and may not match the timing or magnitude of interest rate changes.
In addition to proactive management strategies, businesses within our
America
impacts to our consolidated results given their limited
sensitivity.
For additional discussion on interest rate risk management and our ability to change interest crediting rates or dividend scales, see "Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions - Interest Rate Risks;" "- Policyholder Liabilities;" "- Risk Management;" and "Quantitative and Qualitative Disclosures About Market Risk - Management of Market Risk Exposures."
Interest Rate Scenarios
To illustrate our sensitivity toU.S. interest rates, we compared the outcome of two hypothetical interest rate environments (the "Declining Interest Rate Scenario" and "Rising Interest Rate Scenario") relative to our baseline economic assumptions (the "Base Scenario") through 2025. The Declining Interest Rate Scenario assumesU.S. interest rates for all maturities decline immediately onJanuary 1, 2023 by 50 basis points compared to the Base Scenario through 2025. The Rising Interest Rate Scenario assumesU.S. interest rates rise immediately onJanuary 1, 2023 by 50 basis points through 2025. Other than changingU.S. interest rates through 2025, all other economic assumptions are equivalent in the Base Scenario, Declining Interest Rate Scenario and Rising Interest Rate Scenario. The following table compares the most relevant interest rate assumptions for the dates indicated: Years Ended December 31, 2023 2024 2025 Declining Declining Declining Rising Interest Interest Rate Rising Interest Interest Rate Rising Interest Base Scenario Interest Rate Scenario Rate Scenario Base Scenario Scenario Rate Scenario Base Scenario Scenario Rate Scenario Three-month LIBOR 4.74% 4.24% 5.24% 3.52% 3.02% 4.02% 3.41% 2.91% 3.91% 10-yearU.S. Treasury 3.84% 3.34% 4.34% 3.86% 3.36% 4.36% 3.93% 3.43% 4.43% 30-yearU.S. Treasury 3.91% 3.41% 4.41% 3.89% 3.39% 4.39% 3.88% 3.38% 4.38%
Hypothetical Impact to Net Derivative Gains (Losses) and Adjusted Earnings
We estimate a net favorable impact to net derivative gains (losses) from non-VA program derivatives through 2025 for the hypothetical Declining Interest Rate Scenario. We hold significant positions in long-duration receive-fixedU.S. interest rate swaps, which are most sensitive to the 10-year and 30-year swap rates, to hedge reinvestment risk. We estimate a net unfavorable impact to net derivative gains (losses) from the non-VA program derivatives through 2025 for the hypothetical Rising Interest Rate Scenario. For purposes of the two hypothetical interest rate scenarios, we have excluded allVA program derivatives. For information regarding ourVA and non-VA program derivatives, see "- Results of Operations - Consolidated Results." 57
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We estimate a net unfavorable impact to consolidated adjusted earnings through 2025 for the hypothetical Declining Interest Rate Scenario. The negative impact of reinvesting cash flows in lower yielding assets is partially offset by lowering interest crediting rates and dividend scales on products, and additional derivative income. We estimate a net favorable impact to consolidated adjusted earnings through 2025 for the hypothetical Rising Interest Rate Scenario. The positive impact of reinvesting cash flows in higher yielding assets is partially offset by increased interest crediting rates and dividend scales on products and lower derivative income.
The following table summarizes the hypothetical impact on net derivative gains
(losses) and adjusted earnings for certain of our segments, as well as
Corporate & Other, for the Declining Interest Rate Scenario:
Years Ended December 31,
2023 2024 2025
(In millions - post-tax)
Net Derivative Gains (Losses):
Non-VA Program Derivatives $ 443 $ (6) $ (23)
Adjusted Earnings:
U.S. $ (49) $ (53) $ (65)
Group Benefits (4) (6) (16)
RIS (45) (47) (49)
Asia (Japan only) (3) (18) (37)
MetLife Holdings (17) (31) (42)
Corporate & Other 17 4 (25)
Total Adjusted Earnings Impact $ (52) $ (98)
The following table summarizes the hypothetical impact on net derivative gains
(losses) and adjusted earnings for certain of our segments, as well as
Corporate & Other, for the Rising Interest Rate Scenario:
Years Ended December 31,
2023 2024 2025
(In millions - post-tax)
Net Derivative Gains (Losses):
Non-VA Program Derivatives $ (347) $ - $ 13
Adjusted Earnings:
U.S. $ 55 $ 56 $ 71
Group Benefits 8 7 17
RIS 47 49 54
Asia (Japan only) 2 18 38
MetLife Holdings 33 42 47
Corporate & Other (2) 3 25
Total Adjusted Earnings Impact $ 88 $ 119 $ 181
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Segments and Corporate & Other
The primary drivers impacting certain of our segments, as well as Corporate & Other, in the hypothetical interest rate scenarios are summarized below. OurLatin America , EMEA, andAsia (exclusive of ourJapan business) segments are excluded given their limitedU.S. interest rate sensitivity. For additional information regarding account values subject to minimum crediting rate guarantees, the maturity profile of fixed maturity securities available-for-sale ("AFS"), and the yield on invested assets, see "- Investments," "- Policyholder Liabilities - Policyholder Account Balances," and Note 8 of the Notes to the Consolidated Financial Statements.
Group Benefits
Declining Interest Rate Scenario. Our group life insurance products are
primarily renewable term policies. This provides repricing flexibility to
mitigate the negative impact of reinvesting in lower yielding assets.
Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. Additionally, we experience gross margin compression from our disability policy claim reserves for which crediting rates cannot be reduced. We use interest rate derivatives to mitigate gross margin compression for both products. Gross margin compression is limited for our group disability products, which are generally renewable term policies allowing for crediting rate adjustments at renewal based on the retrospective experience rating and the prevailing interest rate assumptions. Rising Interest Rate Scenario. We reinvest our cash flows from our group insurance products in higher yielding assets, mitigating the impact of (i) higher interest crediting rates on, primarily, our retained asset accounts, and (ii) lower income from our derivative positions used to mitigate low interest rate margin compression.
Retirement and Income Solutions
This business contains both short- and long-duration products consisting of
capital market products, pension risk transfers, structured settlements, and
other benefit funding products.
The two hypothetical interest rate scenarios do not assume any additional ALM
actions we may take to preserve margins.
Declining Interest Rate Scenario. A significant portion of short-duration products are managed on a floating rate basis, which mitigates gross margin compression. Our long-duration products have very predictable cash flows and we use both interest rate derivatives and asset/liability duration matching to mitigate gross margin compression. These mitigating strategies partially offset the negative impact of reinvesting in lower yielding assets. Based on our investment portfolios and expected cash flows, only a small portion of invested assets are subject to reinvestment risk through 2025. Rising Interest Rate Scenario. Our long-duration products which have very predictable cash flows benefit from reinvesting in higher yielding assets, which is partially offset by the negative impact of lower income from derivative positions designed to protect against a low interest rate environment. A significant portion of our short-duration products are managed on a floating rate basis. The negative impact of higher crediting rates on these short-duration products is partially offset by higher income from derivative positions designed to protect against a rising interest rate environment.
Declining Interest Rate Scenario. OurJapan business offers traditional life insurance and accident & health products, many of which areU.S. dollar denominated. We experience gross margin compression to the extent our investment portfolios areU.S. interest rate sensitive and we are unable to offset the impact by lowering interest crediting rates. Additionally, we manage interest rate risk on our life products through a combination of product design features and ALM strategies. OurJapan business also offersU.S. dollar denominated annuities which are predominantly single premium products with crediting rates set upon issuance. This allows for tightly managing product ALM, cash flows and net spreads, which mitigates interest rate risk. 59
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Rising Interest Rate Scenario. ForU.S. dollar denominated products, higher reinvestment rates on cash flows from these products more than offset the negative impacts of (i) higher interest crediting rates on such products, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.MetLife Holdings Declining Interest Rate Scenario. Our interest rate sensitive life products include traditional and universal life products. Since most of our traditional life insurance is participating, we can mitigate gross margin compression by adjusting the applicable dividend scale. For our universal life products, we manage interest rate risk through a combination of product design features and ALM strategies, including the use of interest rate derivatives. Although we are able to mitigate gross margin compression by lowering interest crediting rates on certain in-force universal life policies, these actions may be partially offset by increased liabilities for policies with secondary guarantees. Our annuity products experience gross margin compression primarily from deferred annuities with minimum crediting rate guarantees. Most of these contracts are at their minimum crediting rate, and therefore we use interest rate derivatives to partially mitigate gross margin compression. Our long-term care business experiences gross margin compression as we cannot reduce interest crediting rates for established claim reserves. Long-term care policies are guaranteed renewable, and rates may be adjusted on a class basis with regulatory approval to reflect emerging experience. We review the discount rate assumptions and other assumptions associated with our long-term care claim reserves no less frequently than annually and, with respect to interest rates, set the discount rate based on the prevailing interest rate environment. Our retained asset accounts experience gross margin compression due to minimum crediting rate guarantees. Most of these accounts are at their minimum crediting rates and therefore we use interest rate derivatives to mitigate gross margin compression.
Based on our investment portfolios and cash flow estimates, approximately 5% of
our invested assets each year are subject to reinvestment risk through 2025.
Rising Interest Rate Scenario. Higher reinvestment rates on cash flows, over time, more than offset the negative impacts of (i) higher interest crediting rates, and (ii) lower income from derivative positions designed to protect against a low interest rate environment.
Corporate & Other
Corporate & Other contains the surplus investment portfolios used to fund capital and liquidity needs, certain reinsurance agreements, collateral financing arrangements, and our outstanding debt and preferred securities. For purposes of the two hypothetical interest rate scenarios, the impact on pension and postretirement plan expenses is included within Corporate & Other and not allocated across segments. Declining Interest Rate Scenario. The negative impact of reinvesting in lower yielding assets, over time, more than offsets the positive impact of lower interest expense on debt, preferred stock dividends and lower pension expense. Although low interest rates result in pension and other postretirement benefit liabilities increasing, the impact is more than offset by the corresponding returns on fixed income investments and results in lower expenses.
Rising Interest Rate Scenario. The positive impact of reinvesting in higher
yielding assets, over time, more than offsets the negative impact of higher
interest expense on debt, preferred stock dividends and higher pension expense.
Although higher interest rates result in pension and other postretirement
benefit liabilities decreasing, the impact is more than offset by the
corresponding returns on fixed income investments and results in higher
expenses.
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Competitive Pressures
The life insurance industry remains highly competitive. See "Business - Competition." Product development is focused on differentiation leading to more intense competition with respect to product features and services. Certain of the industry's products can be quite homogeneous and subject to intense price competition. Cost reduction efforts are a priority for industry players, with benefits resulting in price adjustments to favor customers and reinvestment capacity. Larger companies have the ability to invest in brand equity, product development, technology optimization, risk management, and innovation, which are among the fundamentals for sustained profitable growth in the life insurance industry. Insurers are focused on their core businesses, specifically in markets where they can achieve scale. Insurers are increasingly seeking alternative sources of revenue; there is a focus on monetization of assets, fee-based services, and opportunities to offer comprehensive solutions, which include providing value-added services along with traditional products. Financial strength and flexibility and technology modernization are prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information technology and have the ability to leverage the capabilities of new digital entrants. There is a shift in distribution from proprietary to third party models in mature markets, due to the lower cost structure. Evolving customer expectations are having a significant impact on the competitive environment as insurers strive to offer the superior customer service demanded by an increasingly sophisticated industry client base. Rising demands from stakeholders to address ESG issues have resulted in insurers expanding their sustainability efforts. Legislative and other changes affecting the regulatory environment can also affect the competitive environment within the life insurance industry and within the broader financial services industry. See "Business - Regulation." In addition to financial strength, technological efficiency and organizational agility, we believe that the ability to adapt to changes in the competitive environment as a result of global market volatility, changing interest rates, uncertain economic conditions and the COVID-19 pandemic is a significant differentiator to success in the life insurance industry and the broader financial services industry, and we are well positioned to compete in this environment. Regulatory Developments In theU.S. , our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving standards for the life insurance industry. Laws and regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. Regulators have also undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products andNew York maintains a moratorium on new reserve financing transactions. See "Business - Regulation," "Risk Factors - Economic Environment and Capital Markets Risks - Our Statutory Life Insurance Reserve Financings Costs May Increase, and We May Find Limited Market Capacity for New Financings," "Risk Factors - Regulatory and Legal Risks - Changes in Laws or Regulation, or in Supervisory and Enforcement Policies, May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Us" and "- Liquidity and Capital Resources - The Company - Capital - Affiliated Captive Reinsurance Transactions." 61
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Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Consolidated Financial Statements. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:
(i) liabilities for future policy benefits and the accounting for reinsurance;
(ii) capitalization and amortization of 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 goodwill and related impairment;
(vii) measurement of employee benefit plan liabilities;
(viii) measurement of income taxes and the valuation of deferred tax assets; and
(ix) liabilities for litigation and regulatory matters.
In addition, the application of acquisition accounting requires the use of estimation techniques in determining the estimated fair values of assets acquired and liabilities assumed - the most significant of which relate to the aforementioned critical accounting estimates. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.
Liability for Future Policy Benefits
Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type and geographical area. These assumptions are established at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. If experience is less favorable than assumed, additional liabilities may be established, resulting in a charge to policyholder benefits and claims. Future policy benefit liabilities for disabled lives are estimated at the time of claim incurral, using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.
Liabilities for unpaid claims are estimated based upon our historical experience
and other actuarial assumptions that consider the effects of current
developments, anticipated trends and risk management programs.
Future policy benefit liabilities for minimum death and income benefit
guarantees relating to certain annuity contracts are based on estimates of the
expected value of benefits in excess of the projected account balance,
recognizing the excess ratably over the accumulation period based on total
expected assessments. Liabilities for ULSG and paid-up guarantees are determined
by estimating the expected value of death benefits payable when the account
balance is projected to be zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The assumptions used in
estimating the secondary and paid-up guarantee liabilities are consistent with
those used for amortizing DAC, and are thus subject to the same variability and
risk. The assumptions of investment performance and volatility for variable
products are consistent with historical experience of the appropriate underlying
equity index, such as the S&P 500 Index.
We regularly review our estimates of liabilities for future policy benefits and
compare them with our actual experience. Differences between actual experience
and the assumptions used in pricing these policies and guarantees, as well as in
the establishment of the related liabilities, result in variances in profit and
could result in losses.
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Traditional long-duration and limited-payment contracts comprise approximately 70% ofMetLife 's liabilities for future policyholder benefits. For such contracts, original assumptions developed at the time of issue are locked-in and used in all future liability calculations provided the resulting liabilities are adequate to provide for future benefits and expenses (i.e., there is no premium deficiency). Therefore, liabilities for these products would not be impacted by changes in assumptions unless such change would result in an adverse impact that would trigger an establishment of a premium deficiency reserve. Favorable experience for traditional long-duration and limited-payment contracts would have no impact on liabilities given that the current assumption is required to remain locked-in, however the positive experience would be reflected in net income over the life of the policies in force. We have assessed the sensitivities of reported amounts related to our traditional long-duration and limited-payment contracts to demonstrate the impact of the Declining Interest Rate Scenario and the Rising Interest Rate Scenario. These sensitivities show the resulting change in net derivative gains (losses) and adjusted earnings versus the Base Scenario. These results are included in "- Industry Trends - Impact of Market Interest Rates - Interest Rate Scenarios." Our traditional life and other participating blocks comprise approximately 25% of our future policyholder benefit liabilities. For these contracts,MetLife 's risk of adverse experience may be mitigated through adjustments to the dividend scales. For all insurance assets and liabilities,MetLife holds capital and surplus to mitigate potential adverse experience development. The Company's approaches for managing liquidity and capital are described in "- Liquidity and Capital Resources."
See Note 4 of the Notes to the Consolidated Financial Statements for additional
information on our liability for future policy benefits.
Reinsurance
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements using criteria similar to that evaluated in our security impairment process. See "- Investment Allowance for Credit Loss and Impairments." Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of accounting.
See Note 6 of the Notes to the Consolidated Financial Statements for additional
information on our reinsurance programs.
Deferred Policy Acquisition Costs and Value of Business Acquired
We incur significant costs in connection with acquiring new and renewal
insurance business. Costs that relate directly to the successful acquisition or
renewal of insurance contracts are capitalized as DAC. In addition to
commissions, certain direct-response advertising expenses and other direct
costs, deferrable costs include the portion of an employee's total compensation
and benefits related to time spent selling, underwriting or processing the
issuance of new and renewal insurance business only with respect to actual
policies acquired or renewed. We utilize various techniques to estimate the
portion of an employee's time spent on qualifying acquisition activities that
result in actual sales, including surveys, interviews, representative time
studies and other methods. These estimates include assumptions that are reviewed
and updated on a periodic basis to reflect significant changes in processes or
distribution methods.
VOBA represents the excess of book value over the estimated fair value of
acquired insurance, annuity, and investment-type contracts in force at the
acquisition date. For certain acquired blocks of business, the estimated fair
value of the in-force contract obligations exceeded the book value of assumed
in-force insurance policy liabilities, resulting in negative VOBA, which is
presented separately from VOBA as an additional insurance liability included in
other policy-related balances. The estimated fair value of the acquired
obligations is based on projections, by each block of business, of future policy
and contract charges, premiums, mortality and morbidity, separate account
performance, surrenders, expenses, investment returns, nonperformance risk
adjustment and other factors. Actual experience on the purchased business may
vary from these projections. The recovery of DAC and VOBA is dependent upon the
future profitability of the related business.
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Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Our practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC and VOBA amortization with an offset to our unearned revenue liability which nets to approximately$30 million . We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for theU.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. AtDecember 31, 2022 and 2021, DAC and VOBA for the Company was$23.0 billion and$16.1 billion , respectively. The following illustrates the effect on DAC and VOBA of changing each of the respective assumptions, as well as updating estimated gross margins or profits with actual gross margins or profits during the years endedDecember 31, 2022 and 2021. Increases (decreases) in DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization. Years Ended December 31, 2022 2021 (In millions) General account investment return$ 281 $ (197) Separate account investment return (64) 32 Net investment/Net derivative gains (losses) and GMIB 115 (93) In-force/Persistency (183) 77 Policyholder dividends, expense and other 146 (22) Total$ 295 $ (203)
Items contributing to the changes to DAC and VOBA amortization in 2022 consisted
of the following:
•Net decrease in amortization of
account long-term investment rates of return, primarily driven by the following:
•A decrease in amortization of approximately
realized losses in
environment in 2022.
•Net decrease in amortization of approximately
investment rates of return.
•Net decrease in amortization of
derivative gains (losses) and GMIBs, primarily driven by the following:
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•A decrease in amortization of approximately
from GMIB hedges and the decreases in GMIB obligations.
•Net decrease in amortization of approximately
investment activities.
•Net increase in amortization of
in-force/persistency primarily due to higher lapses in
•Net decrease in amortization of
dividends, expense and other, was primarily driven by following:
•A decrease of approximately
actuarial assumption review relating to the closed block.
•Decrease in amortization of approximately
closed block mortality.
Items contributing to the changes to DAC and VOBA amortization in 2021 consisted
of the following:
•Net increase in amortization of
assumption review relating to the general account long-term investment rates of
return.
•Net increase in amortization of
derivative gains (losses) and GMIB, primarily driven by the following:
•A decrease in amortization of approximately
from GMIB hedges and the decreases in GMIB obligations.
•Net increase in amortization of approximately
investment activities.
Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been recognized if such gains and losses had been realized. The decrease in unrealized investment gains (losses) increased the DAC and VOBA balance by$7.2 billion and$822 million in 2022 and 2021, respectively. See Notes 5 and 16 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment gains (losses).
Estimated Fair Value of Investments
In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring significant management judgment, including assumptions or estimates, are used to determine the estimated fair value of investments. Unobservable inputs are based on management's assumptions about the inputs market participants would use in pricing such investments. The methodologies, assumptions and inputs utilized are described in Note 10 of the Notes to the Consolidated Financial Statements. For the vast majority of our investments, sensitivity analysis regarding unobservable inputs is not necessary or appropriate, as they are valued using quoted prices, as described above. Quantitative information about the significant unobservable inputs used in fair value measurement and the sensitivity of the estimated fair value to changes in those inputs for the more significant asset and liability classes measured at estimated fair value on a recurring basis is presented in Note 10 of the Notes to the Consolidated Financial Statements. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain investments.
Investment Allowance for Credit Loss and Impairments
The significant estimates and inherent uncertainties related to our evaluation
of credit loss and impairments on our investment portfolio are summarized below.
See "Quantitative and Qualitative Disclosures About Market Risk" for information
regarding the sensitivity of our fixed maturity securities and mortgage loan
portfolios to changes in interest rates and foreign currency exchange rates.
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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. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these evaluations as conditions change and new information becomes available. The valuation of our fixed maturity securities portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our fixed maturities securities portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.
Mortgage Loans
The ACL is established both for pools of loans with similar risk characteristics and for loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in an amount that represents the portion of the amortized cost basis of mortgage loans that we do not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. To determine the mortgage loan ACL, we apply significant judgement to estimate expected lifetime credit loss over the contractual term of our mortgage loans adjusted for expected prepayments and any extensions; and we consider past events and current and forecasted economic conditions which are subject to inherent uncertainty and which necessarily change from time to time. The ACL methodologies, significant inputs and significant judgements and assumptions used to determine the amount of credit loss are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. The determination of the amount of ACL is subjective as it includes our estimates and assumptions and assessment of known and inherent risks. We revise these estimates as conditions change and new information becomes available. The estimated fair value of our mortgage loan portfolio is sensitive to changes in interest rates and the estimated fair value of the portion of our mortgage loan portfolio that is foreign denominated, is sensitive to changes in foreign currency exchange rates.
Real Estate, Leases and Other Asset Classes
The determination of the amount of ACL on leases and impairments on real estate and the remaining asset classes is highly subjective and is based upon our quarterly evaluation and assessment of known and inherent risks associated with the respective asset class. The evaluation processes, measurement methodologies, significant inputs and significant judgments and assumptions used to determine the amount of ACL and impairments are described in Notes 1 and 8 of the Notes to the Consolidated Financial Statements. Such evaluations and assessments are revised as conditions change and new information becomes available.
Derivatives
The determination of the estimated fair value of freestanding derivatives, when
quoted market values are not available, is based on market standard valuation
methodologies and inputs that management believes are consistent with what other
market participants would use when pricing the instruments. Derivative
valuations can be affected by changes in interest rates, foreign currency
exchange rates, financial indices, credit spreads, default risk, nonperformance
risk, volatility, liquidity and changes in estimates and assumptions used in the
pricing models. See Note 10 of the Notes to the Consolidated Financial
Statements for additional details on significant inputs into the OTC derivative
pricing models and credit risk adjustment.
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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 forMetLife, 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 toMetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. The table below illustrates the impact that a range of reasonably likely variances in credit spreads would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value. In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near term. The ranges do not reflect extreme market conditions, as we do not consider those to be reasonably likely events in the near future. The impact of the range of reasonably likely variances in credit spreads increased as compared to prior periods. However, these estimated effects do not take into account potential changes in other variables, such as equity price levels and market volatility, which can also contribute significantly to changes in carrying values. Therefore, the table does not necessarily reflect the ultimate impact on the consolidated financial statements under the credit spread variance scenarios presented below. Changes
in Balance Sheet Carrying Value At
December 31, 2022
Policyholder
Account Balances DAC and VOBA
(In millions)
100% increase in our credit spread $ 429 $ (8)
As reported $ 561 $ 43
50% decrease in our credit spread $ 596 $ 54
Variable annuities with guaranteed minimum benefits may be more costly than
expected in volatile or declining equity markets. Market conditions including,
but not limited to, changes in interest rates, equity indices, market volatility
and foreign currency exchange rates, changes in our nonperformance risk,
variations in actuarial assumptions regarding policyholder behavior, mortality
and risk margins related to non-capital market inputs, may result in significant
fluctuations in the estimated fair value of the guarantees that could materially
affect net income. If interpretations change, there is a risk that features
previously not bifurcated may require bifurcation and reporting at estimated
fair value on the consolidated financial statements and respective changes in
estimated fair value could materially affect net income.
Additionally, we ceded the risk associated with certain of the variable
annuities with guaranteed minimum benefits described in the preceding
paragraphs. The value of the embedded derivatives on the ceded risk is
determined using a methodology consistent with that described previously for the
guarantees directly written by us with the exception of the input for
nonperformance risk that reflects the credit of the reinsurer. Because certain
of the direct guarantees do not meet the definition of an embedded derivative
and, thus, are not accounted for at fair value, significant fluctuations in net
income may occur since the change in fair value of the embedded derivative on
the ceded risk is being recorded in net income without a corresponding and
offsetting change in fair value of the direct guarantee.
See Note 9 of the Notes to the Consolidated Financial Statements for additional
information on our derivatives and hedging programs. 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.
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Goodwill is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test. For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit's fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company will consider income tax effects from any tax-deductible goodwill on the carrying value of the reporting unit when measuring the goodwill impairment loss, if applicable. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units include projected adjusted earnings, current book value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account value of in-force business, projections of new and renewed business, as well as margins on such business, interest rate levels, credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit. We apply significant judgment when determining the estimated fair value of our reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management's reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based may differ from actual future results. The estimated fair value of the reporting units tested can be impacted by unexpected changes in the legislative, regulatory and macroeconomic environment. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position. In the third quarter of 2022, the Company performed its annual goodwill impairment tests on all of its reporting units, using both qualitative and quantitative assessments. The quantitative assessment utilized the market multiple, embedded value and discounted cash flow valuation approaches based on best available data as ofJune 30, 2022 . The Company concluded that the estimated fair values of all its reporting units were substantially in excess of their carrying values and, therefore, goodwill was not impaired.
See Note 12 of the Notes to the Consolidated Financial Statements for additional
information on our goodwill.
Employee Benefit Plans Certain subsidiaries ofMetLife, Inc. sponsor defined benefit pension plans and other postretirement benefit plans covering eligible employees. See Note 18 of the Notes to the Consolidated Financial Statements for information on amendments to ourU.S. benefit plans. The calculation of the obligations and expenses associated with these plans requires an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases and healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirement, withdrawal rates and mortality. In consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as historical experience of the plan and its assets, currently available market and industry data, and expected benefit payout streams. We determine the expected rate of return on plan assets based upon an approach that considers inflation, real return, term premium, credit spreads, equity risk premium and capital appreciation, as well as expenses, expected asset manager performance, asset weights and the effect of rebalancing. Given the amount of plan assets as ofDecember 31, 2021 , the beginning of the measurement year, if we had assumed an expected rate of return for both our pension and other postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs in 2022 would have been as follows: Year Ended December 31, 2022 Increase/(Decrease) in Net Increase/(Decrease) in Periodic Pension Cost Net Other Postretirement Benefit Cost (In millions) Increase in expected rate of return by 100 bps $ (106) $ (14) Decrease in expected rate of return by 100 bps $ 106 $ 14 68
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This table considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return. We determine the discount rates used to value the Company's pension and postretirement obligations, based upon rates commensurate with current yields on high quality corporate bonds. Given our pension and postretirement obligations as ofDecember 31, 2021 , the beginning of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs would have been as follows: Year Ended December 31, 2022 Increase/(Decrease) in Net Increase/(Decrease) in Periodic Pension Cost Net Other Postretirement Benefit Cost (In millions) Increase in discount rate by 100 bps $ (56) $ (1) Decrease in discount rate by 100 bps $ 75 $ 4 Given our pension and postretirement obligations as ofDecember 31, 2022 , the end of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our benefit obligations would have been as follows: Year Ended December 31, 2022 Increase/(Decrease) in Increase/(Decrease) in Other Pension Benefit Obligation Postretirement Benefit Obligation (In millions) Increase in discount rate by 100 bps $ (818) $ (74) Decrease in discount rate by 100 bps $ 964 $ 88 These tables consider only changes in our assumed discount rates without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant impact on the Company's consolidated financial statements and liquidity. See Note 18 of the Notes to the Consolidated Financial Statements for additional discussion of assumptions used in measuring liabilities relating to our employee benefit plans.
Income Taxes 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. 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 were a 1% increase in the global effective income tax rate, the change would have resulted in an approximate$112 million increase in the net deferred income tax asset balance atDecember 31, 2022 .
See Notes 1 and 19 of the Notes to the Consolidated Financial Statements for
additional information on our income taxes.
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Litigation Contingencies
We are a defendant in a large number of litigation matters and are involved in a number of regulatory investigations. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of reliable data and uncertainty regarding numerous variables that can affect liability estimates. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.
See Note 21 of the Notes to the Consolidated Financial Statements for additional
information regarding our assessment of litigation contingencies.
Acquisitions and Dispositions
Acquisitions
Pending Acquisition of
InFebruary 2023 , the Company entered into a definitive agreement to acquireRaven Capital Management , a privately-owned alternative investment company. This transaction is subject to customary closing conditions.
Acquisition of
In
Investment Management
governance impact fixed income investment manager.
Ownership Increase of PNB
InFebruary 2022 , the Company acquired approximately 15.0% ownership inPNB MetLife India Insurance Company Limited ("PNBMetLife "). As a result, the Company's ownership in PNBMetLife , an operating joint venture accounted for under the equity method, increased to approximately 47.0%. This transaction supports the Company's continued growth inIndia and will enable us to deliver more value for our customers, partners and shareholders.
Dispositions
Disposition of
For information regarding the Company's dispositions of its wholly-owned
subsidiaries in
which were reported as held-for-sale, see Notes 1 and 3 of the Notes to the
Consolidated Financial Statements.
Disposition of
For information regarding the Company's
wholly-owned Argentinian subsidiary,
see Note 3 of the Notes to the Consolidated Financial Statements.
Disposition of
For information regarding the Company's
which was reported as held-for-sale, see Notes 1 and 3 of the Notes to the
Consolidated Financial Statements.
Disposition of
For information regarding the Company's
wholly-owned Russian subsidiary, the
Company
Financial Statements.
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Results of Operations
Consolidated Results
Years Ended December 31,
2022 2021
(In millions)
Revenues
Premiums $ 49,397 $ 42,009
Universal life and investment-type product policy fees 5,585 5,756
Net investment income 15,916 21,395
Other revenues 2,634 2,619
Net investment gains (losses) (1,262) 1,529
Net derivative gains (losses) (2,372) (2,228)
Total revenues 69,898 71,080
Expenses
Policyholder benefits and claims and policyholder dividends 51,313 44,830 Interest credited to policyholder account balances 3,692 5,538 Capitalization of DAC (2,558) (2,718) Amortization of DAC and VOBA 1,931 2,555 Amortization of negative VOBA (41) (34) Interest expense on debt 938 920 Other expenses 11,764 11,863 Total expenses 67,039 62,954 Income (loss) before provision for income tax 2,859 8,126 Provision for income tax expense (benefit) 301 1,551 Net income (loss) 2,558 6,575 Less: Net income (loss) attributable to noncontrolling interests 19 21 Net income (loss) attributable toMetLife, Inc. 2,539 6,554 Less: Preferred stock dividends 185 195 Preferred stock redemption premium - 6
Net income (loss) available to
2,354
Year Ended
During 2022, net income (loss) decreased
driven by unfavorable changes in adjusted earnings and net investment gains
(losses).
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.
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We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions. Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but does not have an economic impact on us. We continuously review and refine our hedging strategy in light of changing economic and market conditions, evolving NAIC and NYDFS statutory requirements, and accounting rule changes. As a part of our current hedging strategy, we maintain portfolio level derivatives in our macro hedge program. These macro hedge program derivatives, which are included in the non-VA program derivatives section of the table below, mitigate the potential deterioration in our capital positions from significant adverse economic conditions. Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as "VA program derivatives." All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as "non-VA program derivatives." The table below presents the impact on net derivative gains (losses) from non-VA program derivatives andVA program derivatives: Years Ended December 31, 2022 2021 (In millions) Non-VA program derivatives Interest rate$ (2,618) $ (1,075) Foreign currency exchange rate 408 (429) Credit 55 85 Equity 113 (771) Non-VA embedded derivatives 127 37 Total non-VA program derivatives (1,915) (2,153)VA program derivatives Market risks in embedded derivatives 512 1,006 Nonperformance risk adjustment on embedded derivatives 18 (17) Other risks in embedded derivatives (485) (279) Total embedded derivatives 45 710 Freestanding derivatives hedging embedded derivatives (502) (785) Total VA program derivatives (457) (75) Net derivative gains (losses)$ (2,372) $ (2,228) 72
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The favorable change in net derivative gains (losses) on non-VA program derivatives was$238 million ($188 million , net of income tax). This was primarily due to key equity indexes decreasing in 2022 versus increasing in 2021, favorably impacting equity options and total rate of return swaps acquired primarily as part of our macro hedge program. In addition, theU.S. dollar strengthened less significantly against the Chilean peso in 2022 compared to 2021. This favorably impacted the estimated fair value of payU.S. dollar foreign currency swaps. These favorable changes were largely offset by long-term rates increasing more significantly in 2022 compared to 2021. This unfavorably impacted the estimated fair value of receive fixed interest rate swaps. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the items being hedged. The unfavorable change in net derivative gains (losses) onVA program derivatives was$382 million ($302 million , net of income tax). This was due to (i) an unfavorable change of$211 million ($167 million , net of income tax), in market risks in embedded derivatives, net of freestanding derivatives hedging market risks in embedded derivatives, and (ii) an unfavorable change of$206 million ($163 million , net of income tax) in other risks in embedded derivatives; partially offset by a favorable change of$35 million ($28 million , net of income tax) in the nonperformance risk adjustment on embedded derivatives. The aforementioned$211 million ($167 million , net of income tax) unfavorable change reflects a$494 million ($390 million , net of income tax) unfavorable change in market risks in embedded derivatives, partially offset by a$283 million ($223 million , net of income tax) favorable change in freestanding derivatives hedging market risks in embedded derivatives.
The primary changes in market factors affecting the valuation of
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-yearU.S. swap rate increased 176 basis points in 2022 and increased 33 basis points in 2021.
•Key equity index levels decreased in 2022 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
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$35 million ($28 million , net of income tax) favorable change in the nonperformance risk adjustment on embedded derivatives resulted from a favorable change of$55 million ($44 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, partially offset by an unfavorable change of$20 million ($16 million , net of income tax) related to changes in our own credit spread. When equity index levels decrease in isolation, the variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk. When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate results in a smaller loss than by discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk. When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk. For each of these primary market drivers, the opposite effect occurs when the driver moves in the opposite direction. 73
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Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of$2.8 billion ($2.2 billion , net of income tax) primarily reflects (i) losses in 2022 on sales of fixed maturity securities, (ii) the 2021 gain on the disposition ofMetLife P&C, (iii) lower gains in 2022 on sales of real estate investments, and (iv) mark-to-market losses in 2022 compared to market-to-market gains in 2021 on equity securities, which are measured at fair value through net income (loss). These unfavorable changes were partially offset by 2021 losses on the sales of certain subsidiaries, as well as net foreign currency transaction gains in 2022. Divested Businesses. Income (loss) before provision for income tax related to divested businesses, excluding net investment gains (losses) and net derivative gains (losses), decreased$93 million ($74 million , net of income tax) to a loss of$31 million ($21 million , net of income tax) in 2022 from income of$62 million ($53 million , net of income tax) in 2021. Included in this decrease was a decline in total revenues of$1.0 billion , before income tax, and a decrease in total expenses of$939 million , before income tax. Divested businesses primarily included activity related to the disposition ofMetLife P&C in 2021. Taxes. Our 2022 effective tax rate on income (loss) before provision for income tax was 11%. Our effective tax rate differed from theU.S. statutory rate of 21% primarily due to tax benefits from tax credits, foreign earnings taxed at different rates than theU.S. statutory rate, anIRS audit settlement, the 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 19%. Our effective tax rate differed from theU.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, anIRS audit settlement, the non-cash transfer of assets from a wholly-ownedU.K. investment subsidiary to itsU.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than theU.S. statutory rate and the dispositions ofMetLife P&C,MetLife Seguros andMetLife Poland andGreece . Actuarial Assumption Review and Certain Other Insurance Adjustments. Results for 2022 include a$75 million ($53 million , net of income tax) gain associated with our annual review of actuarial assumptions related to reserves and DAC, of which a$344 million ($273 million , net of income tax) loss was recognized in net derivative gains (losses). Of the$75 million gain, a$315 million ($242 million , net of income tax) gain was related to DAC, and a loss of$240 million ($189 million , net of income tax) was associated with reserves. The portion of the$75 million gain that is included in adjusted earnings is$48 million ($33 million , net of income tax).
The
derivative gains (losses) associated with our annual review of actuarial
assumptions is included within the other risks in embedded derivatives line in
the table above.
As a result of our annual review of actuarial assumptions, changes were made to economic, biometric, policyholder behavior, and operational assumptions. The most significant impacts were in theMetLife Holdings andAsia segments. In theMetLife Holdings segment, significant impacts included economic assumption updates related to the projection of closed block results and updates to behavioral assumptions for variable annuities. In theAsia segment, the most significant impact was driven by economic assumption updates for interest sensitive whole life and fixed 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
•Changes in biometric assumptions resulted in unfavorable impacts to reserves and favorable impacts to DAC, for a net charge of$5 million ($4 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$245 million ($192 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$17 million ($15 million , net of income tax). Results for 2021 include a$281 million ($216 million , net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a$2 million ($1 million , net of income tax) loss was recognized in net derivative gains (losses). Of the$281 million charge,$129 million ($96 million , net of income tax) was related to DAC and$152 million ($120 million , net of income tax) was associated with reserves. The portion of the$281 million charge that is included in adjusted earnings is$187 million ($140 million , net of income tax). Certain other insurance adjustments recorded in 2022 include a$115 million ($91 million , net of income tax) favorable reinsurance recapture in ourU.S. segment and a$114 million ($90 million , net of income tax) charge related to model refinements in ourMetLife Holdings segment. These adjustments are included in adjusted earnings. 74
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Adjusted Earnings. As more fully described in "- Non-GAAP and Other Financial Disclosures," we use adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings and other financial measures based on adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss). Adjusted earnings available to common shareholders and adjusted earnings available to common shareholders on a constant currency basis should not be viewed as substitutes for net income (loss) available toMetLife, Inc.'s common shareholders. Adjusted earnings available to common shareholders decreased$2.4 billion , net of income tax, to$5.5 billion , net of income tax, for 2022 from$8.0 billion , net of income tax, for 2021. 75
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Reconciliation of net income (loss) to adjusted earnings available to common shareholders and premiums, fees and other revenues to adjusted premiums, fees and other revenues Year EndedDecember 31, 2022 Latin MetLife Corporate & U.S. Asia America EMEA Holdings Other Total (In millions) Net income (loss) available toMetLife, Inc.'s common shareholders$ 2,698 $ (750)
$ 2,354 Add: Preferred stock dividends - - - - - 185 185 Add: Net income (loss) attributable to noncontrolling interests - - 8 5 - 6 19 Add: Preferred stock redemption premium - - - - - - - Net income (loss) 2,698 (750) 621 120 276 (407) 2,558 Less: adjustments from net income (loss) to adjusted earnings available to common shareholders: Revenues: Net investment gains (losses) (451) (1,124) 52 (99) 4 356 (1,262) Net derivative gains (losses) 429 (2,060) 434 (22) (1,213) 60 (2,372) Premiums - - - 41 - - 41 Universal life and investment-type product policy fees - (41) - 19 75 - 53 Net investment income (360) (338) (275) (1,024) (281) 5 (2,273) Other revenues - - - 8 - 155 163
Expenses:
Policyholder benefits and claims and
policyholder dividends 6 162 (453) (100) 438 - 53
Interest credited to policyholder
account balances - 246 43 1,030 - - 1,319
Capitalization of DAC - - - 11 - - 11
Amortization of DAC and VOBA - 63 - (7) 50 - 106
Amortization of negative VOBA - - - - - - -
Interest expense on debt - - - - - - -
Other expenses - - 9 (31) - (241) (263)
Goodwill impairment - - - - - - -
Provision for income tax (expense) benefit 78 964 50 48 195 (83) 1,252
Adjusted earnings $ 2,996 $ 1,378 $ 761 $ 246 $ 1,008 (659) 5,730
Less: Preferred stock dividends 185 185
Adjusted earnings available to common
shareholders $ (844)
Premiums, fees and other revenues$ 38,462 $ 7,457
$ 57,616 Less: adjustments to premiums, fees and other revenues - (41) - 68 75 155 257
Adjusted premiums, fees and other revenues
$ 4,440 $ 2,299 $ 4,278 $ 382 $ 57,359 76
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Table of Contents Year EndedDecember 31, 2021 Latin MetLife Corporate & U.S. Asia America EMEA Holdings Other Total (In millions) Net income (loss) available toMetLife, Inc.'s common shareholders$ 3,509 $ 1,597
$ 6,353 Add: Preferred stock dividends - - - - - 195 195 Add: Net income (loss) attributable to noncontrolling interests - 2 6 3 - 10 21 Add: Preferred stock redemption premium - - - - - 6 6 Net income (loss) 3,509 1,599 (252) 61 905 753 6,575 Less: adjustments from net income (loss) to adjusted earnings available to common shareholders: Revenues: Net investment gains (losses) 410 (6) (134) (190) 86 1,363 1,529 Net derivative gains (losses) 226 (818) (416) (20) (1,167) (33) (2,228) Premiums 865 - - 117 - - 982 Universal life and investment-type product policy fees - 73 - 42 80 - 195 Net investment income (310) 58 (64) 717 (293) 7 115 Other revenues 11 - 1 11 - 220 243 Expenses: Policyholder benefits and claims and policyholder dividends (610) (81) (8) (141) (338) (1) (1,179) Interest credited to policyholder account balances 2 (211) (42) (695) - - (946) Capitalization of DAC 89 - - 30 - - 119 Amortization of DAC and VOBA (98) (35) - (26) (60) - (219) Amortization of negative VOBA - - - - - - - Interest expense on debt - - - - - (1) (1) Other expenses (222) 3 3 (81) - (267) (564) Goodwill impairment - - - - - - - Provision for income tax (expense) benefit (75) 318 117 (4) 355 (331) 380 Adjusted earnings$ 3,221 $ 2,298 $ 291 $ 301 $ 2,242 (204) 8,149 Less: Preferred stock dividends 195 195 Adjusted earnings available to common shareholders$ (399)
Adjusted earnings available to common shareholders on a constant currency basis (1)$ 3,221 $ 2,218
Premiums, fees and other revenues$ 29,912 $ 8,381
$ 50,384 Less: adjustments to premiums, fees and other revenues 876 73 1 170 80 220
1,420
Adjusted premiums, fees and other revenues
Adjusted premiums, fees and other revenues on a constant currency basis (1)$ 29,036 $ 7,263 $ 3,643 $ 2,429 $ 4,691 $ 457 $ 47,519 __________________
(1)Amounts for
reported basis, as constant currency impact is not significant.
Consolidated Results - Adjusted Earnings
Business Overview. Adjusted premiums, fees and other revenues for 2022 increased$8.4 billion , or 17%, compared to 2021. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased$9.8 billion , or 21%, compared to 2021 primarily due to higher premiums in our RIS business and growth in our Group Benefits business, both in ourU.S. segment. Strong sales and solid persistency in ourLatin America segment also contributed to the improvement in adjusted premiums, fees and other revenues. In ourAsia segment, increases in adjusted premiums, fees and other revenues inJapan ,Australia andKorea were partially offset by the impact of our actuarial assumption review in both years. A decrease in adjusted premiums, fees and other revenues in our EMEA segment was primarily due to the dispositions ofMetLife Poland andGreece . In ourMetLife Holdings segment, for 2023, we anticipate an average decline in adjusted premiums, fees and other revenues of approximately 12% to 14% from expected business run-off. For 2024 and beyond, we expect this decline to be approximately 6% to 8% per year. 77
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Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the decrease in adjusted earnings were (i) lower investment yields due to the unfavorable impact of lower equity market returns on our private equity funds and hedge funds, (ii) higher interest credited expense and (iii) higher expenses, partially offset by (i) higher net investment income due to a larger average invested asset base, and (ii) favorable underwriting, primarily driven by an overall decline in COVID-19 related claims. Our results for 2022 also included the favorable impacts from a reinsurance recapture in ourU.S. segment, a reinsurance settlement in ourMetLife Holdings segment and our actuarial assumption review, as well as the unfavorable impact from model refinements in ourMetLife Holdings segment. Our results for 2021 included the favorable impacts of tax adjustments related to anIRS audit settlement and the non-cash transfer of assets from a wholly-ownedU.K. investment subsidiary to itsU.S. parent, as well as the release of a legal reserve, all in Corporate & Other, and the unfavorable impact of our actuarial assumption review. Foreign Currency. Changes in foreign currency exchange rates had a$174 million negative impact on adjusted earnings for 2022 compared to 2021. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items. Business Growth. We benefited from positive net flows from most of our businesses, which increased our average invested asset base and resulted in higher net investment income. However, consistent with the growth in average invested assets, interest credited expenses on certain insurance-related liabilities increased. Higher premiums, fees and other revenues, net of corresponding changes in policyholder benefits, improved adjusted earnings, primarily from growth in ourAsia ,Latin America and EMEA segments, partially offset by a decline in ourMetLife Holdings segment. Higher commissions were offset by higher DAC capitalization. The combined impact of the items affecting our business growth, partially offset by higher DAC amortization, resulted in a$254 million increase in adjusted earnings. Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Excluding the impact of changes in foreign currency exchange rates on net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields decreased. The decrease in investment yields was primarily driven by the unfavorable impact of lower equity market returns on our private equity funds and hedge funds, as well as lower prepayment fees. These decreases were partially offset by higher yields on our fixed income securities and mortgage loans, as well as higher income on derivatives. The changes in market factors discussed above resulted in a$3.4 billion decrease in adjusted earnings. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting resulted in a$1.1 billion increase in adjusted earnings and reflected overall lower impacts from the COVID-19 pandemic. This was primarily driven by favorable mortality in ourU.S. andLatin America segments, partially offset by unfavorable claims experience in ourAsia segment. The favorable change from our actuarial assumption reviews resulted in a net increase of$173 million in adjusted earnings. Refinements to certain insurance and other liabilities in both years resulted in a$132 million increase in adjusted earnings, which includes the favorable impacts from a reinsurance recapture in ourU.S. segment and a reinsurance settlement in ourMetLife Holdings segment, mostly offset by model refinements in ourMetLife Holdings segment, all in 2022.
Expenses. Adjusted earnings decreased
in corporate-related expenses, as well as the release of a legal reserve in
2021.
Taxes. Our 2022 effective tax rate on adjusted earnings was 21%, which is equal to theU.S. statutory rate and reflects tax charges from foreign earnings taxed at different rates than theU.S. statutory rate, offset by tax benefits from tax credits, anIRS audit settlement, the corporate tax deduction for stock compensation and non-taxable investment income. Our 2021 effective tax rate on adjusted earnings was 19%. Our effective tax rate differed from theU.S. statutory rate of 21% primarily due to tax benefits from tax credits, non-taxable investment income, anIRS audit settlement, the non-cash transfer of assets from a wholly-ownedU.K. investment subsidiary to itsU.S. parent and the corporate tax deduction for stock compensation, partially offset by tax charges from foreign earnings taxed at different rates than theU.S. statutory rate. 78
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Segment Results and Corporate & Other
Business Overview. Adjusted premiums, fees and other revenues for 2022 increased$9.4 billion , or 32%, compared to 2021. This was primarily due to higher premiums in our RIS business, as well as growth in our Group Benefits business. The increase in premiums in RIS was mainly driven by a large pension risk transfer transaction in 2022. Changes in RIS premiums are mostly offset by a corresponding change in policyholder benefits. The increase in our Group Benefits business was primarily due to growth from our voluntary products, group disability and dental businesses. Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ 35,548 $ 26,358 Universal life and investment-type product policy fees 1,158 1,140 Net investment income 7,340 8,048 Other revenues 1,756 1,538 Total adjusted revenues 45,802 37,084 Adjusted expenses Policyholder benefits and claims and policyholder dividends 36,273 27,957 Interest credited to policyholder account balances 1,789 1,422 Capitalization of DAC (77) (65) Amortization of DAC and VOBA 59 60 Interest expense on debt 9 7 Other expenses 3,962 3,632 Total adjusted expenses 42,015 33,013 Provision for income tax expense (benefit) 791 850 Adjusted earnings $
2,996
Adjusted premiums, fees and other revenues $
38,462
Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of positive flows from pension risk transfer transactions and funding agreement issuances resulted in higher average invested assets, improving net investment income. However, this was partially offset by a corresponding increase in interest credited expenses on long duration insurance and investment-type products. 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 increased adjusted earnings by$133 million . Market Factors. Market factors, including interest rate levels, variability in equity market returns and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased primarily driven by the unfavorable impact of lower equity market returns on our private equity funds and hedge funds, partially offset by higher yields on fixed income securities and mortgage loans, and higher income on derivatives. The impact of interest rate fluctuations resulted in an increase in our average interest credited rates on long duration insurance and investment-type products, which drove an increase in interest credited expenses. The changes in market factors discussed above resulted in a$1.3 billion decrease in adjusted earnings. 79
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Underwriting and Other Insurance Adjustments. Favorable mortality in our Group Benefits business resulted in an increase in adjusted earnings of$830 million . This was driven by decreases in both incidence and severity of COVID-19 and non-COVID-19 claims. Less favorable mortality in our RIS business resulted in a decrease in adjusted earnings of$64 million , primarily driven by our structured settlement and pension risk transfer businesses. Favorable claims experience in our Group Benefits business, primarily within our accident & health, vision and dental businesses, partially offset by unfavorable experience in our individual and group disability businesses resulted in a$74 million increase to adjusted earnings. Refinements to certain insurance and other liabilities in both years resulted in a$150 million increase in adjusted earnings, which includes the favorable impact from a reinsurance recapture in the current year.
Business Overview. Adjusted premiums, fees and other revenues for 2022 decreased$810 million , or 10%, compared to 2021. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased$235 million , or 3%, compared to 2021, mainly due to increases inJapan ,Australia andKorea , partially offset by the impact of our actuarial assumption review in both years. InJapan , higher fees from foreign currency-denominated life and fixed annuity products were partially offset by a decrease in premiums from yen-denominated life products. The increases inAustralia andKorea were primarily due to business growth. Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ 5,568 $ 6,421 Universal life and investment-type product policy fees 1,840 1,814 Net investment income 3,909 5,052 Other revenues 90 73 Total adjusted revenues 11,407 13,360 Adjusted expenses Policyholder benefits and claims and policyholder dividends 4,752 5,008 Interest credited to policyholder account balances 2,003 1,995 Capitalization of DAC (1,524) (1,607) Amortization of DAC and VOBA 1,105 1,369 Amortization of negative VOBA (36) (27) Other expenses 3,153 3,388 Total adjusted expenses 9,453 10,126 Provision for income tax expense (benefit) 576 936 Adjusted earnings $
1,378
Adjusted earnings on a constant currency basis $
1,378
Adjusted premiums, fees and other revenues$ 7,498 $ 8,308 Adjusted premiums, fees and other revenues on a constant currency basis $
7,498
Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by$80 million for 2022 compared to 2021, primarily due to the weakening of the Japanese yen, Korean won and Australian dollar against theU.S. dollar. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items. 80
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Business Growth. Increased premiums, fees and other revenues were partially offset by higher policyholder benefits and commissions, net of DAC capitalization, which contributed toAsia's business growth. Positive net flows inJapan andKorea resulted in higher average invested assets, which improved net investment income. The increase in net investment income was largely offset by a corresponding increase in interest credited expenses on certain insurance liabilities. The combined impact of the items affecting our business growth, partially offset by higher DAC amortization, improved adjusted earnings by$99 million . Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased, driven by the unfavorable impact of lower equity market returns on our private equity and hedge funds, and lower income on derivatives. These unfavorable impacts were partially offset by higher yields on fixed income securities supporting products sold inJapan denominated inU.S. dollars and Japanese yen. In addition, a decrease in interest credited expenses on certain insurance liabilities improved adjusted earnings. The changes in market factors discussed above decreased adjusted earnings by$804 million .
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments.
Unfavorable underwriting, mainly driven by COVID-19-related claims in
decreased adjusted earnings by
actuarial assumption reviews resulted in a net increase of
adjusted earnings. Refinements to certain insurance liabilities and other
liabilities in both years resulted in an
earnings.
Expenses and Taxes. Higher expenses, primarily driven by higher employee-related
and other operating expenses, as well as an increase in corporate overhead
costs, decreased adjusted earnings by
included a benefit of
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Business Overview. Adjusted premiums, fees and other revenues for 2022 increased$681 million , or 18%, compared to 2021. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, increased$797 million , or 22%, compared to 2021, mainly driven by strong sales and solid persistency across the region. Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ 3,226 $ 2,609 Universal life and investment-type product policy fees 1,175 1,109 Net investment income 1,593 1,271 Other revenues 39 41 Total adjusted revenues 6,033 5,030 Adjusted expenses Policyholder benefits and claims and policyholder dividends 3,301 3,143 Interest credited to policyholder account balances 335 249 Capitalization of DAC (499) (414) Amortization of DAC and VOBA 339 285 Interest expense on debt 12 5 Other expenses 1,553 1,401 Total adjusted expenses 5,041 4,669 Provision for income tax expense (benefit) 231 70 Adjusted earnings $
761
Adjusted earnings on a constant currency basis $
761
Adjusted premiums, fees and other revenues$ 4,440 $ 3,759 Adjusted premiums, fees and other revenues on a constant currency basis $
4,440
Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by$38 million for 2022 compared to 2021, mainly due to the weakening of foreign currencies against theU.S. dollar, primarily the Chilean peso. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items. Business Growth.Latin America experienced premium and fee growth across the region, primarily inChile andMexico . The increase in premiums and fees was partially offset by related changes in policyholder benefits. An increase in average invested assets, primarily inChile andMexico , generated higher net investment income. The increase in net investment income was partially offset by a corresponding increase in interest credited expenses on certain insurance liabilities. Business growth in the region drove an increase in commissions and other variable expenses, which was partially offset by higher DAC capitalization. The combined impact of the items affecting business growth, partially offset by higher DAC amortization, increased adjusted earnings by$71 million . 82
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Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased, driven by higher yields on fixed maturity securities inChile andMexico , higher earnings from a joint venture investment inChile , the favorable impact of an increase in bond index returns on our Chilean encaje within fair value option securities ("FVO Securities "), and higher income on derivatives. These increases were partially offset by lower equity market returns on private equity funds. An increase in interest credited expenses on certain insurance liabilities also decreased adjusted earnings. The changes in market factors discussed above, as well as the net impact of inflation, resulted in a$22 million increase in adjusted earnings. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting drove a$395 million increase in adjusted earnings. This increase includes a decline in COVID-19-related claims, primarily inMexico andBrazil , as well as a reduction to the incurred but not reported reserve that was established in the prior year. The favorable change from our actuarial assumption reviews resulted in a net increase of$9 million in adjusted earnings. Refinements to certain insurance liabilities and other liabilities in both periods resulted in a$20 million increase in adjusted earnings.
Expenses and Taxes. Adjusted earnings decreased
employee-related costs and the region's continued investment in technology,
partially offset by the impact of continued expense discipline. Tax-related
adjustments in both years resulted in a
earnings, primarily driven by a recurring tax item related to inflation in
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EMEA
Business Overview. Adjusted premiums, fees and other revenues for 2022 decreased$414 million , or 15%, compared to 2021. Adjusted premiums, fees and other revenues, net of foreign currency fluctuations, decreased$130 million , or 5%, compared to 2021 primarily due to (i) the disposition ofMetLife Poland andGreece , (ii) a prior year favorable refinement to an unearned premium reserve inItaly , and (iii) decreases in our corporate solutions and variable life businesses in the Gulf, as well as our pension business inRomania , partially offset by growth in our (i) accident & health business across the region, (ii) corporate solutions business inEgypt , and (iii) credit life business inTurkey andRomania . Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ 1,964 $ 2,271 Universal life and investment-type product policy fees 300 395 Net investment income 160 215 Other revenues 35 47 Total adjusted revenues 2,459 2,928 Adjusted expenses Policyholder benefits and claims and policyholder dividends 990 1,241 Interest credited to policyholder account balances 71 86 Capitalization of DAC (411) (469) Amortization of DAC and VOBA 333 356 Amortization of negative VOBA (5) (7) Interest expense on debt - - Other expenses 1,171 1,324 Total adjusted expenses 2,149 2,531 Provision for income tax expense (benefit) 64 96 Adjusted earnings $
246
Adjusted earnings on a constant currency basis $
246
Adjusted premiums, fees and other revenues$ 2,299 $ 2,713 Adjusted premiums, fees and other revenues on a constant currency basis $
2,299
Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by$56 million for 2022 as compared to 2021, primarily driven by the strengthening of theU.S. dollar against the Turkish lira, euro and British pound. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items. Business Growth. Growth in our (i) accident & health business across the region, (ii) credit life business inTurkey , (iii) corporate solutions business inEgypt , (iv) ordinary life business inEurope , and (v) other minor increases across the region, partially offset by decreases in our variable life and corporate solutions businesses in the Gulf, as well as our pension business inRomania , resulted in a$6 million increase in adjusted earnings.
Market Factors. Market factors, including interest rate levels and variability
in equity market returns, resulted in a slight decrease in adjusted earnings.
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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Adjusted earnings increased$53 million as a result of favorable underwriting experience, primarily due to the impact of the COVID-19 pandemic, which resulted in lower utilization in 2022 and higher claims in 2021. Favorable underwriting experience in our (i) corporate solutions business inEgypt , theU.K. and the Gulf, (ii) variable life business inLebanon andCzech Republic , and (iii) credit life business inTurkey andRomania were partially offset by unfavorable underwriting experience in our ordinary life business inFrance . The favorable change from our actuarial assumption reviews resulted in a net increase of$10 million in adjusted earnings. Refinements to certain insurance-related assets and liabilities in both years resulted in a$43 million decrease in adjusted earnings. Expenses and Taxes. Higher expenses resulted in a$24 million decrease in adjusted earnings due to various operating expenses across the region. Taxes increased adjusted earnings by$12 million primarily due to changes in business mix among tax jurisdictions and tax-related adjustments in both years.
Other. In addition to the items discussed above, adjusted earnings decreased by
Business Overview. OurMetLife Holdings segment consists of operations relating to products and businesses, previously included in our former retail business, that we no longer actively market in theU.S. For 2023, we anticipate an average decline in adjusted premiums, fees and other revenues of approximately 12% to 14% from expected business run-off. For 2024 and beyond, we expect this decline to be approximately 6% to 8% per year. A significant portion of our adjusted earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact DAC amortization and asset-based commissions. Separate account balances are driven by movements in the market, surrenders, deposits, withdrawals, benefit payments, transfers and policy charges. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the existing block of business, which contributed to asset growth in the segment, and we expect the related reserves to grow as this block matures. Our future policyholder benefit liability for our long-term care business was$14.3 billion and$14.4 billion as ofDecember 31, 2022 and 2021, respectively. Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ 3,066 $ 3,333 Universal life and investment-type product policy fees 1,057 1,101 Net investment income 4,971 6,450 Other revenues 155 257 Total adjusted revenues 9,249 11,141 Adjusted expenses Policyholder benefits and claims and policyholder dividends 6,056 6,268 Interest credited to policyholder account balances 813 840 Capitalization of DAC (28) (33) Amortization of DAC and VOBA 192 257 Interest expense on debt 8 5 Other expenses 953 992 Total adjusted expenses 7,994 8,329 Provision for income tax expense (benefit) 247 570 Adjusted earnings $
1,008
Adjusted premiums, fees and other revenues $
4,278
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Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. A decrease in average invested assets resulted in lower net investment income, decreasing adjusted earnings. In our deferred annuity business, negative net flows 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 periods. The combined impact of the items affecting our business growth, partially offset by lower DAC amortization, resulted in a$145 million decrease in adjusted earnings. Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased driven by the unfavorable impact of lower equity market returns on our private equity and hedge funds, lower prepayment fees and lower yields on our mortgage loans and fixed income securities. The changes in market factors discussed above resulted in a$1.2 billion decrease in adjusted earnings. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Less favorable underwriting, mainly in our long-term care business, reflecting a smaller impact from the COVID-19 pandemic in 2022, partially offset by favorable underwriting in our life business, resulted in a$30 million decrease in adjusted earnings. The favorable change from our actuarial assumption reviews resulted in a net increase of$52 million in adjusted earnings. Refinements to certain insurance-related liabilities, which include the unfavorable impact from model refinements, partially offset by a reinsurance settlement, all in 2022, resulted in a$13 million decrease in adjusted earnings. Dividend scale reductions, as well as run-off in the MLIC closed block, contributed to lower dividend expense, net of DAC amortization, and resulted in a$80 million increase in adjusted earnings. Expenses. Adjusted earnings increased by$20 million mainly due to lower corporate-related expenses. Corporate & Other Years Ended December 31, 2022 2021 (In millions) Adjusted revenues Premiums$ (16) $ 35 Universal life and investment-type product policy fees 2 2 Net investment income 216 244 Other revenues 396 420 Total adjusted revenues 598 701 Adjusted expenses Policyholder benefits and claims and policyholder dividends (6) 34 Capitalization of DAC (8) (11) Amortization of DAC and VOBA 9 9 Interest expense on debt 909 902 Other expenses 709 562 Total adjusted expenses 1,613 1,496 Provision for income tax expense (benefit) (356) (591) Adjusted earnings (659) (204) Less: Preferred stock dividends 185 195 Adjusted earnings available to common shareholders $
(844)
Adjusted premiums, fees and other revenues$ 382 $ 457 86
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The table below presents adjusted earnings available to common shareholders by
source:
Years Ended December 31,
2022 2021
(In millions)
Business activities $ 138 $ 143
Net investment income 219 248
Interest expense on debt (943) (944)
Corporate initiatives and projects (64) (128)
Other (365) (114)
Provision for income tax (expense) benefit and other tax-related
items
356 591 Preferred stock dividends (185) (195) Adjusted earnings available to common shareholders $
(844)
Year Ended
Unless otherwise stated, all amounts discussed below are net of income tax.
Net Investment Income. Net investment income decreased$23 million , primarily due to the unfavorable impact of lower equity market returns, predominantly on our private equity funds andFVO Securities , as well as lower investment income from our mortgage loans. These decreases were partially offset by higher yields on our fixed income securities. Corporate Initiatives and Projects & Other. Adjusted earnings decreased$147 million , primarily as a result of an increase in corporate-related expenses, the release of a legal reserve in the prior year and higher interest expense on tax positions due to audit settlements in both years, partially offset by lower employee-related costs. Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. An unfavorable change in Corporate & Other's taxes was primarily due to (i) lower utilization of tax preferenced items, which include non-taxable investment income and tax credits, (ii)IRS audit settlements in both years, and (iii) the non-cash transfer of assets from a wholly-ownedU.K. investment subsidiary to itsU.S. parent in 2021, partially offset by lower taxes on stock compensation. Preferred Stock Dividends. Adjusted earnings available to common shareholders increased$10 million primarily as a result of the redemption and cancellation of the 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the "Series C preferred stock"), inJune 2021 . 87
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Table of Contents Investments Overview We manage our investment portfolio using disciplined ALM principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with the vast majority of our portfolio invested in fixed maturity securities AFS and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities.
Current Environment
As a global insurance company, we continue to be impacted by the changing global financial and economic environment, the fiscal and monetary policy of governments and central banks around the world and other governmental measures. Global inflation, supply chain disruptions, theRussia -Ukraine conflict, and the COVID-19 pandemic continue to impact the global economy and financial markets and has caused volatility in the global equity, credit and real estate markets. See "- Industry Trends - Financial and Economic Environment" for further information regarding conditions in the global financial markets and the economy generally which may affect us. 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 8 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 a market presence in numerous countries and, therefore, our investment portfolio, which supports our insurance operations and related policyholder liabilities, as well as our global portfolio diversification objectives, is exposed to risks posed by local political and economic conditions. 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
2022
Financial Non-Financial
Country Sovereign (1) Services Services Total (2)
(Dollars in millions)
Italy $ 16 $ 60 $ 582 $ 658
Peru 109 20 175 304
Ukraine (3) 57 - 2 59
Turkey 36 - 10 46
Russian Federation (3) 41 - - 41
Total $ 259 $ 80 $ 769 $ 1,108
Investment grade % 46.1 % 95.5 % 73.1 % 68.4 %
__________________
(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$1.3 billion ,$1.2 billion and$1.0 billion , respectively, atDecember 31, 2022 . The notional value and estimated fair value of the net purchased and written credit default swaps were$71 million and$0 , respectively, atDecember 31, 2022 . 88
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(3)As ofDecember 31, 2022 , the amortized cost, ACL and amortized cost, net of ACL of ourRussian Federation sovereign securities were$120 million ,$79 million and$41 million , respectively; and the amortized cost, ACL and amortized cost, net of ACL of ourRussian Federation corporate securities were$2 million ,$2 million and less than$1 million , respectively. As ofDecember 31, 2022 , the amortized cost, ACL and amortized cost, net of ACL of ourUkraine sovereign securities were$88 million ,$31 million and$57 million , respectively; and the amortized cost, ACL and amortized cost, net of ACL of ourUkraine 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.
Investment Portfolio Results
The reconciliation of net investment income under GAAP to adjusted net
investment income is presented below.
Years Ended December 31,
2022 2021
(In millions)
Net investment income - GAAP $ 15,916 $ 21,395
Investment hedge adjustments 976 895
Unit-linked investment income 1,298 (952)
Other (1) (58)
Adjusted net investment income (1) $ 18,189 $ 21,280
__________________
(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.
Years Ended
2022 2021
Asset Class Yield% (1) Amount Yield% (1) Amount
(Dollars in millions)
Fixed maturity securities AFS (2), (3) 3.76 % $ 11,098 3.74 % $ 11,146
Mortgage loans (3) 4.34 3,536 4.19 3,430
Real estate and real estate joint ventures 6.40 798 4.81 579
Policy loans 5.15 459 5.11 474
Equity securities 3.96 36 4.45 36
Other limited partnership interests (4) 5.92 860 40.71 4,935
Cash and short-term investments 2.31 282 0.80 87
Other invested assets - 1,670 - 1,197
Investment income 4.32 % $ 18,739 5.05 % $ 21,884
Investment fees and expenses (0.12) (539) (0.12) (537)
Net investment income including divested businesses
(5)
4.20 %$ 18,200 4.93 %$ 21,347
Less: net investment income from divested businesses
(5)
11 67 Adjusted net investment income$ 18,189 $ 21,280 __________________ 89
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(1)We calculate yields using adjusted net investment income as a percent of average quarterly asset carrying values. Adjusted net investment income excludes realized gains (losses) from sales and disposals and includes the impact of changes in foreign currency exchange rates. Average quarterly asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, annuities funding structured settlement claims freestanding derivative assets, collateral received from derivative counterparties and contractholder-directed equity securities. In addition, average quarterly asset carrying values include invested assets reclassified to held-for-sale, while ending carrying values exclude invested assets reclassified to held-for-sale. A yield is not presented for other invested assets, as it is not considered a meaningful measure of performance for this asset class.
(2)Investment income (loss) from fixed maturity securities AFS includes amounts
from
(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 endedDecember 31, 2022 compared to the year endedDecember 31, 2021 .
(5)See "Financial Measures and Segment Accounting Policies" in Note 2 of the
Notes to the Consolidated Financial Statements for discussion of divested
businesses.
See "- Results of Operations - Consolidated Results - Adjusted Earnings" for an
analysis of the period over period changes in investment portfolio results.
The following table presents public and private fixed maturity securities AFS
and equity securities held at:
December 31,
2022 2021
Estimated Fair % of Estimated Fair % of
Securities by Type Value Total Value Total
(Dollars in millions)
Fixed maturity securities AFS
Publicly-traded $ 211,579 76.4 % $ 267,040 78.5 %
Privately-placed 65,201 23.6 73,234 21.5
Total fixed maturity securities AFS $ 276,780 100.0 % $ 340,274 100.0 %
Percentage of cash and invested assets 61.0 % 66.1 %
Equity securities
Publicly-traded $ 1,423 84.5 % $ 1,118 88.1 %
Privately-held 261 15.5 151 11.9
Total equity securities $ 1,684 100.0 % $ 1,269 100.0 %
Percentage of cash and invested assets 0.4 % 0.2 %
See Note 8 of the Notes to the Consolidated Financial Statements for information
about fixed maturity securities AFS by sector, contractual maturities,
continuous gross unrealized losses and equity securities by security type and
the related cost, net unrealized gains (losses) and estimated fair value of
these securities; as well as realized gains (losses) on sales and disposals and
unrealized net gains (losses) recognized in earnings.
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.
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Valuation of Securities. We are responsible for the determination of the estimated fair value of our investments. We determine the estimated fair value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent pricing services (after we determine the independent pricing services' use of available observable market data). For publicly-traded securities, the number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by observable market data. See Note 10 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not available in the active market or through an independent pricing service, management values the security primarily using market standard internal matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the following section, less than 1% of our fixed maturity securities AFS were valued using non-binding quotations from independent brokers atDecember 31, 2022 . 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 10 of the Notes to the Consolidated Financial Statements for valuation approaches and key inputs by major category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy. 91
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Fair Value of
Fixed maturity securities AFS and equity securities measured at estimated fair
value on a recurring basis and their corresponding fair value pricing sources
were as follows:
December 31, 2022
Fixed Maturity Equity
Level Securities AFS Securities
(Dollars in millions)
Level 1
Quoted prices in active markets for identical
assets $ 15,959 5.8 % $ 1,293 76.8 %
Level 2
Independent pricing sources 232,048 83.8 129 7.6
Internal matrix pricing or discounted cash
flow techniques - - 3 0.2
Significant other observable inputs $ 232,048 83.8 % $ 132 7.8 %
Level 3
Independent pricing sources 21,762 7.9 45 2.7
Internal matrix pricing or discounted cash
flow techniques 6,639 2.4 214 12.7
Independent broker quotations 372 0.1 - -
Significant unobservable inputs $ 28,773 10.4 % $ 259 15.4 %
Total at estimated fair value $ 276,780 100.0 % $ 1,684 100.0 %
See Note 10 of the Notes to the Consolidated Financial Statements for the fixed
maturity securities AFS and equity securities fair value hierarchy; a
rollforward of the fair value measurements for securities measured at estimated
fair value on a recurring basis using significant unobservable (Level 3) inputs;
transfers into and/or out of Level 3; and further information about the
valuation approaches and inputs by level by major classes of invested assets
that affect the amounts reported above.
The majority of the Level 3 fixed maturity securities AFS and equity
securities were concentrated in three sectors at December 31, 2022 : U.S.
corporate securities, foreign corporate securities and ABS & CLO. During the
year ended December 31, 2022 , Level 3 fixed maturity securities AFS decreased by
$2.6 billion , or 8%. The decrease was driven by a decrease in estimated fair
value recognized in other comprehensive income (loss), partially offset by
transfers into Level 3 in excess of transfers out of Level 3, partially offset
by purchases in excess of sales.
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 toJanuary 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 afterJanuary 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. 92
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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
Amortized Estimated Amortized Estimated
NRSRO Cost net of Unrealized Fair % of Cost net of Unrealized Fair % of
Rating NAIC Designation ACL Gains (Losses) Value Total
ACL Gains (Losses) (1) Value Total
(Dollars in millions)
Aaa/Aa/A 1 $ 209,951 $ (19,930) $ 190,021 68.7 % $ 217,886 $ 21,508 $ 239,394 70.4 %
Baa 2 81,280 (8,086) 73,194 26.5 77,739 7,470 85,209 25.0
Subtotal investment grade 291,231 (28,016) 263,215 95.2 295,625 28,978 324,603 95.4
Ba 3 11,223 (712) 10,511 3.8 11,439 534 11,973 3.5
B 4 2,786 (215) 2,571 0.9 3,152 (2) 3,150 0.9
Caa and lower 5 517 (116) 401 0.1 563 (37) 526 0.2
In or near default 6 85 (3) 82 - 14 8 22 -
Subtotal below investment
grade 14,611 (1,046) 13,565 4.8 15,168 503 15,671 4.6
Total fixed maturity
securities AFS $ 305,842 $ (29,062) $ 276,780 100.0 % $ 310,793 $ 29,481 $ 340,274 100.0 %
__________________
(1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See
Note 3 of the Notes to the Consolidated Financial Statements for information on
the Company's business dispositions.
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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
Caa and In or Near Total
NRSRO Rating Aaa/Aa/A Baa Ba B Lower Default Estimated
NAIC Designation 1 2 3 4 5 6 Fair Value
(Dollars in millions)
December 31, 2022
U.S. corporate $ 40,293 $ 33,569 $ 4,281 $ 1,659 $ 209 $ 19 $ 80,030
Foreign corporate 18,229 30,657 3,121 513 51 1 52,572
Foreign government 38,658 5,143 2,582 256 65 43 46,747
U.S. government and agency 31,786 443 - - - - 32,229
RMBS 25,510 504 59 69 13 10 26,165
ABS & CLO 13,848 2,495 370 74 26 9 16,822
Municipals 11,932 196 24 - - - 12,152
CMBS 9,765 187 74 - 37 - 10,063
Total fixed maturity securities
AFS $ 190,021 $ 73,194 $ 10,511 $ 2,571 $ 401 $ 82 $ 276,780
Percentage of total 68.7 % 26.5 % 3.8 % 0.9 % 0.1 % - % 100.0 %
December 31, 2021
U.S. corporate $ 47,377 $ 39,094 $ 4,523 $ 1,796 $ 244 $ - $ 93,034
Foreign corporate 23,228 35,893 3,731 577 210 1 63,640
Foreign government 52,316 5,739 3,032 506 14 2 61,609
U.S. government and agency 46,065 534 - - - - 46,599
RMBS 29,529 634 150 67 5 19 30,404
ABS & CLO 15,920 2,221 316 85 27 - 18,569
Municipals 13,737 457 18 - - - 14,212
CMBS 11,222 637 203 119 26 - 12,207
Total fixed maturity securities
AFS $ 239,394 $ 85,209 $ 11,973 $ 3,150 $ 526 $ 22 $ 340,274
Percentage of total 70.4 % 25.0 % 3.5 % 0.9 % 0.2 % - % 100.0 %
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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 eitherDecember 31, 2022 or 2021. The top 10 holdings comprised 1% and 2% of total investments atDecember 31, 2022 and 2021, respectively. The table below presents ourU.S. and foreign corporate securities portfolios by industry at: December 31, 2022 2021 Estimated Estimated Fair % of Fair % of Industry Value Total Value Total (Dollars in millions) Finance$ 30,786 23.2 %$ 35,676 22.8 % Consumer (1) 27,834 21.0 33,043 21.1 Utility 23,215 17.5 28,961 18.5 Industrial (2) 14,276 10.8 16,128 10.3 Transportation 11,342 8.5 13,118 8.4 Communications 10,046 7.6 12,346 7.9 Energy 7,711 5.8 9,184 5.8 Technology 4,396 3.3 5,401 3.4 Other 2,996 2.3 2,817 1.8 Total$ 132,602 100 %$ 156,674 100 % __________________
(1)Includes consumer cyclical and consumer non-cyclical.
(2)Includes basic industry, capital goods and other industrial.
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 includes review of credit ratings, characteristics of the assets underlying the securities, borrower characteristics and the level of credit enhancement. We held$53.0 billion and$61.2 billion of Structured Products, at estimated fair value, atDecember 31, 2022 and 2021, 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 Federal National Mortgage Association, Federal Home Loan Mortgage Corporation orGovernment 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:
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December 31,
2022 2021
Estimated Net Estimated Net
Fair % of Unrealized Fair % of Unrealized
Value Total Gains (Losses) Value Total Gains (Losses) (1)
(Dollars in millions)
Security type
Collateralized mortgage obligations $ 15,275 58.4 % $ (1,917) $ 17,646 58.0 % $ 1,092
Pass-through mortgage-backed
securities 10,890 41.6 (1,414) 12,758 42.0 160
Total RMBS $ 26,165 100.0 % $ (3,331) $ 30,404 100.0 % $ 1,252
Risk profile
Agency $ 16,291 62.3 % $ (2,183) $ 19,487 64.1 % $ 671
Non-Agency
Prime and prime investor 3,958 15.1 (687) 3,161 10.4 13
NQM and Alt-A 1,964 7.5 (126) 2,351 7.7 217
Reperforming and sub-prime 2,892 11.1 (230) 4,288 14.1 352
Other (2) 1,060 4.0 (105) 1,117 3.7 (1)
Subtotal Non-Agency 9,874 37.7 % (1,148) 10,917 35.9 % 581
Total RMBS $ 26,165 100.0 % $ (3,331) $ 30,404 100.0 % $ 1,252
Ratings profile
Rated Aaa and Aa $ 21,927 83.8 % $ 24,190 79.6 %
Designated NAIC 1 $ 25,514 97.5 % $ 29,529 97.1 %
__________________
(1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See
Note 3 of the Notes to the Consolidated Financial Statements for information on
the Company's business dispositions.
(2)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
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 (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 are investment grade under NAIC designations (e.g., NAIC 1 and NAIC 2).
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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 Net Estimated Net
Fair % of Unrealized Fair % of Unrealized
Value Total Gains (Losses) Value Total Gains (Losses) (1)
(Dollars in millions)
ABS
Collateral type Vehicle and equipment loans$ 1,404 8.4 % $ (61)$ 1,864 10.0 % $ 10 Consumer loans 1,212 7.2 (118) 1,672 9.0 48 Credit card 1,181 7.0 (17) 899 4.8 9 Digital infrastructure 1,014 6.0 (112) 834 4.5 7 Franchise 931 5.5 (113) 763 4.1 17 Student loans 814 4.9 (91) 1,143 6.2 16 Other (2) 2,896 17.2 (335) 2,953 15.9 22 Total ABS 9,452 56.2 % (847) 10,128 54.5 % 129 CLO (3) 7,370 43.8 % (322) 8,441 45.5 % (3) Total ABS & CLO$ 16,822 100 %$ (1,169) $ 18,569 100.0 % $ 126 ABS ratings profile Rated Aaa and Aa$ 4,285 45.3 %$ 5,289 52.2 % Designated NAIC 1$ 7,211 76.3 %$ 8,105 80.0 % CLO ratings profile Rated Aaa and Aa$ 5,454 74.0 %$ 6,749 80.0 % Designated NAIC 1$ 6,634 90.0 %$ 7,815 92.6 % ABS & CLO ratings profile Rated Aaa and Aa$ 9,739 57.9 %$ 12,038 64.8 % Designated NAIC 1$ 13,845 82.3 %$ 15,920 85.7 % _________________ (1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company's business dispositions.
(2)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.
(3)Includes primarily securities collateralized by broadly syndicated bank
loans.
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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:
December 31,
2022 2021
Estimated Net Unrealized Estimated Net Unrealized
Fair Value % of Total Gains (Losses) Fair Value % of Total Gains (Losses) (1)
(Dollars in millions)
Collateral type
Conduit $ 6,781 67.4 % $ (740) $ 8,282 67.8 % $ 341
Single asset and single
borrower 1,971 19.6 (184) 2,269 18.6 32
Agency 607 5.9 (99) 610 5.0 50
Commercial real estate
collateralized loan
obligations 418 4.2 (14) 653 5.4 2
Other 286 2.9 (4) 393 3.2 2
Total CMBS $ 10,063 100.0 % $ (1,041) $ 12,207 100 % $ 427
Ratings profile
Rated Aaa and Aa $ 8,138 80.9 % $ 9,614 78.8 %
Designated NAIC 1 $ 9,765 97.0 % $ 11,222 91.9 %
__________________
(1)Excludes gross unrealized gains (losses) related to assets held-for-sale. See
Note 3 of the Notes to the Consolidated Financial Statements for information on
the Company's business dispositions.
Evaluation of Fixed Maturity Securities AFS for Credit Loss, Rollforward of
Allowance for Credit Loss and Credit Loss on Fixed Maturity Securities AFS
Recognized in Earnings
See Note 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for credit loss, rollforward of the ACL, net credit loss provision (release) and impairment (losses), as well as realized gross gains (losses) on sales and disposals of fixed maturity securities AFS atDecember 31, 2022 and 2021 and for the years endedDecember 31, 2022 , 2021 and 2020.
The estimated fair value of these investments, which are primarily comprised of
contractholder-directed investments supporting unit-linked variable annuity type
liabilities ("Unit-linked investments"), was $9.7 billion and $12.1 billion , or
2.1% and 2.4% of cash and invested assets, at December 31, 2022 and 2021,
respectively. See Notes 1, 8 and 10 of the Notes to the Consolidated Financial
Statements for a description of this portfolio, investments by asset type, and
the related cost or amortized cost, net unrealized gains (losses) and estimated
fair value of these securities, the fair value hierarchy, rollforward of the
fair value measurements for these investments measured at estimated fair value
on a recurring basis using significant unobservable (Level 3) inputs and net
realized and net unrealized gains (losses) recognized in net investment income
at December 31, 2022 and 2021 and for the years ended December 31, 2022 , 2021
and 2020.
Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian
Administered Programs
We participate in securities lending transactions, repurchase agreements and third-party custodian administered programs with unaffiliated financial institutions in the normal course of business for the purpose of enhancing the total return on our investment portfolio. Securities lending transactions and repurchase agreements: We account for these arrangements as secured borrowings and record a liability in the amount of the cash received. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the securities are returned to us. Through these arrangements, we were liable for cash collateral under our control of$15.2 billion and$24.4 billion atDecember 31, 2022 and 2021, respectively, including a portion that may require the immediate return of cash collateral we hold. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for further information about the secured borrowings accounting and the classification of revenues and expenses. 98
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Third-party custodian administered programs: The estimated fair value of securities we own which are loaned in connection with these programs was$324 million and$273 million atDecember 31, 2022 and 2021, respectively. The estimated fair value of the related non-cash collateral on deposit with third-party custodians on our behalf, which is not reflected in our consolidated financial statements and cannot be sold or re-pledged, was$331 million and$282 million atDecember 31, 2022 and 2021, respectively.
Mortgage Loans
Our mortgage loans are principally collateralized by commercial, agricultural
and residential properties. Mortgage loans carried at amortized cost and the
related ACL are summarized as follows at:
December 31,
2022 2021
Amortized % of ACL as % of Amortized % of ACL as % of
Portfolio Segment Cost Total ACL Amortized Cost Cost Total ACL Amortized Cost
(Dollars in millions)
Commercial $ 52,502 62.3 % $ 218 0.4 % $ 50,553 63.3 % $ 340 0.7 %
Agricultural 19,306 22.9 119 0.6 % 18,111 22.7 88 0.5 %
Residential 12,482 14.8 190 1.5 % 11,196 14.0 206 1.8 %
Total $ 84,290 100.0 % $ 527 0.6 % $ 79,860 100.0 % $ 634 0.8 %
The carrying value of all mortgage loans, net of ACL, was 18.5% and 15.4% of
cash and invested assets at
We diversify our mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. Of our commercial and agricultural mortgage loans carried at amortized cost, 85% are collateralized by properties located in theU.S. , with the remaining 15% collateralized by properties located primarily inMexico ,U.K andAustralia atDecember 31, 2022 . The carrying values of our commercial and agricultural mortgage loans carried at amortized cost located inCalifornia ,New York andTexas were 16%, 9% and 7%, respectively, of total commercial and agricultural mortgage loans carried at amortized cost atDecember 31, 2022 . Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral. We manage our residential mortgage loans carried at amortized cost in a similar manner to reduce risk of concentration, with 91% collateralized by properties located in theU.S. , and the remaining 9% collateralized by properties located primarily inChile , atDecember 31, 2022 . The carrying values of our residential mortgage loans carried at amortized cost located inCalifornia ,Florida , andNew York were 32%, 10%, and 8%, respectively, of total residential mortgage loans carried at amortized cost atDecember 31, 2022 . 99
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Commercial Mortgage Loans byGeographic Region and Property Type. Commercial mortgage loans are the largest mortgage loan portfolio segment. The tables below present the diversification across geographic regions and property types of commercial mortgage loans carried at amortized cost at: December 31, 2022 2021 % of % of Amount Total Amount Total (Dollars in millions) Region Pacific$ 9,628 18.3 %$ 9,676 19.1 % Non-U.S. 9,299 17.7 9,969 19.7 Middle Atlantic 7,574 14.4 7,537 14.9 South Atlantic 6,617 12.6 6,800 13.5 West South Central 3,721 7.1 3,492 6.9 New England 2,764 5.3 2,748 5.4 Mountain 2,284 4.4 1,993 4.0 East North Central 1,594 3.0 2,129 4.2 East South Central 620 1.2 759 1.5 West North Central 597 1.1 663 1.3 Multi-Region and Other 7,804 14.9 4,787 9.5 Total amortized cost$ 52,502 100.0 %$ 50,553 100.0 % Less: ACL 218 340 Carrying value, net of ACL$ 52,284 $ 50,213 Property Type Office$ 21,009 40.0 %$ 22,388 44.3 % Apartment 10,575 20.2 9,121 18.0 Retail 8,046 15.3 8,548 16.9 Industrial 5,607 10.7 5,096 10.1 Hotel 3,172 6.0 3,201 6.3 Other 4,093 7.8 2,199 4.4 Total amortized cost$ 52,502 100.0 %$ 50,553 100.0 % Less: ACL 218 340 Carrying value, net of ACL$ 52,284 $ 50,213 Our commercial mortgage loan portfolio is well positioned with exposures concentrated in high quality underlying properties located in primary markets typically with institutional investors who are better positioned to manage their assets during periods of market volatility. Our portfolio is comprised primarily of lower risk loans with higher debt-service coverage ratios ("DSCR") and lower loan-to-value ("LTV") ratios. See "- Mortgage Loan Credit Quality - Monitoring Process" for further information and Note 8 of the Notes to the Consolidated Financial Statements for a distribution of our commercial mortgage loans by DSCR and LTV ratios. Mortgage Loan Credit Quality - Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans by credit quality indicator and loans that are current, past due, restructured and under foreclosure. See Note 8 of the Notes to the Consolidated Financial Statements for further information regarding mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans. 100
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We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher LTV ratios. Agricultural mortgage loans are reviewed on an ongoing basis which include, but are not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, including reviews on a geographic and property-type basis. We review our residential mortgage loans on an ongoing basis, with a focus on higher risk loans, such as nonperforming loans. See Note 8 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related ACL methodology. LTV ratios and DSCR are common measures in the assessment of the quality of commercial mortgage loans. LTV ratios are a common measure in the assessment of the quality of agricultural mortgage loans. LTV ratios compare the amount of the loan to the estimated fair value of the underlying collateral. An LTV ratio greater than 100% indicates that the loan amount is greater than the collateral value. An LTV ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR compares a property's net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average LTV ratio was 57% and 56% atDecember 31, 2022 and 2021, respectively, and our average DSCR was 2.6x and 2.5x atDecember 31, 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. For our agricultural mortgage loans, our average LTV ratio was 47% and 49% atDecember 31, 2022 and 2021, respectively. The values utilized in calculating our agricultural mortgage loan LTV ratio are developed in connection with the ongoing review of our agricultural loan portfolio and are routinely updated. Mortgage Loan Allowance for Credit Loss. Our ACL is established for both pools of loans with similar risk characteristics and for mortgage loans with dissimilar risk characteristics, collateral dependent loans and reasonably expected troubled debt restructurings, individually on a loan specific basis. We record an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents the portion of the amortized cost basis of mortgage loans that the Company does not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In determining our ACL, management (i) pools mortgage loans that share similar risk characteristics, (ii) considers expected lifetime credit loss over the contractual term of our mortgage loans, as adjusted for expected prepayments and any extensions, and (iii) considers past events and current and forecasted economic conditions. Actual credit loss realized could be different from the amount of the ACL recorded. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the ACL to increase or decrease over time as such evaluations are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the ACL. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the ACL. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information on how the ACL is established and monitored, and activity in and balances of the ACL.
Real Estate and
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 broadly diversified across multiple property types and geographies. The carrying value of our real estate investments was$13.1 billion and$12.2 billion , or 2.9% and 2.4% of cash and invested assets, atDecember 31, 2022 and 2021, 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$6.7 billion and$6.8 billion unrealized gain position atDecember 31, 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 endedDecember 31, 2022 or 2021. 101
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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 8 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
Carrying % of Carrying % of
Property Type Value Total Value Total
(Dollars in millions)
Office $ 3,964 30.2 % $ 4,209 34.5 %
Retail 1,329 10.1 1,105 9.0
Apartment 1,225 9.3 1,343 11.0
Land 901 6.9 1,008 8.3
Hotel 796 6.1 677 5.5
Industrial 356 2.7 421 3.4
Agriculture 5 - 18 0.2
Other 6 - 10 0.1
Wholly-owned and real estate joint ventures
Diversified property types and multi-property 1,042 7.9
937 7.6
Real estate funds 3,513 26.8
2,488 20.4
Total real estate and real estate joint ventures
Geographical diversification: Wholly-owned and real estate joint ventures totaled$8.6 billion atDecember 31, 2022 , 66% of which were located in theU.S. and 34% of such properties were located outside theU.S. , atDecember 31, 2022 , at carrying value. The portion of these properties located inJapan ,Washington, D.C. andGeorgia were 31%, 8% and 8%, respectively, atDecember 31, 2022 , 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. AtDecember 31, 2022 and 2021, the carrying value of other limited partnership interests was$14.4 billion and$14.6 billion , which included$414 million and$663 million of hedge funds, respectively. Other limited partnership interests were 3.2% and 2.8% of cash and invested assets atDecember 31, 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 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. 102
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Other Invested Assets
The following table presents the carrying value of our other invested assets by
type at:
December 31,
2022 2021
Asset Type Carrying Value % of Total Carrying Value % of Total
(Dollars in millions)
Freestanding derivatives with positive
estimated fair values $ 11,411 56.9 % $ 10,466 56.1 %
Tax credit and renewable energy partnerships 1,318 6.6 1,564 8.4
Annuities funding structured settlement claims 1,238 6.2 1,251 6.7
Direct financing leases 1,195 6.0 1,143 6.1
Operating joint ventures 1,099 5.5 901 4.8
Leveraged leases 731 3.6 787 4.2
FHLBNY common stock 729 3.6 769 4.1
Funds withheld 359 1.8 525 2.8
Other 1,958 9.8 1,249 6.8
Total $ 20,038 100 % $ 18,655 100 %
Percentage of cash and invested assets 4.4 % 3.6 %
See Notes 1, 8 and 9 of the Notes to the Consolidated Financial Statements for
information regarding freestanding derivatives with positive estimated fair
values, tax credit and renewable energy partnerships, annuities funding
structured settlement claims, direct financing and leveraged leases, operating
joint ventures, FHLBNY common stock, and funds withheld, as well as gains
(losses) on disposals of leveraged leases and renewable energy partnerships.
Investment Commitments
We enter into the following commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See Note 21 of the Notes to the Consolidated Financial Statements for the amount of our unfunded investment commitments atDecember 31, 2022 and 2021. See "Net Investment Income" and "Net Investment Gains (Losses)" in Note 8 of the Notes to the Consolidated Financial Statements for information on the investment income, investment expense, gains and losses from such investments and the liability for credit loss for unfunded mortgage loan commitments. See also "-Fixed Maturity Securities AFS and Equity Securities ," "- Mortgage Loans," "- Real Estate andReal Estate Joint Ventures " and "- Other Limited Partnership Interests." 103
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Table of Contents Derivatives Overview We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. We use a variety of strategies to manage these risks, including the use of derivatives, such as market standard purchased and written credit default swap contracts. See Note 9 of the Notes to the Consolidated Financial Statements for:
•A comprehensive description of the nature of our derivatives, including the
strategies for which derivatives are used in managing various risks.
•Information about the primary underlying risk exposure, gross notional amount,
and estimated fair value of our derivatives by type of hedge designation,
excluding embedded derivatives held at
•The statement of operations effects of derivatives in net investments in
foreign operations, cash flow, fair value, or nonqualifying hedge relationships
for the years ended
We enter into market standard purchased and written credit default swap contracts. Payout under such contracts is triggered by certain credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typically also include involuntary restructuring. With respect to credit default contracts on sovereign debt, credit events typically include failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives Determinations Committee, determines that a credit event has occurred. We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments they are hedging, which gives us more flexibility in managing our credit exposures. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure. See "Quantitative and Qualitative Disclosures About Market Risk - Management of Market Risk Exposures - Hedging Activities" for more information about our use of derivatives by major hedge program.
Fair Value Hierarchy
See Note 10 of the Notes to the Consolidated Financial Statements for
derivatives measured at estimated fair value on a recurring basis and their
corresponding fair value hierarchy.
The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances. The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect net income. Derivatives categorized as Level 3 atDecember 31, 2022 include: interest rate forwards with maturities which extend beyond the observable portion of the yield curve; foreign currency swaps and forwards with certain unobservable inputs, including the unobservable portion of the yield curve; and credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations. AtDecember 31, 2022 , 1% of the estimated fair value of our derivatives was priced through independent broker quotations.
See Note 10 of the Notes to the Consolidated Financial Statements for a
rollforward of the fair value measurements for derivatives measured at estimated
fair value on a recurring basis using significant unobservable (Level 3) inputs.
See "- Summary of Critical Accounting Estimates - Derivatives" for further
information on the estimates and assumptions that affect derivatives.
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Credit Risk
See Note 9 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral. Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives on the consolidated balance sheets and does not affect our legal right of offset.
Credit Derivatives
The following table presents the gross notional amount and estimated fair value
of credit default swaps at:
December 31,
2022 2021
Gross Gross
Notional Estimated Notional Estimated
Credit Default Swaps Amount Fair Value Amount Fair Value
(In millions)
Purchased $ 2,925 $ (61) $ 3,042 $ (100)
Written 11,512 105 8,626 165
Total $ 14,437 $ 44 $ 11,668 $ 65
The following table presents the gross gains, gross losses and net gains
(losses) recognized in net derivative gains (losses) for credit default swaps as
follows:
Years Ended December 31,
2022 2021
Net Net
Gross Gross Gains Gross Gross Gains
Credit Default Swaps Gains Losses (Losses) Gains Losses (Losses)
(In millions)
Purchased (1) $ 78 $ (3) $ 75 $ 18 $ (9) $ 9
Written (1) 62 (154) (92) 52 (11) 41
Total $ 140 $ (157) $ (17) $ 70 $ (20) $ 50
__________________
(1)Gains (losses) do not include earned income (expense) on credit default
swaps.
The unfavorable change in net gains (losses) on written credit default swaps was$133 million for the year endedDecember 31, 2022 as compared to the year endedDecember 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 favorable change in net gains(losses) on purchased credit default swaps of$66 million for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 due to certain credit spreads on certain credit default swaps widening in the current period as compared to 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 NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasingTreasury 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. 105
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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$1.7 billion and$1.1 billion at estimated fair value, atDecember 31, 2022 and 2021, respectively. See "- Liquidity and Capital Resources - The Company - Liquidity and Capital Uses - Pledged Collateral" and Note 9 of the Notes to the Consolidated Financial Statements for information regarding the earned income on and the gross notional amount, estimated fair value of assets and liabilities and primary underlying risk exposure of our derivatives.
Embedded Derivatives
See Notes 9 and 10 of the Notes to the Consolidated Financial Statements for
information about embedded derivatives.
See "- Summary of Critical Accounting Estimates - Derivatives" for further
information on the estimates and assumptions that affect embedded derivatives.
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity payments. Amounts for actuarial liabilities are computed and reported on the consolidated financial statements in conformity with GAAP. For more details on Policyholder Liabilities, see " - Summary of Critical Accounting Estimates." We periodically review our estimates of actuarial liabilities for future benefits and compare them with our actual experience. We revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings and have a material adverse effect on our business, results of operations and financial condition. See "Business - Regulation - Insurance Regulation - Policy and Contract Reserve Adequacy Analysis" and "Risk Factors - Business Risks" for further information regarding required analyses of the adequacy of statutory reserves of our insurance operations. The following discussions on future policy benefits and policyholder account balances should be read in conjunction with "- Industry Trends - Impact of Market Interest Rates," "- Variable Annuity Guarantees" and "- Liquidity and Capital Resources - The Company - Liquidity and Capital Sources - Global Funding Sources - Policyholder Account Balances." See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies. A
discussion of future policy benefits by segment (as well as Corporate & Other)
follows.
U.S. Amounts payable under insurance policies for this segment are comprised of group insurance and annuities. For group insurance, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, active life policies and premium stabilization and other contingency liabilities held under life insurance contracts. For group annuity contracts, future policyholder benefits are primarily related to payout annuities, including pension risk transfers, structured settlement annuities and institutional income annuities. There is no interest rate crediting flexibility on these liabilities.
Future policy benefits for this segment are held primarily for traditional life,
endowment, annuity and accident & health contracts. They are also held for total
return pass-through provisions included in certain universal life and savings
products. They include certain liabilities for variable annuity and variable
life guarantees of minimum death benefits, and longevity guarantees. Factors
impacting these liabilities include sustained periods of lower than expected
yields, lower than expected asset reinvestment rates, market volatility, actual
lapses resulting in lower than expected income, and actual mortality or
morbidity resulting in higher than expected benefit payments.
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Future policy benefit liabilities for this segment are held primarily for immediate annuities, traditional life contracts and total return pass-through provisions included in certain universal life and savings products. There is no interest rate crediting flexibility on the immediate annuity and traditional life liabilities. Other factors impacting these liabilities are actual mortality resulting in higher than expected benefit payments and actual lapses resulting in lower than expected income.
EMEA
Future policy benefits for this segment include unearned premium reserves for group life and medical and credit insurance contracts. Future policy benefits are also held for traditional life, endowment and annuity contracts with significant mortality risk and accident & health contracts. Factors impacting these liabilities include lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments.
Future policy benefits for the life insurance business are comprised mainly of liabilities for traditional life insurance contracts. For the annuities business, future policy benefits are comprised mainly of liabilities for life-contingent income annuities and liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance. For the long-term care business, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, and active life policies. In addition, for our other products, future policyholder benefits related to the reinsurance of our formerJapan joint venture are comprised of liabilities for the variable annuity guaranteed minimum benefits that are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for other reinsurance
business.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. A discussion of policyholder account balances by segment follows.
Policyholder account balances in this segment are comprised of funding agreements, retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs. Group Benefits Policyholder account balances in this business are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs. Policyholder account balances are credited interest at a rate we determine, which is influenced by current market rates. Most of these policyholder account balances have minimum credited rate guarantees.
The table below presents the breakdown of account value subject to minimum
guaranteed crediting rates for Group Benefits:
December 31, 2022
Account
Account Value at
Guaranteed Minimum Crediting Rate Value Guarantee
(In millions)
Greater than 0% but less than 2% $ 5,571 $ 5,393
Equal to or greater than 2% but less than 4% $ 1,496 $ 1,453
Equal to or greater than 4%
$ 817 $ 786
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Retirement and Income Solutions
Policyholder account balances in this business are held largely for investment-type products, mainly funding agreements, as well as postretirement benefits and corporate-owned life insurance to fund non-qualified benefit programs for executives. Interest crediting rates vary by type of contract and can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly (1-month or 3-month) LIBOR or Secured Overnight Financing Rate. We guarantee payment of interest and return of principal at the contractual maturity date.
The table below presents the breakdown of account value subject to minimum
guaranteed crediting rates for RIS:
December 31, 2022
Account
Account Value at
Guaranteed Minimum Crediting Rate Value
Guarantee
(In millions)
Greater than 0% but less than 2% $ 1,295 $ -
Equal to or greater than 2% but less than 4% $ 771 $ 232
Equal to or greater than 4% $ 4,627 $ 4,439
Asia
Policyholder account balances in this segment are held largely for fixed income
retirement and savings plans, fixed deferred annuities, interest sensitive whole
life products, universal life and, to a lesser degree, liability amounts for
Unit-linked investments that do not meet the GAAP definition of separate
accounts. Also included are certain liabilities for retirement and savings
products sold in certain countries in Asia that generally are sold with minimum
credited rate guarantees. Liabilities for guarantees on certain variable
annuities in Asia are accounted for as embedded derivatives and recorded at
estimated fair value and are also included within policyholder account balances.
Most of these policyholder account balances have minimum credited rate
guarantees. Liabilities for Unit-linked investments are impacted by changes in
the fair value of the associated underlying investments, as the return on assets
is generally passed directly to the policyholder.
The table below presents the breakdown of account value subject to minimum
guaranteed crediting rates for
December 31, 2022
Account
Account Value at
Guaranteed Minimum Crediting Rate Value Guarantee
(In millions)
Annuities
Greater than 0% but less than 2% $ 32,646 $ 1,679
Equal to or greater than 2% but less than 4% $ 900 $ 394
Equal to or greater than 4%
$ 1 $ 1 Life & Other Greater than 0% but less than 2% $ 12,122 $ 11,383
Equal to or greater than 2% but less than 4% $ 34,725 $ 21,184
Equal to or greater than 4%
$ 265 $ 265
Policyholder account balances in this segment are held largely for
investment-type products, universal life products, deferred annuities and
Unit-linked investments that do not meet the GAAP definition of separate
accounts. Liabilities for Unit-linked investments are impacted by changes in the
fair value of the associated investments, as the return on assets is generally
passed directly to the policyholder. Many of the other liabilities have minimum
credited rate guarantees.
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EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuities, pension products, and Unit-linked investments that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Most of these policyholder account balances have minimum credited rate guarantees. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.MetLife Holdings Life policyholder account balances in this segment are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies, and funding agreements. For annuities, policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities, non-life contingent income annuities, and embedded derivatives related to variable annuity guarantees. Interest is credited to the policyholder's account at interest rates we determine which are influenced by current market rates, subject to specified minimums. Most of these policyholder account balances have minimum credited rate guarantees. Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a former operating joint venture inJapan that are accounted for as embedded derivatives.
The table below presents the breakdown of account value subject to minimum
guaranteed crediting rates for the
December 31, 2022
Account
Account Value at
Guaranteed Minimum Crediting Rate Value
Guarantee
(In millions)
Greater than 0% but less than 2% $ 1,028 $ 1,001
Equal to or greater than 2% but less than 4% $ 16,507 $ 14,418
Equal to or greater than 4% $ 7,111 $ 6,512
Variable Annuity Guarantees
We issue, directly and through assumed business, certain variable annuity
products with guaranteed minimum benefits that provide the policyholder a
minimum return based on their initial deposit (i.e., the benefit base) less
withdrawals. In some cases, the benefit base may be increased by additional
deposits, bonus amounts, accruals or optional market value resets. See Notes 1
and 4 of the Notes to the Consolidated Financial Statements for additional
information.
Certain guarantees, including portions thereof, have insurance liabilities
established that are included in future policy benefits. Guarantees accounted
for in this manner include GMDBs, the life-contingent portion of GMWBs, elective
GMIB annuitizations, and the life contingent portion of GMIBs that require
annuitization when the account balance goes to zero. These liabilities are
accrued over the life of the contract in proportion to actual and future
expected policy assessments based on the level of guaranteed minimum benefits
generated using multiple scenarios of separate account returns. The scenarios
are based on best estimate assumptions consistent with those used to amortize
DAC. When current estimates of future benefits exceed those previously projected
or when current estimates of future assessments are lower than those previously
projected, liabilities will increase, resulting in a current period charge to
net income. The opposite result occurs when the current estimates of future
benefits are lower than those previously projected or when current estimates of
future assessments exceed those previously projected. At the end of each
reporting period, we update the actual amount of business remaining in-force,
which impacts expected future assessments and the projection of estimated future
benefits resulting in a current period charge or increase to earnings.
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Certain guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in policyholder account balances. Guarantees accounted for as embedded derivatives include GMABs, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk-neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value, see Note 10 of the Notes to the Consolidated Financial Statements.
The table below presents the carrying value for guarantees at:
Future Policy Policyholder
Benefits Account Balances
December 31, December 31,
2022 2021 2022 2021
(In millions)
Asia
GMDB $ 5 $ 4 $ - $ -
GMAB - - 11 14
GMWB 29 32 56 107
EMEA
GMDB 2 3 - -
GMAB - - 4 6
GMWB 12 19 (49) (58)
MetLife Holdings
GMDB 737 561 - -
GMIB 828 1,029 407 180
GMAB - - (1) -
GMWB 207 174 133 173
Total $ 1,820 $ 1,822 $ 561 $ 422
The carrying amounts for guarantees included in policyholder account balances
above include nonperformance risk adjustments of $138 million and $120 million
at December 31, 2022 and 2021, respectively. These nonperformance risk
adjustments represent the impact of including a credit spread when discounting
the underlying risk-neutral cash flows to determine the estimated fair values.
The nonperformance risk adjustment does not have an economic impact on us as it
cannot be monetized given the nature of these policyholder liabilities. The
change in valuation arising from the nonperformance risk adjustment is not
hedged.
The carrying values of these guarantees can change significantly during periods
of sizable and sustained shifts in equity market performance, equity volatility,
interest rates or foreign currency exchange rates. Carrying values are also
impacted by our assumptions around mortality, separate account returns and
policyholder behavior, including lapse rates.
As discussed below, we use a combination of product design, hedging strategies,
reinsurance, and other risk management actions to mitigate the risks related to
these benefits. Within each type of guarantee, there is a range of product
offerings reflecting the changing nature of these products over time. Changes in
product features and terms are in part driven by customer demand but, more
importantly, reflect our risk management practices of continuously evaluating
the guaranteed benefits and their associated asset-liability matching. We
continue to diversify the concentration of income benefits in our portfolio by
focusing on withdrawal benefits, variable annuities without living benefits and
index-linked annuities.
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The sections below provide further detail by total account value for certain of our most popular guarantees. Total account values include amounts not reported on the consolidated balance sheets from assumed business, Unit-linked investments that do not qualify for presentation as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and assumed business, but exclude offsets from hedging or ceded reinsurance, if any.
GMDBs
We offer a range of GMDBs to our contractholders. The table below presents
GMDBs, by benefit type, at December 31, 2022:
Total Account Value (1)
Asia
& EMEA
(In millions)
Return of premium or five to seven year step-up $ 5,469 $ 34,655
Annual step-up - 2,299
Roll-up and step-up combination - 3,853
Total $ 5,469 $ 40,807
__________________
(1)Total account value excludes $517 million for contracts with no GMDBs. The
Company's annuity contracts with guarantees may offer more than one type of
guarantee in each contract. Therefore, the amounts listed for GMDBs and for
living benefit guarantees are not mutually exclusive.
Based on total account value, less than 17% of our GMDBs included enhanced death
benefits such as the annual step-up or roll-up and step-up combination products
at December 31, 2022.
Living Benefit Guarantees
The table below presents our living benefit guarantees based on total account
values at December 31, 2022:
Total Account Value (1)
Asia & EMEA MetLife Holdings
(In millions)
GMIB $ - $ 14,516
GMWB - non-life contingent (2) 677 1,417
GMWB - life-contingent 2,112 6,085
GMAB 1,064 98
Total $ 3,853 $ 22,116
__________________
(1)Total account value excludes $20.8 billion for contracts with no living
benefit guarantees. The Company's annuity contracts with guarantees may offer
more than one type of guarantee in each contract. Therefore, the amounts listed
for GMDBs and for living benefit guarantee amounts are not mutually exclusive.
(2)The
GMWB total account value of $677 million with a guarantee at annuitization.
In terms of total account value, GMIBs are our most significant living benefit
guarantee. Our primary risk management strategy for our GMIB products is our
derivatives hedging program as discussed below. Additionally, we have engaged in
certain reinsurance agreements covering some of our GMIB business. As part of
our overall risk management approach for living benefit guarantees, we
continually monitor the reinsurance markets for the right opportunity to
purchase additional coverage for our GMIB business. We stopped selling GMIBs in
February 2016.
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The table below presents our GMIB associated total account values, by their
guaranteed payout basis, at December 31, 2022:
Total
Account Value
(In millions)
7-year setback, 2.5% interest rate $
4,444
7-year setback, 1.5% interest rate
911
10-year setback, 1.5% interest rate
2,943
10-year mortality projection, 10-year setback, 1.0% interest rate
5,277
10-year mortality projection, 10-year setback, 0.5% interest rate
941
$ 14,516
The annuitization interest rates on GMIBs have been decreased from 2.5% to 0.5%
over time, partially in response to the low interest rate environment, in effect
at the time the GMIBs were sold, accompanied by an increase in the setback
period from seven years to 10 years and the introduction of a 10-year mortality
projection.
Additionally, 33% of the $14.5 billion of GMIB total account value has been
invested in managed volatility funds as of December 31, 2022. These funds seek
to manage volatility by adjusting the fund holdings within certain guidelines
based on capital market movements. Such activity reduces the overall risk of the
underlying funds while maintaining their growth opportunities. These risk
mitigation techniques reduce or eliminate the need for us to manage the funds'
volatility through hedging or reinsurance.
Our GMIB products typically have a waiting period of 10 years to be eligible for
annuitization. As of December 31, 2022, only 49% of our contracts with GMIBs
were eligible for annuitization. The remaining contracts are not eligible for
annuitization for an average of three years.
Once eligible for annuitization, contractholders would be expected to annuitize
only if their contracts were in-the-money. We calculate in-the-moneyness with
respect to GMIBs consistent with net amount at risk as discussed in Note 4 of
the Notes to the Consolidated Financial Statements, by comparing the
contractholders' income benefits based on total account values and current
annuity rates versus the guaranteed income benefits. The net amount at risk was
$433 million at December 31, 2022, of which $371 million was related to GMIBs.
For those contracts with GMIB, the table below presents details of contracts
that are in-the-money and out-of-the-money at December 31, 2022:
Total
In-the-Moneyness Account Value % of Total
(In millions)
In-the-money 30% or greater $ 351 3 %
20% to less than 30% 193 1 %
10% to less than 20% 359 3 %
0% to less than 10% 735 5 %
1,638
Out-of-the-money -10% to 0% 1,647 11 %
-20% to less than -10% 3,378 23 %
Greater than -20% 7,853 54 %
12,878
Total GMIBs $ 14,516
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Derivatives Hedging Variable Annuity Guarantees
Our risk mitigating hedging strategy uses various OTC and exchange traded
derivatives. The table below presents the gross notional amount, estimated fair
value and primary underlying risk exposure of the derivatives hedging our
variable annuity guarantees:
December 31,
2022 2021
Gross Notional Estimated Fair Value Gross Notional Estimated Fair Value
Primary Underlying Risk Exposure Instrument Type Amount Assets Liabilities Amount Assets Liabilities
(In millions)
Interest rate Interest rate swaps $ 7,938 $ 34 $ 763 $ 8,663 $ 52 $ 75
Interest rate futures 1,110 2 1 1,087 3 -
Interest rate options 50 5 - 100 1 -
Foreign currency exchange rate Foreign currency forwards 887 26 2 1,149 4 13
Equity market Equity futures 2,508 7 3 3,641 11 5
Equity index options 3,621 213 265 4,161 513 362
Equity variance swaps 163 4 1 699 17 13
Equity total return swaps 2,537 9 112 2,763 11 44
Total $ 18,814 $ 300 $ 1,147 $ 22,263 $ 612 $ 512
The change in estimated fair values of our derivatives is recorded in
policyholder benefits and claims if such derivatives are hedging guarantees
included in future policy benefits, and in net derivative gains (losses) if such
derivatives are hedging guarantees included in policyholder account balances.
Our hedging strategy involves the significant use of static longer-term derivative instruments to avoid the need to execute transactions during periods of market disruption or higher volatility. We continually monitor the capital markets for opportunities to adjust our liability coverage, as appropriate. Futures are also used to dynamically adjust the daily coverage levels as markets and liability exposures fluctuate. We remain liable for the guaranteed benefits in the event that reinsurers or derivative counterparties are unable or unwilling to pay. Certain of our reinsurance agreements and all derivative positions are collateralized and derivatives positions are subject to master netting agreements, both of which significantly reduce the exposure to counterparty risk. In addition, we are subject to the risk that hedging and other risk management actions prove ineffective or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed.
Liquidity and Capital Resources
Overview
Our business and results of operations are materially affected by conditions in the global financial markets and the economy generally due to our market presence in numerous countries, large investment portfolio and the sensitivity of our insurance liabilities and derivatives to changing market factors. Changing conditions in the global financial markets and the economy may affect our financing costs and market interest for our debt or equity securities. For further information regarding market factors that could affect our ability to meet liquidity and capital needs, see "- Industry Trends" and "- Investments - Current Environment." Liquidity Management Based upon the strength of our franchise, diversification of our businesses, strong financial fundamentals and the substantial funding sources available to us as described herein, we continue to believe we have access to ample liquidity to meet business requirements under current market conditions and reasonably possible stress scenarios. We continuously monitor and adjust our liquidity and capital plans forMetLife, Inc. and its subsidiaries in light of market conditions, as well as changing needs and opportunities. 113
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Short-term Liquidity
We maintain a substantial short-term liquidity position, which was $16.4 billion
and $12.4 billion at December 31, 2022 and 2021, 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 $180.4 billion and $223.0 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, the collateral financing arrangement, funding agreements and secured borrowings, as well as amounts held in the closed block.
Capital Management
We have established several senior management committees as part of our capital
management process. These committees, including the Capital Management Committee
and the Enterprise Risk Committee ("ERC"), regularly review actual and projected
capital levels (under a variety of scenarios including stress scenarios) and our
annual capital plan in accordance with our capital policy. The Capital
Management Committee is comprised of members of senior management, including
MetLife, Inc.'s Chief Financial Officer ("CFO"), Treasurer, and Chief Risk
Officer ("CRO"). The ERC is also comprised of members of senior management,
including MetLife, Inc.'s CFO, CRO and Chief Investment Officer.
Our Board of Directors and senior management are directly involved in the
development and maintenance of our capital policy. The capital policy sets
forth, among other things, minimum and target capital levels and the governance
of the capital management process. All capital actions, including proposed
changes to the annual capital plan, capital targets or capital policy, are
reviewed by the Finance and Risk Committee of the Board of Directors prior to
obtaining full Board of Directors approval. The Board of Directors approves the
capital policy and the annual capital plan and authorizes capital actions, as
required.
See "Risk Factors - Capital Risks - We May Not be Able to Pay Dividends or
Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer
Needs" for information regarding restrictions on payment of dividends and stock
repurchases. See also Note 16 of the Notes to the Consolidated Financial
Statements for information regarding MetLife, Inc.'s common stock repurchase
authorizations.
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Table of Contents The Company Liquidity Liquidity refers to the ability to generate adequate amounts of cash to meet our needs. We determine our liquidity needs based on a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling 12-month forecast. To support this forecast, we conduct cash flow and stress testing, which include various scenarios of the potential risk of early contractholder and policyholder withdrawal. We include provisions limiting withdrawal rights on many of our products, including general account pension products sold to employee benefit plan sponsors. Certain of these provisions prevent the customer from making withdrawals prior to the maturity date of the product. In the event of significant cash requirements beyond anticipated liquidity needs, we have various alternatives available depending on market conditions and the amount and timing of the liquidity need. These available alternatives include cash flows from operations, sales of liquid assets, global funding sources including commercial paper and various credit and committed facilities. Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase. A downgrade in our credit or financial strength ratings could also negatively affect our liquidity. See "- Rating Agencies." If we require significant amounts of cash on short notice in excess of anticipated cash requirements or if we are required to post or return cash collateral in connection with derivatives or our securities lending program, we may have difficulty selling investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both. In addition, in the event of such forced sale, for securities in an unrealized loss position, realized losses would be incurred on securities sold and impairments would be incurred, if there is a need to sell securities prior to recovery, which may negatively impact our financial condition. See "Risk Factors - Investment Risks - We May Have Difficulty Selling Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner to Realize Their Full Value." All general account assets within a particular legal entity - other than those which may have been pledged to a specific purpose - are generally available to fund obligations of the general account of that legal entity.
Capital
We manage our capital position to maintain our financial strength and credit ratings. See "- Rating Agencies" for information regarding such ratings. Our capital position is supported by our ability to generate strong cash flows within our operating companies and borrow funds at competitive rates, as well as by our demonstrated ability to raise additional capital to meet operating and growth needs despite adverse market and economic conditions.
Statutory Capital and Dividends
Our
current regulatory requirements.
RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These rules apply to most of ourU.S. insurance subsidiaries. State insurance laws provide insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. As of the date of the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of these subsidiaries subject to these requirements was in excess of each of those RBC levels. As aDelaware corporation, American Life is subject toDelaware law; however, because it does not conduct insurance business inDelaware or any otherU.S. state, it is exempt from RBC requirements underDelaware law. American Life's operations are also regulated by applicable authorities of the jurisdictions in which it operates and is subject to capital and solvency requirements in those jurisdictions. 115
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The amount of dividends that our insurance subsidiaries can pay toMetLife, Inc. or to other parent entities is constrained by the amount of surplus we hold to maintain our ratings, which provides an additional margin for risk protection and investment in our businesses. We proactively take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of dividends and other distributions toMetLife, Inc. and other parent entities by their respective insurance subsidiaries is governed by insurance laws and regulations. See "Business - Regulation - Insurance Regulation," "-MetLife, Inc. - Liquidity and Capital Sources - Dividends from Subsidiaries" and Note 16 of the Notes to the Consolidated Financial Statements.
Affiliated Captive Reinsurance Transactions
MLIC cedes specific policy classes, including term and universal life insurance, participating whole life insurance, group life insurance and other business to various wholly-owned captive reinsurers. The reinsurance activities among these affiliated companies are eliminated within our consolidated results of operations. The statutory reserves of such affiliated captive reinsurers are supported by a combination of funds withheld assets, investment assets and letters of credit issued by unaffiliated financial institutions.MetLife, Inc. has entered into various support agreements in connection with the activities of these captive reinsurers. See Note 5 of the Notes to theMetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules for further details on certain of these support arrangements. MLIC has entered into reinsurance agreements with affiliated captive reinsurers for risk and capital management purposes, as well as to manage statutory reserve requirements related to universal life and term life insurance policies and other business. The NYDFS continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any states other thanNew York implementing such a moratorium. While such a moratorium would not impact our existing reinsurance agreements with captive reinsurers, a moratorium placed on the use of captives for new reserve financing transactions could impact our ability to write certain products and/or impact our RBC ratios and ability to deploy excess capital in the future. This could result in our need to increase prices, modify product features or limit the availability of those products to our customers. While this affects insurers across the industry, it could adversely impact our competitive position and our results of operations in the future. We continue to evaluate product modifications, pricing structure and alternative means of managing risks, capital and statutory reserves and we expect the discontinued use of captive reinsurance on new reserve financing transactions would not have a material impact on our future consolidated financial results. See Note 6 of the Notes to the Consolidated Financial Statements for further information on our reinsurance activities.
Rating Agencies
Rating agencies assign insurer financial strength ratings toMetLife, Inc.'s U.S. life insurance subsidiaries and credit ratings toMetLife, Inc. and certain of its subsidiaries. Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors inMetLife, Inc.'s securities. Insurer financial strength ratings are not statements of fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated independently of any other rating. Rating agencies use an "outlook statement" of "positive," "stable," ''negative'' or "developing" to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a "stable" outlook to indicate that the rating is not expected to change; however, a "stable" rating does not preclude a rating agency from changing a rating at any time, without notice. Certain rating agencies assign rating modifiers such as "CreditWatch" or "under review" to indicate their opinion regarding the potential direction of a rating. These ratings modifiers are generally assigned in connection with certain events such as potential mergers, acquisitions, dispositions or material changes in a company's results, in order for the rating agency to perform its analysis to fully determine the rating implications of the event. 116
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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
"AAA "AAA (Extremely
"A++ (Superior)" (Exceptionally "Aaa (Highest Strong)" to "SD
Ratings Structure to "S (Suspended)" Strong)" to "C Quality)" to "C (Selective
(Distressed)" (Lowest Rated)" Default)" or "D
(Default)"
American Life Insurance Company NR NR A1 AA-
5th of 21 4th of 21
Metropolitan Life Insurance A+ AA- Aa3 AA-
Company 2nd of 16 4th of 19 4th of 21 4th of 21
MetLife Insurance K.K . (MetLife NR NR NR AA-
Japan) 4th of 21
Metropolitan Tower Life Insurance A+ AA- Aa3 AA-
Company 2nd of 16 4th of 19 4th of 21 4th of 21
__________________
NR = Not rated
Credit ratings indicate the rating agency's opinion regarding a debt issuer's
ability to meet the terms of debt obligations in a timely manner. They are
important factors in our overall funding profile and ability to access certain
types of liquidity. The level and composition of regulatory capital at the
subsidiary level and our equity capital are among the many factors considered in
determining our insurer financial strength ratings and credit ratings. Each
agency has its own capital adequacy evaluation methodology, and assessments are
generally based on a combination of factors. In addition to heightening the
level of scrutiny that they apply to insurance companies, rating agencies have
increased and may continue to increase the frequency and scope of their credit
reviews, may request additional information from the companies that they rate
and may change the capital and other requirements employed in the rating agency
models for maintenance of certain ratings levels.
A downgrade in the credit ratings or insurer financial strength ratings of
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
subsidiaries; and
•result in additional collateral requirements or other required payments under certain agreements, which are eligible to be satisfied in cash or by posting investments held by the subsidiaries subject to the agreements. See "- Liquidity and Capital Uses - Pledged Collateral."
See also "Risk Factors - Economic Environment and Capital Markets Risks - We May
Lose Business Due to a Downgrade or a Potential Downgrade in Our Financial
Strength or Credit Ratings."
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Summary of the Company's Primary Sources and Uses of Liquidity and Capital
Our primary sources and uses of liquidity and capital are summarized as follows:
Years Ended December 31,
2022 2021
(In millions)
Sources:
Operating activities, net $ 13,204 $ 12,596
Net change in policyholder account balances 5,150 3,827
Net change in payables for collateral under securities loaned and
other transactions
- 1,883 Long-term debt issued 1,013 29
Financing element on certain derivative instruments and other
derivative related transactions, net
- 270 Other, net - 22 Total sources 19,367 18,627 Uses: Investing activities, net 2,620 11,187
Net change in payables for collateral under securities loaned and
other transactions
10,730 -
Cash paid for other transactions with tenors greater than three
months
- 100 Long-term debt repaid 85 582 Collateral financing arrangement repaid 50 79
Financing element on certain derivative instruments and other
derivative related transactions, net
61 - Treasury stock acquired in connection with share repurchases 3,326 4,303 Redemption of preferred stock - 494 Preferred stock redemption premium - 6 Dividends on preferred stock 185 195 Dividends on common stock 1,598 1,647 Other, net 236 -
Effect of change in foreign currency exchange rates on cash and
cash equivalents
397 478 Total uses 19,288 19,071 Net increase (decrease) in cash and cash equivalents $ 79 $ (444) 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. In addition, cash inflows and outflows relate to sales and purchases of businesses. We typically have a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process.
Cash Flows from Financing
The principal cash inflows from our financing activities come from issuances of debt and other securities, deposits of funds associated with policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt and the collateral financing arrangement, payments of dividends on and repurchases or redemptions ofMetLife, Inc.'s securities, withdrawals associated with policyholder account balances and the return of securities on loan. 118
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Liquidity and Capital Sources
In addition to the general description of liquidity and capital sources in "- Summary of the Company's Primary Sources and Uses of Liquidity and Capital," the Company's primary sources of liquidity and capital are set forth below.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-term debt, the collateral financing arrangement, junior subordinated debt securities, preferred securities, equity securities and equity-linked securities.MetLife, Inc. maintains a shelf registration statement with theSEC that permits the issuance of public debt, equity and hybrid securities. As a "Well-Known Seasoned Issuer" underSEC rules,MetLife, Inc.'s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:
Preferred Stock
See Note 16 of the Notes to the Consolidated Financial Statements.
Common Stock
See Note 16 of the Notes to the Consolidated Financial Statements.
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. andMetLife Funding each have a commercial paper program that is supported by our Credit Facility (see "- Credit and Committed Facilities").MetLife Funding raises cash from its commercial paper program and uses the proceeds to extend loans throughMetLife Credit Corp., another subsidiary of MLIC, to affiliates in order to enhance the financial flexibility and liquidity of these companies.
Policyholder Account Balances
See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a description of the components of policyholder account balances. See "- 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 $258.3 billion ($30.5 billion of which are estimated to occur in one year or less) exceeds the liability amount of $203.1 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
Certain of ourU.S. insurance subsidiaries are members of FHLBNY. For the years ended December 31, 2022 and 2021, we issued $29.9 billion and $34.0 billion, respectively, and repaid $30.8 billion and $34.5 billion, respectively, of funding agreements with FHLBNY. At December 31, 2022 and 2021, total obligations outstanding under these funding agreements were $14.9 billion and $15.8 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements. 119
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Special Purpose Entity Funding Agreements, Reported in Policyholder Account
Balances
We issue fixed and floating rate funding agreements which are denominated in eitherU.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 $48.5 billion and $40.8 billion, respectively, and repaid $47.4 billion and $41.2 billion, respectively, under such funding agreements. At December 31, 2022 and 2021, total obligations outstanding under these funding agreements were $40.7 billion and $39.5 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements.
Federal Agricultural Mortgage Corporation Funding Agreements, Reported in
Policyholder Account Balances
We have issued funding agreements to a subsidiary of Farmer Mac which are secured by a pledge of certain eligible agricultural mortgage loans. For the years ended December 31, 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 4 of the Notes to the Consolidated Financial Statements.
Debt Issuances
See Notes 13 and 22 of the Notes to the Consolidated Financial Statements for
information on senior notes issued by
Credit and Committed Facilities
See Note 13 of the Notes to the Consolidated Financial Statements for
information on credit and committed facilities.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these facilities. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.
Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt at:
December 31,
2022 2021
(In millions)
Short-term debt (1) $ 175 $ 341
Long-term debt (2) $ 14,647 $ 13,933
Collateral financing arrangement $ 716 $ 766
Junior subordinated debt securities $ 3,158 $ 3,156
__________________
(1)Includes $76 million and $241 million of short-term debt that is non-recourse toMetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2022 and 2021, respectively. Certain subsidiaries have pledged assets to secure this debt. (2)Includes $447 million and $482 million of long-term debt that is non-recourse toMetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2022 and 2021, respectively. Certain investment subsidiaries have pledged assets to secure this debt. Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our 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.
Dispositions
See "- Acquisitions and Dispositions" and Note 3 of the Notes to the
Consolidated Financial Statements for information on the Company's business
dispositions.
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Liquidity and Capital Uses
In addition to the general description of liquidity and capital uses in "-
Summary of the Company's Primary Sources and Uses of Liquidity and Capital" the
Company's primary uses of liquidity and capital are set forth below.
Preferred Stock Redemption
See Note 16 of the Notes to the Consolidated Financial Statements for
information on the redemption of Series C preferred stock.
Common Stock Repurchases
See Note 16 of the Notes to the Consolidated Financial Statements for information relating to authorizations by the Board of Directors to repurchaseMetLife, Inc. common stock, amounts of common stock repurchased pursuant to such authorizations for the years ended December 31, 2022 and 2021, and the amount remaining under such authorizations at December 31, 2022. Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price ofMetLife, Inc.'s common stock compared to management's assessment of the stock's underlying value, applicable regulatory approvals, and other legal and accounting factors. Restrictions on the payment of dividends that may arise under so-called "Dividend Stopper" provisions would also restrictMetLife, Inc.'s ability to repurchase common stock. See "- Dividends" for information on these restrictions. See also "Risk Factors - Capital Risks - WeMay Not be Able to Pay Dividends or Repurchase Our Stock Due to Legal and Regulatory Restrictions or Cash Buffer Needs." Dividends For the years ended December 31, 2022 and 2021,MetLife, Inc. paid dividends on its preferred stock of $185 million and $195 million, respectively. For both the years ended December 31, 2022 and 2021,MetLife, Inc. paid dividends on its common stock of $1.6 billion. The declaration and payment of common stock dividends are subject to the discretion of our Board of Directors, and will depend onMetLife, Inc.'s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends byMetLife, Inc.'s insurance subsidiaries and other factors deemed relevant by the Board.
See Note 16 of the Notes to the Consolidated Financial Statements for additional
information, including the calculation and timing of these dividend payments.
"Dividend Stopper" Provisions in
Subordinated Debentures
MetLife, Inc.'s preferred stock and junior subordinated debentures contain "dividend stopper" provisions under whichMetLife, Inc. may not pay dividends on instruments junior to those instruments if payments have not been made on those instruments. Moreover,MetLife, Inc.'s Series A preferred stock and its junior subordinated debentures contain provisions that would limit the payment of dividends or interest on those instruments ifMetLife, Inc. fails to meet certain tests ("Trigger Events"), to an amount not greater than the net proceeds from sales of common stock and other specified instruments during a period preceding the dividend declaration date or the interest payment date, as applicable. If such proceeds were under the circumstances insufficient to make such payments on those instruments, the dividend stopper provisions affecting common stock (and preferred stock, as applicable) would come into effect.
A "Trigger Event" would occur if:
•the RBC ratio ofMetLife 's largestU.S. insurance subsidiaries in the aggregate (as defined in the applicable instrument) were to be less than 175% of the company action level based on the subsidiaries' prior year annual financial statements filed (generally around March 1) with state insurance commissioners; or •at the end of a quarter ("Final Quarter End Test Date"), consolidated GAAP net income for the four-quarter period ending two quarters before such quarter-end (the "Preliminary Quarter End Test Date") is zero or a negative amount and the consolidated GAAP stockholders' equity, minus AOCI, (the "adjusted stockholders' equity amount"), as of the Final Quarter End Test Date and the Preliminary Quarter End Test Date, declined by 10% or more from its level 10 quarters before the Final Quarter End Test Date (the "Benchmark Quarter End Test Date"). 121
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Once a Trigger Event occurs for a Final Quarter End Test Date, the suspension of payments of dividends and interest (in the absence of sufficient net proceeds from the issuance of certain securities during specified periods) would continue until there is no Trigger Event at a subsequent Final Quarter End Test Date, and, if the test in the second paragraph above caused the Trigger Event, the adjusted stockholders' equity amount is no longer 10% or more below its level at the Benchmark Quarter End Test Date that is associated with the Trigger Event. In the case of successive Trigger Events, the suspension would continue untilMetLife satisfies these conditions for each of the Trigger Events. The junior subordinated debentures further provide thatMetLife, Inc. may, at its option and provided that certain conditions are met, elect to defer payment of interest. See Note 15 of the Notes to the Consolidated Financial Statements. Any such elective deferral would trigger the dividend stopper provisions. Further,MetLife, Inc. is a party to certain replacement capital covenants which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of the junior subordinated debentures by requiringMetLife, Inc. , with some limitations, to receive cash proceeds during a specified period from the sale of specified replacement securities prior to any repayment, redemption or purchase. See Note 15 of the Notes to the Consolidated Financial Statements for a description of such covenants.
Debt Repayments
For the years ended December 31, 2022 and 2021, following regulatory approval,MetLife Reinsurance Company of Charleston, a wholly-owned subsidiary ofMetLife, Inc. , repurchased and canceled $50 million and $79 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets. See Notes 13 and 14 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt and the collateral financing arrangement, respectively.
Debt Repurchases, Redemptions and Exchanges
We may from time to time seek to retire or purchase our outstanding debt through cash purchases, redemptions and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases, redemptions, or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not to repurchase or redeem any debt and the size and timing of any such repurchases or redemptions will be determined at our discretion.
See Notes 13 and 22 of the Notes to the Consolidated Financial Statements for
information on the redemption and cancellation of senior notes.
Support Agreements
MetLife, Inc. and several of its subsidiaries (each, an "Obligor") are parties to various capital support commitments and guarantees with subsidiaries. Under these arrangements, each Obligor has agreed to cause the applicable entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands. See Note 5 of the Notes to theMetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules. See also "Guarantees" in Note 21 of the Notes to the Consolidated Financial Statements.
Insurance Liabilities
Insurance liabilities include future policy benefits, other policy-related
balances, policyholder dividends payable and the policyholder dividend
obligation, which are all reported on the consolidated balance sheet and are
more fully described in Notes 1 and 4 of the Notes to the Consolidated Financial
Statements. The sum of the estimated cash flows of $360.8 billion ($21.2 billion
of which are estimated to occur in one year or less) exceeds the liability
amounts of $224.3 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.
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The estimated cash flows reflect future estimated cash payments and (i) are based on mortality, morbidity, lapse and other assumptions comparable with our experience and expectations of future payment patterns; and (ii) consider future premium receipts on current policies in-force. Estimated cash payments are undiscounted as to interest, net of estimated future premiums on in-force policies and gross of any reinsurance recoverable. Payment of amounts related to policyholder dividends left on deposit are projected based on assumptions of policyholder withdrawal activity.
Actual cash payments may differ significantly from the liabilities as presented
on the consolidated balance sheet and the estimated cash payments due to
differences between actual experience and the assumptions used in the
establishment of these liabilities and the estimation of these cash payments.
For the majority of our insurance operations, estimated contractual obligations for future policy benefits and policyholder account balances are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state regulatory purposes. These cash flows are materially representative of the cash flows under GAAP. See "- 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 theMetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. For the years ended December 31, 2022 and 2021, general account surrenders and withdrawals from annuity products were $1.5 billion and $1.4 billion, respectively. In the RIS business within theU.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, there were funding agreements totaling $127 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 $5.7 billion and $7.5 billion, respectively. At December 31, 2022 and 2021, we had pledged cash collateral to counterparties of $423 million and $142 million, respectively. See Note 9 of the Notes to the Consolidated Financial Statements for additional information about collateral pledged to us, collateral we pledge and derivatives subject to credit contingent provisions. We pledge collateral and have had collateral pledged to us, and may be required from time to time to pledge additional collateral or be entitled to have additional collateral pledged to us, in connection with the collateral financing arrangement related to the reinsurance of closed block liabilities. See Note 14 of the Notes to the Consolidated Financial Statements.
We pledge collateral from time to time in connection with funding agreements and
advance agreements. See Note 4 of the Notes to the Consolidated Financial
Statements.
Securities Lending Transactions, Repurchase Agreements and Third-Party Custodian
Administered Programs
See "- Investments - Securities Lending Transactions, Repurchase Agreements and
Third-Party Custodian Administered Programs."
Litigation
We establish liabilities for litigation and regulatory loss contingencies when
it is probable that a loss has been incurred and the amount of the loss can be
reasonably estimated. For material matters where a loss is believed to be
reasonably possible but not probable, no accrual is made but we disclose the
nature of the contingency and an aggregate estimate of the reasonably possible
range of loss in excess of amounts accrued, when such an estimate can be made.
It is not possible to predict the ultimate outcome of all pending investigations
and legal proceedings. In some of the matters referred to herein, very large
and/or indeterminate amounts, including punitive and treble damages, are sought.
Given the large and/or indeterminate amounts sought in certain of these matters
and the inherent unpredictability of litigation, it is possible that an adverse
outcome in certain matters could, from time to time, have a material adverse
effect on our consolidated net income or cash flows in particular quarterly or
annual periods. See Note 21 of the Notes to the Consolidated Financial
Statements.
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Acquisitions
See "- Acquisitions and Dispositions" and Note 3 of the Notes to the
Consolidated Financial Statements for information on the Company's business
acquisitions.
Liquidity and Capital Management
Liquidity and capital are managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial obligations and are provided by a variety of sources, including a portfolio of liquid assets, a diversified mix of short- and long-term funding sources from the wholesale financial markets and the ability to borrow through credit and committed facilities. Liquidity is monitored through the use of internal liquidity risk metrics, including the composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, access to the financial markets for capital and debt transactions and exposure to contingent draws onMetLife, Inc.'s liquidity.MetLife, Inc. is an active participant in the global financial markets through which it obtains a significant amount of funding. These markets, which serve as cost-effective sources of funds, are critical components ofMetLife, Inc.'s liquidity and capital management. Decisions to access these markets are based upon relative costs, prospective views of balance sheet growth and a targeted liquidity profile and capital structure. A disruption in the financial markets could limitMetLife, Inc.'s access to liquidity.MetLife, Inc.'s ability to maintain regular access to competitively priced wholesale funds is fostered by its current credit ratings from the major credit rating agencies. We view our capital ratios, credit quality, stable and diverse earnings streams, diversity of liquidity sources and our liquidity monitoring procedures as critical to retaining such credit ratings. See "- The Company - Rating Agencies." Liquidity
For a summary of
Capital
For a summary ofMetLife, Inc.'s capital, see "- The Company - Capital." See also "- The Company - Liquidity and Capital Uses - Common Stock Repurchases" for information regardingMetLife, Inc.'s common stock repurchases.
Liquid Assets
At both December 31, 2022 and 2021,MetLife holding companies had $5.4 billion in liquid assets. Of these amounts, $4.5 billion and $4.2 billion were held byMetLife, Inc. and $909 million and $1.2 billion were held by otherMetLife holding companies 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 derivatives and a collateral financing arrangement.
Liquid assets held in non-
dividends from non-
local insurance regulatory requirements, as discussed in "- Liquidity and
Capital Sources - Dividends from Subsidiaries."
See "- Executive Summary - Consolidated Company Outlook," for the targeted level
of liquid assets at the holding companies.
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Assets and Sources and Uses of Liquid Assets included in Free Cash Flow
of liquid assets included in free cash flow are summarized as follows.
Year Ended December 31, 2022 Year Ended December 31, 2021
Sources and Sources and
Uses of Uses of
Liquid Liquid
Sources and Assets Sources and Assets
Uses of Included in Uses of Included in
Liquid Free Cash Liquid Free Cash
Assets Flow Assets Flow
(In millions)
MetLife, Inc. (Parent Company Only)
Sources:
Dividends and returns of capital from subsidiaries
(1) $ 5,176 $ 5,176 $ 4,837 $ 4,837
Long-term debt issued (2) 1,000 1,000 - -
Other, net (3), (4) 92 44 3,865 (156)
Total sources 6,268 6,220 8,702 4,681
Uses:
Capital contributions to subsidiaries 5 5 88 88
Long-term debt repaid - unaffiliated - - 500 -
Interest paid on debt and financing arrangements -
unaffiliated
764 764 795 795 Dividends on common stock 1,598 - 1,647 -Treasury stock acquired in connection with share repurchases 3,326 - 4,303 - Dividends on preferred stock 185 185 195 195 Issuances of and (repayments on) loans to subsidiaries and related interest, net (5) 94 94 92 92 Redemption of preferred stock and preferred stock redemption premium - - 500 - Total uses 5,972 1,048 8,120 1,170
Net increase (decrease) in liquid assets,
Inc.
296 582 Liquid assets, beginning of year 4,177 3,595 Liquid assets, end of year $ 4,473 $ 4,177 Free Cash Flow,MetLife, Inc. (Parent Company Only) 5,172 3,511
Net cash provided by operating activities,
Inc.
$ 4,428 $ 3,757 OtherMetLife Holding Companies Sources: Dividends and returns of capital from subsidiaries $ 1,410 $ 1,410 $ 2,077 $ 2,077 Total sources 1,410 1,410 2,077 2,077 Uses: Capital contributions to subsidiaries 87 87 24 24 Repayments on and (issuance of) loans to subsidiaries and affiliates and related interest, net 5 5 9 9 Dividends and returns of capital toMetLife, Inc. 1,434 1,434 1,300 1,300 Other, net 212 390 379 420 Total uses 1,738 1,916 1,712 1,753 Net increase (decrease) in liquid assets, Other MetLife Holding Companies (328) 365 Liquid assets, beginning of year 1,238 873 Liquid assets, end of year $ 910 $ 1,238 Free Cash Flow, Other MetLife Holding Companies (506) 324 Net increase (decrease) in liquid assets, All Holding Companies $ (32) $ 947 Free Cash Flow, All Holding Companies (6) $ 4,666 $ 3,835 __________________ (1)Dividends and returns of capital toMetLife, Inc. included $3.8 billion and $3.5 billion from operating subsidiaries and $1.4 billion and $1.3 billion from otherMetLife holding companies for the years ended December 31, 2022 and 2021, respectively. 125
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(2)Included in free cash flow is the portion of long-term debt issued that
represents incremental debt to be at or below target leverage ratios.
(3)Other, net includes $129 million and ($18) million of net receipts (payments) byMetLife, Inc. to and from subsidiaries under a tax sharing agreement and tax payments to tax agencies for the years ended December 31, 2022 and 2021, respectively.
(4)Also, included in other, net is $0 and $3.9 billion from sales of businesses
for the years ended December 31, 2022 and 2021, respectively.
(5)SeeMetLife , Inc. (Parent Company Only) Condensed Statements of Cash Flows included in Schedule II of the Financial Statement Schedules for information regarding the source of liquid assets from receipts on loans to subsidiaries (excluding interest) and the use of liquid assets related to the issuances of loans to subsidiaries (excluding interest). (6)See "- Non-GAAP and Other Financial Disclosures" for the reconciliation of net cash provided by operating activities ofMetLife, Inc. to free cash flow of all holding companies.
Sources and Uses of Liquid Assets of
The primary sources ofMetLife, Inc.'s liquid assets are dividends and returns of capital from subsidiaries, issuances of long-term debt, issuances of common and preferred stock, and net receipts from subsidiaries under a tax sharing agreement.MetLife, Inc.'s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See "- Liquidity and Capital Sources - Dividends from Subsidiaries." The primary uses ofMetLife, Inc.'s liquid assets are principal and interest payments on long-term debt, dividends on and repurchases of common and preferred stock, capital contributions to subsidiaries, funding of business acquisitions, income taxes and operating expenses.MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See "- Liquidity and Capital Uses - Support Agreements." In addition,MetLife, Inc. issues loans to subsidiaries or subsidiaries issue loans toMetLife, Inc. Accordingly, changes inMetLife, Inc. liquid assets include issuances of loans to subsidiaries, proceeds of loans from subsidiaries and the related repayment of principal and payment of interest on such loans. See "- Liquidity and Capital Sources - Affiliated Long-term Debt" and "- Liquidity and Capital Uses - Affiliated Capital and Debt Transactions."
Sources and Uses of Liquid Assets of Other
The primary sources of liquid assets of otherMetLife holding companies are dividends, returns of capital and remittances from their subsidiaries and branches, principally non-U.S. insurance companies; capital contributions received; receipts of principal and interest on loans to subsidiaries and affiliates and borrowings from subsidiaries and affiliates.MetLife, Inc.'s non-U.S. operations are subject to regulatory restrictions on the payment of dividends imposed by local regulators. See "- Liquidity and Capital Sources - Dividends from Subsidiaries." The primary uses of liquid assets of otherMetLife holding companies are capital contributions paid to their subsidiaries and branches, principally non-U.S. insurance companies; loans to subsidiaries and affiliates; principal and interest paid on loans from subsidiaries and affiliates; dividends and returns of capital toMetLife, Inc. and the following items, which are reported within other, net: business acquisitions; and operating expenses.
Liquidity and Capital Sources
In addition to the description of liquidity and capital sources in "- The Company - Summary of the Company's Primary Sources and Uses of Liquidity and Capital" and "- The Company - Liquidity and Capital Sources,"MetLife, Inc.'s primary sources of liquidity and capital are set forth below. 126
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Dividends from Subsidiaries
MetLife, Inc. relies, in part, on dividends from its subsidiaries to meet its cash requirements.MetLife, Inc.'s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See Note 16 of the Notes to the Consolidated Financial Statements. The dividend limitation forU.S. insurance subsidiaries is generally based on the surplus to policyholders at the end of the immediately preceding calendar year and statutory net gain from operations for the immediately preceding calendar year. Statutory accounting practices, as prescribed by insurance regulators of various states in which we conduct business, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income tax, required investment liabilities, statutory reserve calculation assumptions, goodwill and surplus notes. The table below sets forth the dividends permitted to be paid byMetLife, Inc.'s primaryU.S. insurance subsidiaries without insurance regulatory approval and the actual dividends paid: 2023 2022 2021 Permitted Without Permitted Without Permitted Without Company Approval (1) Paid (2) Approval (1) Paid (2) Approval (1) (In millions) Metropolitan Life Insurance Company $ 2,471
$ 3,539 $ 3,539 $ 3,393 $ 3,393
$ 499 $ 1,289 $ 554 $ 1,135 $
800
Metropolitan Property and Casualty Insurance Company N/A N/A N/A $ 35 (3) $
222
Metropolitan Tower Life Insurance Company $ 189 $ - $ 163 $ - $ 82 __________________
(1)Reflects dividend amounts that may be paid during the relevant year without
prior regulatory approval. However, because dividend tests may be based on
dividends previously paid over rolling 12-month periods, if paid before a
specified date during such year, some or all of such dividends may require
regulatory approval.
(2)Reflects all amounts paid, including those where regulatory approval was
obtained as required.
(3)Consists of the stock of a subsidiary paid toMetLife, Inc. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Company's business dispositions. In addition to the amounts presented in the table above, for the years ended December 31, 2022 and 2021,MetLife, Inc. also received from certain other subsidiaries cash dividends of $340 million and $302 million, respectively, as well as cash returns of capital of $8 million and $13 million, respectively. The dividend capacity of our non-U.S. operations is subject to similar restrictions established by the local regulators. The non-U.S. regulatory regimes also commonly limit dividend payments to the parent company to a portion of the subsidiary's prior year statutory income, as determined by the local accounting principles. The regulators of our non-U.S. operations, including the FSA, may also limit or not permit profit repatriations or other transfers of funds to theU.S. if such transfers are deemed to be detrimental to the solvency or financial strength of the non-U.S. operations, or for other reasons. Most of our non-U.S. subsidiaries are second tier subsidiaries which are owned by various non-U.S. holding companies. The capital and rating considerations applicable to our first tier subsidiaries may also impact the dividend flow intoMetLife, Inc. We proactively manage target and excess capital levels and dividend flows and forecast local capital positions as part of the financial planning cycle. The dividend capacity of certainU.S. and non-U.S. subsidiaries is also subject to business targets in excess of the minimum capital necessary to maintain the desired rating or level of financial strength in the relevant market. See "Risk Factors - Capital Risks - Our Subsidiaries May be Unable to Pay Dividends, a Major Component of Holding Company Free Cash Flow" and Note 16 of the Notes to the Consolidated Financial Statements.
Affiliated Long-term Debt
See "Senior Notes - Affiliated" in Note 4 of the Notes to the
(Parent Company Only) Condensed Financial Information included in Schedule II of
the Financial Statement Schedules for information on affiliated long-term debt.
Collateral Financing Arrangement and Junior Subordinated Debt Securities
For information on
subordinated debt securities, see Notes 14 and 15 of the Notes to the
Consolidated Financial Statements, respectively.
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Credit and Committed Facilities
See Note 13 of the Notes to the Consolidated Financial Statements for further
information regarding the Company's Credit Facility and certain committed
facilities.
Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt ofMetLife, Inc. at: December 31, 2022 2021 (In millions)
Long-term debt - unaffiliated $ 13,588 $ 12,814
Long-term debt - affiliated (1), (2) $ 1,676 $ 1,884
Junior subordinated debt securities $ 2,465 $ 2,463
__________________
(1)In December 2021, ¥54.6 billion 3.1350% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥12.2 billion 1.588% due December 2026, (ii) ¥19.1 billion 1.7185% due December 2028 and (iii) ¥23.3 billion 1.850% due December 2031. (2)In July 2021, ¥53.7 billion 2.9725% senior unsecured notes issued to various subsidiaries matured and were refinanced with the following senior unsecured notes issued to various subsidiaries: (i) ¥13.7 billion 1.610% due July 2026, (ii) ¥14.3 billion 1.755% due July 2028 and (iii) ¥25.7 billion 1.852% due July 2031. Debt and Facility Covenants
Certain of
its Credit Facility, contain various administrative, reporting, legal and
financial covenants.
applicable financial covenants at December 31, 2022.
Dispositions
See Note 3 of the Notes to the Consolidated Financial Statements for information
on
Liquidity and Capital Uses
The primary uses of liquidity ofMetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common stock, preferred stock and debt repurchases and/or redemptions, payment of general operating expenses and acquisitions. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enableMetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock, contribute capital to its subsidiaries, repurchase its common stock and certain of its other securities, pay all general operating expenses and meet its cash needs under current market conditions and reasonably possible stress scenarios.
In addition to the description of liquidity and capital uses in "- The Company -
Liquidity and Capital Uses,"
capital are set forth below.
Affiliated Capital and Debt Transactions
For the years ended December 31, 2022 and 2021, excluding acquisitions,MetLife, Inc. invested a net amount of $14 million and $111 million, respectively, in various subsidiaries.MetLife, Inc. lends funds, as necessary, through credit agreements or otherwise to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements or to provide liquidity.MetLife, Inc. had loans to subsidiaries outstanding of $95 million and $35 million at December 31, 2022 and 2021, respectively. Debt Repayments
For information on
Liquidity and Capital Uses - Debt Repayments."
redeem or refinance, in whole or in part, all the debt that is due in 2023.
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Maturities of Senior Notes
The following table summarizesMetLife, Inc.'s outstanding senior notes by year of maturity, excluding any premium or discount and unamortized issuance costs, at December 31, 2022: Year of Maturity Principal Interest Rate (In millions) Unaffiliated: 2023 $ 1,000 4.37% 2024 $ 1,000 3.60% 2024 $ 421 5.38% 2025 $ 500 3.00% 2025 $ 500 3.60% 2026 $ 191 0.50% 2029 - 2052 $ 10,059 Ranging from 0.77% to 6.50% Affiliated: 2023 $ 283 1.60% 2025 $ 250 6.56% 2026 $ 121 1.64% 2026 $ 104 1.61% 2026 $ 93 1.59% 2028 - 2031 $ 825 Ranging from 1.72% to 1.85%
See Note 22 of the Notes to the Consolidated Financial Statements for
information on the redemption and cancellation of senior notes subsequent to
December 31, 2022.
Support AgreementsMetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See Note 5 of the Notes to theMetLife, Inc. (Parent Company Only) Condensed Financial Information included in Schedule II of the Financial Statement Schedules.
Acquisitions
See Note 3 of the Notes to the Consolidated Financial Statements for information
regarding the acquisition of Versant Health.
Adopted Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Future Adoption of Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
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Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance on a consolidated and segment basis that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business. Segment-specific financial measures are calculated using only the portion of consolidated results attributable to that specific segment. The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP: Non-GAAP financial measures: Comparable GAAP financial measures: (i) adjusted premiums, fees and other revenues (i) premiums, fees and other revenues (ii) adjusted earnings (ii) net income (loss) (iii) adjusted earnings available to common (iii)
net income (loss) available to
shareholders Inc.'s common shareholders
(iv) free cash flow of all holding companies (iv) MetLife, Inc. (parent company only) net
cash provided
by (used in) operating activities
(v) adjusted net investment income (v)
net investment income
Any of these financial measures shown on a constant currency basis reflect the
impact of changes in foreign currency exchange rates and are calculated using
the average foreign currency exchange rates for the most recent period and
applied to the comparable prior period ("constant currency basis").
Reconciliations of these non-GAAP financial measures to the most directly
comparable historical GAAP financial measures are included in "- Results of
Operations" and "- Investments." Reconciliations of these non-GAAP measures to
the most directly comparable GAAP measures are not accessible on a
forward-looking basis because we believe it is not possible without unreasonable
effort to provide other than a range of net investment gains and losses and net
derivative gains and losses, which can fluctuate significantly within or outside
the range and from period to period and may have a material impact on net
income.
Our definitions of non-GAAP and other financial measures discussed in this
report may differ from those used by other companies.
Adjusted earnings and related measures:
•adjusted earnings;
•adjusted earnings available to common shareholders; and
•adjusted earnings available to common shareholders on a constant currency
basis.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings and components of, or other financial measures based on, adjusted earnings are also our GAAP measures of segment performance. Adjusted earnings and other financial measures based on adjusted earnings are also the measures by which senior management's and many other employees' performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax. Adjusted loss is defined as negative adjusted earnings. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends. For information relating to adjusted revenues and adjusted expenses, see "Financial Measures and Segment Accounting Policies" in Note 2 of the Notes to the Consolidated Financial Statements. In addition, adjusted earnings available to common shareholders excludes the impact of preferred stock redemption premium, which is reported as a reduction to net income (loss) available toMetLife, Inc.'s common shareholders. 130
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Return on equity, allocated equity and related measures:
•TotalMetLife , Inc.'s common stockholders' equity, excluding AOCI other than FCTA, is defined as totalMetLife, Inc.'s common stockholders' equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment components of AOCI, net of income tax.
•Return on
available to
average common stockholders' equity.
•Adjusted return onMetLife, Inc.'s common stockholders' equity is defined as adjusted earnings available to common shareholders divided byMetLife, Inc.'s average common stockholders' equity. •Adjusted return onMetLife, Inc.'s common stockholders' equity, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders divided byMetLife, Inc.'s average common stockholders' equity, excluding AOCI other than FCTA.
•Allocated equity is the portion of
that management allocates to each of its segments and sub-segments based on
local capital requirements and economic capital. See "- Risk Management-
Economic Capital." Allocated equity excludes the impact of AOCI other than FCTA.
The above measures represent a level of equity consistent with the view that, in the ordinary course of business, we do not plan to sell most investments for the sole purpose of realizing gains or losses.
Expense ratio and direct expense ratio:
•Expense ratio: other expenses, net of capitalization of DAC, divided by
premiums, fees and other revenues.
•Direct expense ratio: adjusted direct expenses divided by adjusted premiums,
fees and other revenues. Direct expenses are comprised of employee-related
costs, third party staffing costs, and general and administrative expenses.
•Direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers: adjusted direct expenses excluding total notable items related to direct expenses, divided by adjusted premiums, fees and other revenues, excluding pension risk transfers.
The following additional information is relevant to an understanding of our
performance results and outlook:
•We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity. Further, sales statistics for ourLatin America ,Asia and EMEA segments are on a constant currency basis.
•Near-term represents one to three years.
•We refer to observable forward yield curves as of a particular date in connection with making our estimates for future results. The observable forward yield curves at a given time are based on implied future interest rates along a range of interest rate durations. This includes the 10-yearU.S. Treasury rate which we use as a benchmark rate to describe longer-term interest rates used in our estimates for future results. •Asymmetrical and non-economic accounting refers to: (i) the portion of net derivative gains (losses) on embedded derivatives attributable to the inclusion of our credit spreads in the liability valuations, (ii) hedging activity that generates net derivative gains (losses) and creates fluctuations in net income because hedge accounting cannot be achieved and the item being hedged does not a have an offsetting gain or loss recognized in earnings, (iii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, and (iv) impact of changes in foreign currency exchange rates on the re-measurement of foreign denominated unhedged funding agreements and financing transactions to theU.S. dollar and the re-measurement of certain liabilities from non-functional currencies to functional currencies. We believe that excluding the impact of asymmetrical and non-economic accounting from total GAAP results enhances investor understanding of our performance by disclosing how these accounting practices affect reported GAAP results. • Notable items reflect the unexpected impact of events that affect the Company's results, but that were unknown and that the Company could not anticipate when it devised its business plan. Notable items also include certain items regardless of the extent anticipated in the business plan, to help investors have a better understanding ofMetLife 's results and to evaluate and forecast those results. Notable items represent a positive (negative) impact to adjusted earnings available to common shareholders. 131
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•The Company uses a measure of free cash flow to facilitate an understanding of its ability to generate cash for reinvestment into its businesses or use in non-mandatory capital actions. The Company defines free cash flow as the sum of cash available atMetLife 's holding companies from dividends from operating subsidiaries, expenses and other net flows of the holding companies (including capital contributions to subsidiaries), and net contributions from debt to be at or below target leverage ratios. This measure of free cash flow is prior to capital actions, such as common stock dividends and repurchases, debt reduction and mergers and acquisitions. Free cash flow should not be viewed as a substitute for net cash provided by (used in) operating activities calculated in accordance with GAAP. The free cash flow ratio is typically expressed as a percentage of annual adjusted earnings available to common shareholders. A reconciliation of net cash provided by operating activities ofMetLife, Inc. (parent company only) to free cash flow of all holding companies for the years ended December 31, 2022 and 2021 is provided below.
Reconciliation of Net Cash Provided by Operating Activities of
Years Ended December 31,
2022 2021
(In
millions, except ratios)
activities
$ 4,428 $ 3,757
Adjustments from net cash provided by operating activities to free
cash flow:
Add: Incremental debt to be at or below target leverage ratios 1,000
- Add: Capital contributions to subsidiaries (5) (88) Add: Returns of capital from subsidiaries 8 7
Add: Repayments on and (issuances of) loans to subsidiaries, net (60)
(35)
Add: Investment portfolio and derivatives changes and other, net (199)
(130)MetLife, Inc. (parent company only) free cash flow 5,172 3,511 OtherMetLife, Inc. holding companies: Add: Dividends and returns of capital from subsidiaries 1,410 2,077 Add: Capital contributions to subsidiaries (87) (24) Add: Repayments on and (issuances of) loans to subsidiaries, net (5) (9) Add: Other expenses (656) (613) Add: Dividends and returns of capital toMetLife, Inc. (1,434) (1,300) Add: Investment portfolio and derivative changes and other, net 266 193 Total otherMetLife, Inc. holding companies free cash flow (506) 324 Free cash flow of all holding companies $ 4,666 $ 3,835
net income (loss) available to
shareholders:
activities
$ 4,428 $ 3,757
Consolidated net income (loss) available to
shareholders $ 2,354 $ 6,353
only) to
consolidated net income (loss) available to
common
shareholders (1) 188 % 59 %
shareholders:
Free cash flow of all holding companies (2)
$ 4,666 $ 3,835
Consolidated adjusted earnings available to common shareholders
(2)
$ 5,545 $ 7,954
adjusted
earnings available to common shareholders (2) 84 % 48 % __________________ (1)Including the free cash flow of otherMetLife, Inc. holding companies of ($506) million and $324 million for the years ended December 31, 2022 and 2021, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 167% and 64%, respectively. (2)i) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2022, was positively impacted by notable items related to the actuarial assumption review and other insurance adjustments of $111 million, net of income tax. Excluding these notable items from the denominator of the ratio, the adjusted free cash flow ratio for 2022, would be 86%. 132
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ii) Consolidated adjusted earnings available to common shareholders for the year ended December 31, 2021, was positively impacted by notable items related to tax adjustments of $140 million, net of income tax, and litigation reserves and settlement costs of $66 million, net of income tax, offset by the actuarial assumption review and other insurance adjustments of $140 million, net of income tax. Excluding these notable items from the denominator of the ratio, the adjusted free cash flow ratio for 2021, would be 49%.
Risk Management
We have an integrated process for managing risk, that is supported by a Risk Appetite Statement approved by the Board of Directors. Risk management is overseen and conducted through multiple Board and senior management risk committees (financial and non-financial). The risk committees are established at the enterprise, regional and local levels, as needed, to oversee capital and risk positions, approve ALM strategies and limits, and establish certain corporate risk standards and policies. The risk committees are comprised of senior leaders from the lines of business and corporate functions which ensures comprehensive coverage and sharing of risk reporting. The ERC is responsible for reviewing all material risks 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 DefenseMetLife 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 CRO, coordinates across all risk committees to ensure that all material risks are properly identified, measured, monitored, managed and reported across the Company. The CRO reports to the CEO and is primarily responsible for maintaining and communicating the Company's enterprise risk policies and for monitoring and analyzing all material risks. Global Risk Management considers and monitors a full range of risks relating to the Company's solvency, liquidity, earnings, business operations and reputation. Global Risk Management's primary responsibilities consist of:
•implementing an enterprise risk framework, which outlines our enterprise
approach for managing financial and non-financial risk;
•developing policies and procedures for identifying, measuring, monitoring,
managing and reporting those risks identified in the enterprise risk framework;
•coordinating Own Risk Solvency Assessment for Board, senior management and
regulator use;
•establishing appropriate corporate risk tolerance levels;
•measuring capital on an economic basis;
•mitigating compliance risk and establishing controls;
•integrating climate risk into
developing impact assessment capabilities; and
•reporting to (i) the Finance and Risk Committee of the Board of Directors; (ii)
the Compensation Committee of the Board of Directors; and (iii) the financial
and non-financial senior management committees on various aspects of risk.
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Key Risk Types
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 toMetLife 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 toMetLife 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
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 our business. Our economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types.MetLife 's management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards. For further information, see "Financial Measures and Segment Accounting Policies" in Note 2 of the Notes to the Consolidated Financial Statements.
Asset/Liability Management
We actively manage our assets using an approach that is liability driven and
balances quality, diversification, asset/liability matching, liquidity,
concentration and investment return. The goals of the investment process are to
optimize, net of income tax, risk-adjusted investment income and risk-adjusted
total return while ensuring that the assets and liabilities are reasonably
aligned on a cash flow and duration basis. The ALM process is the shared
responsibility of the ALM, Global Risk Management, and Investments departments,
with the engagement of senior members of the business segments and Finance, and
is governed by the ALM Committees. The ALM Committees' duties include reviewing
and approving investment guidelines and limits, approving significant portfolio
and ALM strategies and providing oversight of the ALM process. The directives of
the ALM Committees are carried out and monitored through ALM Working Groups
which are set up to manage risk by geography, product or portfolio type. The ALM
Steering Committee oversees the activities of the underlying ALM Committees and
Working Groups. The ALM Steering Committee reports to the ERC.
We establish portfolio guidelines that define ranges and limits related to asset
allocation, interest rate risk, liquidity, concentration and other risks for
each major business segment, legal entity or insurance product group. These
guidelines support implementation of investment strategies used to adequately
fund our liabilities within acceptable levels of risk. We also establish hedging
programs and associated investment portfolios for different blocks of business.
The ALM Working Groups monitor these strategies and programs through regular
review of portfolio metrics, such as effective duration, yield curve
sensitivity, convexity, value at risk, market sensitivities (to interest rates,
equity market levels, equity volatility, foreign currency exchange rates and
inflation), stress scenario payoffs, liquidity, asset sector concentration and
credit quality.
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We manage credit risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit, market valuation and liquidity risk through industry and issuer diversification and asset allocation limits. These risk limits, approved annually by the Investment Risk Committee, promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity risk exposure, as measured by our economic capital framework. For real estate assets, we manage credit and market risk through asset allocation limits and by diversifying by geography, property and product type.
Information Security Risk Management
We manage information security risk throughMetLife 's Information Security Program (the "Program"), which is overseen by our enterprise Chief Information Security Officer ("CISO"), with collaboration across lines of businesses and corporate functions. The CISO is a senior-level executive responsible for establishing and executing the company's information security strategy; the CISO regularly reports about information security risk to the ERC, the Audit Committee and the Board. The primary goal of the Program is to protect information and technology assets through physical, technical, and administrative safeguards. This includes monitoring, reporting, managing and remediating cyber threats. The Program aims to prevent data exfiltration, manipulation, and destruction, as well as system and transactional disruption. The Program's threat-centric and risk-based approach for securing theMetLife environment is based on the cybersecurity framework developed by theU.S. Government's National Institute of Standards and Technology .
Subsequent Events
See "- Acquisitions and Dispositions" and Note 22 of the Notes to the
Consolidated Financial Statements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following discussion on market risk should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management."
Market Risk Exposures
We regularly analyze our exposure to interest rate, foreign currency exchange rate and equity market price risk. As a result of that analysis, we have determined that the estimated fair values of certain assets and liabilities are materially exposed to changes in interest rates, foreign currency exchange rates and equity markets. We have exposure to market risk through our insurance operations and investment activities. For purposes of this disclosure, "market risk" is defined as the risk of loss due to potential changes in the value of assets and liabilities arising from fluctuation in the financial market and other economic factors.
Interest Rates
Our exposure to interest rate changes results most significantly from our holdings of fixed maturity securities AFS, mortgage loans and derivatives, as well as our interest rate sensitive liabilities. The fixed maturity securities AFS includeU.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 balances related to certain investment type contracts, and embedded derivatives on variable annuities with guaranteed minimum benefits which have the same type of interest rate exposure (medium- and long-term interest rates) as fixed maturity securities AFS. The interest rate sensitive liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. See "Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions."
Foreign Currency Exchange Rates
Our exposure to fluctuations in foreign currency exchange rates against theU.S. dollar results from our holdings in non-U.S. dollar denominated fixed maturity and equity securities, mortgage loans, and certain liabilities, as well as through our investments in foreign subsidiaries. The foreign currency exchange rate liabilities for purposes of this disclosure exclude a significant portion of the liabilities relating to insurance contracts. The principal currencies that create foreign currency exchange rate risk in our investment portfolios and liabilities are the Japanese yen, the Euro and the British pound. Selectively, we useU.S. dollar assets to support certain long-duration foreign currency liabilities. Through our investments in foreign subsidiaries and joint ventures, we are primarily exposed to the Japanese yen, the Euro, the Australian dollar, the British pound, the Mexican peso, the Chilean peso and the Korean won. In addition to hedging with foreign currency swaps, forwards and options, local surplus in some countries may be held entirely or in part inU.S. dollar assets, which further minimize exposure to foreign currency exchange rate fluctuation risk. We have matched much of our foreign currency liabilities in our foreign subsidiaries with their respective foreign currency assets, thereby reducing our risk to foreign currency exchange rate fluctuation. See "Risk Factors - Economic Environment and Capital Markets Risks - We May Face Difficult Economic Conditions." Equity Market Along with investments in equity securities, we have exposure to equity market risk through certain liabilities that involve long-term guarantees on equity performance such as embedded derivatives on variable annuities with guaranteed minimum benefits and certain policyholder account balances. Equity exposures associated with real estate and limited partnership interests are excluded from this discussion as they are not considered financial instruments under GAAP.
Management of Market Risk Exposures
We use a variety of strategies to manage interest rate, foreign currency
exchange rate and equity market risk, including the use of derivatives.
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Interest Rate Risk Management
To manage interest rate risk, we analyze interest rate risk using various models, including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivatives. These projections involve evaluating the potential gain or loss on most of our in-force business under various increasing and decreasing interest rate environments. The NYDFS regulations require that we perform some of these analyses annually as part of our review of the sufficiency of our regulatory reserves. For several of our legal entities, we maintain segmented operating and surplus asset portfolios for the purpose of ALM and the allocation of investment income to product lines. In theU.S. , for each segment, invested assets greater than or equal to the GAAP liabilities net of certain non-invested assets allocated to the segment are maintained, with any excess allocated to Corporate & Other. The business segments may reflect differences in legal entity, statutory line of business and any product market characteristic which may drive a distinct investment strategy with respect to duration, liquidity or credit quality of the invested assets. Certain smaller entities make use of unsegmented general accounts for which the investment strategy reflects the aggregate characteristics of liabilities in those entities. We measure relative sensitivities of the value of our assets and liabilities to changes in key assumptions utilizing internal models. These models reflect specific product characteristics and include assumptions based on current and anticipated experience regarding lapse, mortality, morbidity and interest crediting rates. In addition, these models include asset cash flow projections reflecting interest payments, sinking fund payments, principal payments, bond calls, mortgage loan prepayments and defaults. We employ product design, pricing and ALM strategies to reduce the potential effects of interest rate movements. Product design and pricing strategies include the use of surrender charges or restrictions on withdrawals in some products and the ability to reset crediting rates for certain products. ALM strategies include the use of derivatives. We also use reinsurance to mitigate interest rate risk. We also use common industry metrics, such as duration and convexity, to measure the relative sensitivity of assets and liability values to changes in interest rates. In computing the duration of liabilities, we consider policyholder guarantees and how we intend to set indeterminate policy elements such as interest credits or dividends. Each asset portfolio or portfolio group has a duration target based on the liability duration and the investment objectives of that portfolio. Where a liability cash flow may exceed the maturity of available assets, we may support such liabilities with equity investments, derivatives or interest rate curve mismatch strategies.
Foreign Currency Exchange Rate Risk Management
MetLife has a well-established policy to manage foreign currency exchange rate exposures within its risk tolerance. In general, investments backing specific liabilities are currency matched. This is achieved through direct investments in matching currency or through the use of foreign currency exchange rate derivatives. Enterprise foreign currency exchange rate risk limits are established by the ERC. Management of each of our segments, with oversight from our FX Working Group and the ALM committee for the respective segment, is responsible for managing any foreign currency exchange rate exposure. We use foreign currency swaps, forwards and options to mitigate the liability exposure, risk of loss and financial statement volatility associated with our investments in foreign subsidiaries, foreign currency denominated fixed income investments and the sale of certain insurance products.
Equity Market Risk Management
We manage equity market risk on an integrated basis with other risks through our
ALM strategies, including the dynamic hedging with derivatives of certain
variable annuity guarantee benefits, as well as reinsurance, in order to limit
losses, minimize exposure to large risks, and provide additional capacity for
future growth. We also manage equity market risk exposure in our investment
portfolio through the use of derivatives. These derivatives include
exchange-traded equity futures, equity index options contracts, TRRs and equity
variance swaps.
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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. 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
forwards.
•Foreign Currency Exchange Rate Risk - We use foreign currency swaps, futures, forwards and options to hedge foreign currency exchange rate risk. These hedges are generally used to swap foreign currency denominated bonds, investments in foreign subsidiaries or equity market exposures toU.S. dollars. Our foreign subsidiaries also use these hedges to swap non-local currency assets to local currency, to match liabilities. •General ALM Hedging Strategies - In the ordinary course of managing our asset/liability risks, we use interest rate futures, interest rate swaps, interest rate caps, interest rate floors, and inflation swaps. These hedges are designed to reduce interest rate risk or inflation risk related to the existing assets or liabilities or related to expected future cash flows.
•Macro Hedge Program - We use equity options, equity TRRs, interest rate
swaptions, interest rate swaps and
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. 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 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
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.
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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 $223.9 billion, at carrying value, of insurance contracts. Management believes that the changes in the economic value of those contracts under changing interest rates and changing foreign currency exchange rates would offset a significant portion of the fair value changes of interest sensitive and foreign currency exchange rate sensitive assets;
•the market risk information is limited by the assumptions and parameters
established in creating the related sensitivity analysis, including the impact
of prepayment rates on mortgage loans;
•sensitivities do not include the impact on asset or liability valuation of
changes in market liquidity or changes in market credit spreads;
•foreign currency exchange rate risk is not isolated for certain embedded
derivatives within host asset and liability contracts, as the risk on these
instruments is reflected as equity;
•for the derivatives that qualify as hedges, and for certain other assets such as mortgage loans, the impact on reported earnings may be materially different from the change in market values;
•the analysis excludes liabilities pursuant to insurance contracts, as well as
real estate holdings, private equity and hedge fund holdings; and
•the model assumes that the composition of assets and liabilities remains
unchanged throughout the period.
Accordingly, we use such models as tools and not as substitutes for the experience and judgment of our management. Based on our analysis of the impact of a 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 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, 2022
(In millions)
Interest rate risk $ 22,327
Foreign currency exchange rate risk $ 5,929
Equity market risk $ 97
The risk sensitivities derived used a 100 basis point increase to interest
rates, a 10% strengthening of the
10% increase in equity prices. The potential losses in estimated fair value
presented are for non-trading securities.
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The table below provides additional detail regarding the potential loss in
estimated fair value of our interest sensitive financial instruments due to a
100 basis point increase in interest rates at:
December 31, 2022
Assuming a
100 bps
Estimated Increase
Notional Fair in Interest
Amount Value (1) Rates
(In millions)
Assets
Fixed maturity securities AFS $ 276,780 $ (20,707)
Equity securities $ 1,684 (80)
FVO Securities $ 1,435 (26)
Mortgage loans $ 78,694 (2,708)
Policy loans $ 9,682 (268)
Short-term investments $ 4,935 (11)
Other invested assets $ 2,078 (156)
Cash and cash equivalents $ 20,195 (6)
Accrued investment income $ 3,446 -
Premiums, reinsurance and other receivables $ 2,963 (37)
Other assets $ 265 (14)
Embedded derivatives within asset host contracts (2) $ 29 (8)
Total assets $ (24,021)
Liabilities (3)
Policyholder account balances $ 115,408 $ 3,339
Payables for collateral under securities loaned and other $ 20,937 -
transactions
Short-term debt $ 175 -
Long-term debt $ 14,241 1,031
Collateral financing arrangement $ 591 -
Junior subordinated debt securities $ 3,502 294
Other liabilities $ 3,170 151
Embedded derivatives within liability host contracts (2) $ 578 317
Total liabilities $ 5,132
Derivative Instruments
Interest rate swaps $ 39,911 $ 938 $ (2,182)
Interest rate floors $ 25,270 $ 125 (66)
Interest rate caps $ 48,290 $ 950 302
Interest rate futures $ 1,453 $ 1 31
Interest rate options $ 44,391 $ 385 (218)
Interest rate forwards $ 7,828 $ (1,385) (950)
Synthetic GICs $ 46,316 $ - -
Foreign currency swaps $ 56,025 $ 3,008 (307)
Foreign currency forwards $ 18,211 $ (234) 12
Currency futures $ 333 $ 8 -
Currency options $ 3,000 $ 236 (8)
Credit default swaps $ 14,437 $ 44 2
Equity futures $ 2,988 $ 4 (4)
Equity index options $ 16,701 $ 442 (45)
Equity variance swaps $ 163 $ 3 -
Equity total return swaps $ 2,799 $ (89) (5)
Total derivative instruments $ (3,438)
Net Change $ (22,327)
__________________
(1)Separate account assets and liabilities and Unit-linked investments and
associated policyholder account balances, which are interest rate sensitive, are
not included herein as any interest rate risk is borne by the contractholder,
notwithstanding any general account guarantees which are included within
embedded derivatives (see footnote (2) below) or included within future policy
benefits and other policy-related balances (see footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the
same caption as the host contract.
(3)Excludes $223.9 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.
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Sensitivity to interest rates decreased $9.0 billion to $22.0 billion at
December 31, 2022 from $31.0 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% appreciation in the
dollar compared to all other currencies at:
December 31, 2022
Estimated Assuming a
Notional Fair 10% Appreciation in
Amount Value (1) the U.S. Dollar
(In millions)
Assets
Fixed maturity securities AFS $ 276,780 $ (7,836)
Equity securities $ 1,684 (42)
FVO Securities $ 1,435 (59)
Mortgage loans $ 78,694 (815)
Policy loans $ 9,682 (123)
Short-term investments $ 4,935 (234)
Other invested assets $ 2,078 (50)
Cash and cash equivalents $ 20,195 (424)
Accrued investment income $ 3,446 (64)
Premiums, reinsurance and other receivables $ 2,963 (59)
Other assets $ 265 (18)
Embedded derivatives within asset host contracts (2) $ 29 (5)
Total assets $ (9,729)
Liabilities (3)
Policyholder account balances $ 115,408 $ 2,757
Payables for collateral under securities loaned and other
transactions $ 20,937 188
Long-term debt $ 14,241 148
Other liabilities $ 3,170 14
Embedded derivatives within liability host contracts (2) $ 578 7
Total liabilities $ 3,114
Derivative Instruments
Interest rate swaps $ 39,911 $ 938 $ 41
Interest rate floors $ 25,270 $ 125 -
Interest rate caps $ 48,290 $ 950 -
Interest rate futures $ 1,453 $ 1 -
Interest rate options $ 44,391 $ 385 (1)
Interest rate forwards $ 7,828 $ (1,385) 80
Synthetic GICs $ 46,316 $ - -
Foreign currency swaps $ 56,025 $ 3,008 1,360
Foreign currency forwards $ 18,211 $ (234) (931)
Currency futures $ 333 $ 8 (35)
Currency options $ 3,000 $ 236 162
Credit default swaps $ 14,437 $ 44 -
Equity futures $ 2,988 $ 4 -
Equity index options $ 16,701 $ 442 9
Equity variance swaps $ 163 $ 3 -
Equity total return swaps $ 2,799 $ (89) 1
Total derivative instruments $ 686
Net Change $ (5,929)
__________________
(1)Does not necessarily represent those financial instruments solely subject to
foreign currency exchange rate risk. Separate account assets and liabilities and
Unit-linked investments and associated policyholder account balances, which are
foreign currency exchange rate sensitive, are not included herein as any foreign
currency exchange rate risk is borne by the contractholder, notwithstanding any
general account guarantees which are included within embedded derivatives (see
footnote (2) below) or included within future policy benefits and other
policy-related balances (see footnote (3) below).
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(2)Embedded derivatives are recognized on the consolidated balance sheet in the
same caption as the host contract.
(3)Excludes $223.9 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
currencies.
Sensitivity to foreign currency exchange rates decreased $1.2 billion to
$6.0 billion at December 31, 2022 from $7.2 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% increase in equity prices at:
December 31, 2022
Assuming a
Estimated 10% Increase
Notional Fair in Equity
Amount Value (1) Prices
(In millions)
Assets
Equity securities $ 1,684 $ 67
FVO Securities $ 1,435 72
Other invested assets $ 2,078 30
Embedded derivatives within asset host contracts (2) $ 29 (3)
Total assets $ 166
Liabilities (3)
Policyholder account balances $ 115,408 $ -
Embedded derivatives within liability host contracts (2) $ 578 191
Total liabilities $ 191
Derivative Instruments
Interest rate swaps $ 39,911 $ 938 $ -
Interest rate floors $ 25,270 $ 125 -
Interest rate caps $ 48,290 $ 950 -
Interest rate futures $ 1,453 $ 1 -
Interest rate options $ 44,391 $ 385 -
Interest rate forwards $ 7,828 $ (1,385) -
Synthetic GICs $ 46,316 $ - -
Foreign currency swaps $ 56,025 $ 3,008 -
Foreign currency forwards $ 18,211 $ (234) -
Currency futures $ 333 $ 8 -
Currency options $ 3,000 $ 236 -
Credit default swaps $ 14,437 $ 44 -
Equity futures $ 2,988 $ 4 (207)
Equity index options $ 16,701 $ 442 (39)
Equity variance swaps $ 163 $ 3 -
Equity total return swaps $ 2,799 $ (89) (208)
Total derivative instruments $ (454)
Net Change $ (97)
__________________
(1)Does not necessarily represent those financial instruments solely subject to
equity price risk. Additionally, separate account assets and liabilities and
Unit-linked investments and associated policyholder account balances, which are
equity market sensitive, are not included herein as any equity market risk is
borne by the contractholder, notwithstanding any general account guarantees
which are included within embedded derivatives (see footnote (2) below) or
included within future policy benefits and other policy-related balances (see
footnote (3) below).
(2)Embedded derivatives are recognized on the consolidated balance sheet in the
same caption as the host contract.
(3)Excludes $223.9 billion of liabilities, at carrying value, pursuant to
insurance contracts reported within future policy benefits and other
policy-related balances.
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Sensitivity to equity market prices decreased $26 million to $97 million at
December 31, 2022 from $123 million at December 31, 2021.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 34) 145
Financial Statements at December 31, 2022 and 2021 and for the Years Ended
December 31, 2022, 2021 and 2020:
Consolidated Balance Sheets 150 Consolidated Statements of Operations 151 Consolidated Statements of Comprehensive Income (Loss) 152 Consolidated Statements of Equity 153 Consolidated Statements of Cash Flows 154 Notes to the Consolidated Financial Statements
Note 1 - Business, Basis of Presentation and Summary of Significant Accounting
Policies
156 Note 2 - Segment Information 175 Note 3 - Acquisition and Dispositions 181 Note 4 - Insurance 183 Note 5 - Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles 198 Note 6 - Reinsurance 201 Note 7 - Closed Block 205 Note 8 - Investments 207 Note 9 - Derivatives 227 Note 10 - Fair Value 242 Note 11 - Leases 258 Note 12 -Goodwill 260 Note 13 - Long-term and Short-term Debt 261 Note 14 - Collateral Financing Arrangement 263 Note 15 - Junior Subordinated Debt Securities 264 Note 16 - Equity 266 Note 17 - Other Revenues and Other Expenses 283 Note 18 - Employee Benefit Plans 284 Note 19 - Income Tax 292 Note 20 - Earnings Per Common Share 296 Note 21 - Contingencies, Commitments and Guarantees 296 Note 22 - Subsequent Events 300
Financial Statement Schedules at December 31, 2022 and 2021 and for the Years
Ended December 31, 2022, 2021 and 2020:
Schedule I - Consolidated Summary of Investments - Other Than Investments in
Related Parties
301
Schedule II - Condensed Financial Information (Parent Company Only) 302
Schedule III - Consolidated Supplementary Insurance Information 309
Schedule IV - Consolidated Reinsurance 311
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets ofMetLife, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, 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, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted inthe United States of America . We have also audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 145
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Fixed Maturity Securities Available-for-Sale - Fair Value of Level 3 Fixed
Maturity Securities - Refer to Notes 1, 8, and 10 to the financial statements
Critical Audit Matter Description
The Company has investments in certain fixed maturity securities classified as available-for-sale whose fair values are based on unobservable inputs that are supported by little or no market activity. When a price is not available in the active market, from an independent pricing service, or from independent broker quotations, management values the security using internal matrix pricing or discounted cash flow techniques. These investments are categorized as Level 3 and had an estimated fair value of $6.6 billion as of December 31, 2022. Given management uses considerable judgment when estimating the fair value of Level 3 fixed maturity securities determined using internal matrix pricing or discounted cash flow techniques, performing audit procedures to evaluate the estimate of fair value required a high degree of auditor judgment and an increased extent of effort. This audit effort included the use of professionals with specialized skills and knowledge, including our fair value specialists, to assist in performing procedures and evaluating the audit evidence obtained.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of Level 3 fixed maturity
securities determined using internal matrix pricing or discounted cash flow
techniques included, among others, the following:
•We tested the effectiveness of controls over the determination of fair value.
•We tested the accuracy and completeness of relevant security attributes,
including credit ratings, maturity dates and coupon rates, used in the
determination of Level 3 fair values.
•With the involvement of our fair value specialists, we developed independent fair value estimates for a sample of securities and compared our estimates to the Company's estimates and evaluated differences. We developed our estimate by evaluating the observable and unobservable inputs used by management or developing independent inputs.
Insurance Liabilities - Valuation of Future Policy Benefits for Long-Term Care
Insurance - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company's products include long-term care insurance. Liabilities for amounts
payable under long-term care insurance are recorded in future policy benefits in
the Company's consolidated balance sheets. Such liabilities are established
based on actuarial assumptions at the time policies are issued, which are
intended to estimate the experience for the period the policy benefits are
payable. Significant adverse changes in experience on such contracts may require
the establishment of premium deficiency reserves, which are based on current
assumptions. Management's estimate of future policy benefits for long-term care
insurance was $14.3 billion as of December 31, 2022.
Management applies considerable judgment in evaluating actual experience to
determine whether a change in assumptions for long-term care insurance is
warranted. Principal assumptions used in the valuation of future policy benefits
for long-term care insurance include morbidity, policy lapse, investment returns
and mortality.
Given the inherent uncertainty in selecting assumptions, we have determined that
management's evaluation of actual experience when estimating future policy
benefits for long-term care insurance policies is a critical audit matter, which
required a high degree of auditor judgment and an increased extent of effort
when performing audit procedures to evaluate the judgments made and the
reasonableness of the assumptions used in the valuation. The audit effort
included the use of professionals with specialized skill and knowledge,
including our actuarial specialists, to assist in performing these procedures
and evaluating the audit evidence obtained from these procedures.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the assumptions used to determine the estimate
of future policy benefits for long-term care insurance, included, among others,
the following:
•We tested the effectiveness of the control over the assumptions used in the
valuation of future policy benefits and the effectiveness of the controls over
the underlying data.
•With the involvement of our actuarial specialists, we:
•evaluated judgments applied by management in setting principal assumptions, including evaluating the results of experience studies used as the basis for setting those assumptions.
•evaluated management's estimate of, or developed an independent estimate of,
future policy benefits, on a sample basis, and evaluated differences. This
included confirming that assumptions were applied as intended.
•evaluated the results of the Company's annual premium deficiency tests.
Derivatives - Valuation of Embedded Derivative Liabilities - Refer to Notes 1,
4, 9, and 10 to the financial statements
Critical Audit Matter Description
The Company's products include variable annuity contracts with guaranteed
minimum benefits that provide the policyholder a minimum return based on their
initial deposit adjusted for withdrawals. The guarantees on variable annuity
contracts are accounted for as insurance liabilities or as embedded derivatives
depending on how and when the benefit is paid. Guarantees accounted for as
embedded derivatives include the non-life contingent portion of guaranteed
minimum withdrawal benefits and certain non-life contingent portions of
guaranteed minimum income benefits, and are recorded in policyholder account
balances on the Company's consolidated balance sheet. Embedded derivatives are
measured at estimated fair value separately from the host variable annuity
contract using actuarial and capital market assumptions that are updated at
least annually. Management's estimate of embedded derivative liabilities was
$0.6 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.
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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 $5.0 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 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.
Management applies considerable judgment in estimating the transition date
impact of 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 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 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.
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Our audit procedures related to the estimated transition date impact 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 to market risk benefit measurement principles 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.
•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 inception
•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 February 23, 2023
We have served as the Company's auditor since at least 1968; however, an earlier
year could not be reliably determined.
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MetLife, Inc.
Consolidated Balance Sheets
December 31, 2022 and 2021
(In millions, except share and per share data)
2022 2021
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $183 and $91, respectively); and amortized cost: $306,025 and $310,884, respectively $ 276,780 $ 340,274 Equity securities, at estimated fair value 1,684 1,269
Contractholder-directed equity securities and fair value option securities, at
estimated fair value
9,668 12,142
Mortgage loans (net of allowance for credit loss of $527 and $634,
respectively; includes $0 and $127, respectively, under the fair value option) 83,763
79,353 Policy loans 8,874 9,111
Real estate and real estate joint ventures (includes $299 and $240,
respectively, under the fair value option and $0 and $175, respectively, of
real estate held-for-sale)
13,137 12,216 Other limited partnership interests 14,414 14,625 Short-term investments, principally at estimated fair value 4,935 7,176
Other invested assets (net of allowance for credit loss of $26 and $40,
respectively; includes $1,926 and $1,930, respectively, of leveraged and
direct financing leases; and $326 and $351, respectively, relating to variable
interest entities)
20,038 18,655 Total investments 433,293 494,821 Cash and cash equivalents, principally at estimated fair value 20,195 20,047 Accrued investment income 3,446 3,185 Premiums, reinsurance and other receivables 17,461 17,149 Deferred policy acquisition costs and value of business acquired 22,983 16,061 Current income tax recoverable 42 184 Deferred income tax asset 2,830 189 Goodwill 9,297 9,535 Assets held-for-sale - 7,238 Other assets 11,026 11,426 Separate account assets 146,038 179,873 Total assets $ 666,611 $ 759,708 Liabilities and Equity Liabilities Future policy benefits $ 204,228 $ 199,721 Policyholder account balances 203,082 203,473 Other policy-related balances 19,651 17,751 Policyholder dividends payable 387 478 Policyholder dividend obligation - 1,682
Payables for collateral under securities loaned and other transactions
20,937 31,920 Short-term debt 175 341 Long-term debt 14,647 13,933 Collateral financing arrangement 716 766 Junior subordinated debt securities 3,158 3,156 Deferred income tax liability 325 9,693 Liabilities held-for-sale - 6,634 Other liabilities 25,980 22,538 Separate account liabilities 146,038 179,873 Total liabilities 639,324 691,959 Contingencies, Commitments and Guarantees (Note 21) Equity MetLife, Inc.'s stockholders' equity: Preferred stock, par value $0.01 per share; $3,905 aggregate liquidation preference - -
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized;
1,189,831,471 and 1,186,540,473 shares issued, respectively; 779,098,414 and
825,540,267 shares outstanding, respectively
12 12 Additional paid-in capital 33,616 33,511 Retained earnings 41,953 41,197
Treasury stock, at cost; 410,733,057 and 361,000,206 shares, respectively
(21,458) (18,157)
Accumulated other comprehensive income (loss) (27,083) 10,919
Total MetLife, Inc.'s stockholders' equity 27,040 67,482
Noncontrolling interests 247 267
Total equity 27,287 67,749
Total liabilities and equity $ 666,611 $ 759,708
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2022, 2021 and 2020
(In millions, except per share data)
2022 2021 2020
Revenues
Premiums $ 49,397 $ 42,009 $ 42,034
Universal life and investment-type product policy fees 5,585 5,756 5,603
Net investment income 15,916 21,395 17,117
Other revenues 2,634 2,619 1,849
Net investment gains (losses) (1,262) 1,529 (110)
Net derivative gains (losses) (2,372) (2,228) 1,349
Total revenues 69,898 71,080 67,842
Expenses
Policyholder benefits and claims 50,612 43,954 41,461 Interest credited to policyholder account balances 3,692 5,538 5,214 Policyholder dividends 701 876 1,090 Other expenses 12,034 12,586 13,150 Total expenses 67,039 62,954 60,915 Income (loss) before provision for income tax 2,859 8,126 6,927 Provision for income tax expense (benefit) 301 1,551 1,509 Net income (loss) 2,558 6,575 5,418
Less: Net income (loss) attributable to noncontrolling
interests
19 21 11 Net income (loss) attributable to MetLife, Inc. 2,539 6,554 5,407 Less: Preferred stock dividends 185 195 202 Preferred stock redemption premium - 6 14
Net income (loss) available to MetLife, Inc.'s common
shareholders
$ 2,354
$ 6,353 $ 5,191
Net income (loss) available to MetLife, Inc.'s common shareholders per common share: Basic $ 2.93 $ 7.36 $ 5.72 Diluted $ 2.91 $ 7.31 $ 5.68
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2022, 2021 and 2020
(In millions)
2022 2021 2020
Net income (loss) $ 2,558 $ 6,575 $ 5,418
Other comprehensive income (loss):
Unrealized investment gains (losses), net of related
offsets (47,831) (8,171) 5,198
Unrealized gains (losses) on derivatives (85) 137 (286)
Foreign currency translation adjustments (1,242) (1,306) 1,169
Defined benefit plans adjustment 279 328 181
Other comprehensive income (loss), before income tax (48,879)
(9,012) 6,262
Income tax (expense) benefit related to items of other
comprehensive income (loss)
10,871 1,862 (1,237)
Other comprehensive income (loss), net of income tax (38,008)
(7,150) 5,025 Comprehensive income (loss) (35,450) (575) 10,443 Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax 13 24 16
Comprehensive income (loss) attributable to MetLife, Inc. $ (35,463)
$ (599) $ 10,427
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Consolidated Statements of Equity
Years Ended December 31, 2022, 2021 and 2020
(In millions)
Accumulated Total
Additional Treasury Other MetLife, Inc.'s
Preferred Common Paid-in Retained Stock Comprehensive Stockholders' Noncontrolling Total
Stock Stock Capital Earnings at Cost Income (Loss) Equity Interests Equity
Balance at December 31, 2019 $ - $ 12
$ 32,680 $ 33,078 $ (12,678) $ 13,052 $ 66,144 $
238 $ 66,382 Cumulative effects of changes in accounting principles, net of income tax (121) (121) (121) Redemption of preferred stock (989) (989) (989) Preferred stock redemption premium (14) (14) (14) Preferred stock issuance 1,961 1,961 1,961 Treasury stock acquired in connection with share repurchases (1,151) (1,151) (1,151) Stock-based compensation 160 160 160 Dividends on preferred stock (202) (202) (202) Dividends on common stock (declared per share of $1.820) (1,657) (1,657) (1,657) Change in equity of noncontrolling interests - 5 5 Net income (loss) 5,407 5,407 11 5,418 Other comprehensive income (loss), net of income tax 5,020 5,020 5 5,025 Balance at December 31, 2020 - 12 33,812 36,491 (13,829) 18,072 74,558 259 74,817 Redemption of preferred stock (494) (494) (494) Preferred stock redemption premium (6) (6) (6) Treasury stock acquired in connection with share repurchases (4,328) (4,328) (4,328) Stock-based compensation 193 193 193 Dividends on preferred stock (195) (195) (195) Dividends on common stock (declared per share of $1.900) (1,647) (1,647) (1,647) Change in equity of noncontrolling interests - (16) (16) Net income (loss) 6,554 6,554 21 6,575 Other comprehensive income (loss), net of income tax (7,153) (7,153) 3
(7,150)
Balance at December 31, 2021 - 12 33,511 41,197 (18,157) 10,919 67,482 267 67,749 Treasury stock acquired in connection with share repurchases (3,301) (3,301) (3,301) Stock-based compensation 105 105 105 Dividends on preferred stock (185) (185) (185) Dividends on common stock (declared per share of $1.980) (1,598) (1,598) (1,598) Change in equity of noncontrolling interests - (33) (33) Net income (loss) 2,539 2,539 19 2,558 Other comprehensive income (loss), net of income tax (38,002) (38,002) (6)
(38,008)
Balance at December 31, 2022 $ - $ 12 $ 33,616 $ 41,953 $ (21,458) $ (27,083) $ 27,040 $ 247 $ 27,287
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2022, 2021 and 2020
(In millions)
2022 2021 2020
Cash flows from operating activities
Net income (loss) $ 2,558 $ 6,575 $ 5,418
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expenses 673 694 619
Amortization of premiums and accretion of discounts associated
with investments, net
(960) (855) (816)
(Gains) losses on investments and from sales of businesses,
net
1,262 (1,529) 110 (Gains) losses on derivatives, net 4,317 4,190 (656)
(Income) loss from equity method investments, net of dividends
or distributions
505 (3,051) 76 Interest credited to policyholder account balances 3,737 5,490 5,348 Universal life and investment-type product policy fees (3,970) (3,638) (3,664)
Change in contractholder-directed equity securities and fair
value option securities
1,671 (231) 131 Change in accrued investment income (357) (11) 104 Change in premiums, reinsurance and other receivables 256 389 842 Change in deferred policy acquisition costs and value of business acquired, net (568) (106) 101 Change in income tax (591) 598 (11) Change in other assets 27 (681) (361)
Change in insurance-related liabilities and policy-related
balances
4,058 4,553 5,112 Change in other liabilities 341 71 (1,065) Other, net 245 138 351 Net cash provided by (used in) operating activities 13,204 12,596 11,639 Cash flows from investing activities Sales, maturities and repayments of: Fixed maturity securities available-for-sale 88,937 88,839 77,979 Equity securities 873 708 367 Mortgage loans 10,779 19,183 11,300 Real estate and real estate joint ventures 1,096 1,285 120 Other limited partnership interests 1,615 777 597 Short-term investments 14,094 20,871 13,776 Purchases and originations of: Fixed maturity securities available-for-sale (82,956) (97,368) (89,633) Equity securities (1,368) (451) (169) Mortgage loans (16,403) (14,961) (14,652) Real estate and real estate joint ventures (1,208) (1,375) (1,287) Other limited partnership interests (2,674) (3,227) (1,979) Short-term investments (11,741) (24,148) (14,117)
Cash received in connection with freestanding derivatives 4,524
3,453 4,847 Cash paid in connection with freestanding derivatives (7,793) (7,990) (4,247)
Sales of businesses, net of cash and cash equivalents disposed
of $67, $611 and $0, respectively
590 3,270 -
Purchases of businesses, net of cash received of $4, $0 and
$191, respectively
(35) - (1,684)
Purchases of investments in operating joint ventures (240) - -
Net change in policy loans 104 228 250
Net change in other invested assets (786) (235) (176)
Other, net (28) (46) 139
Net cash provided by (used in) investing activities $ (2,620) $ (11,187) $ (18,569)
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Consolidated Statements of Cash Flows - (continued)
Years Ended December 31, 2022, 2021 and 2020
(In millions)
2022 2021 2020
Cash flows from financing activities
Policyholder account balances:
Deposits $ 103,036 $ 96,367 $ 93,497
Withdrawals (97,886) (92,540) (85,251)
Payables for collateral under securities loaned and other
transactions:
Net change in payables for collateral under securities
loaned and other transactions
(10,730) 1,883 3,538
Cash received for other transactions with tenors greater
than three months
- - 150 Cash paid for other transactions with tenors greater than three months - (100) (175) Long-term debt issued 1,013 29 1,124 Long-term debt repaid (85) (582) (99) Collateral financing arrangement repaid (50) (79) (148)
Financing element on certain derivative instruments and
other derivative related transactions, net
(61) 270 (46)
Treasury stock acquired in connection with share repurchases (3,326)
(4,303) (1,151) Preferred stock issued, net of issuance costs - - 1,961 Redemption of preferred stock - (494) (989) Preferred stock redemption premium - (6) (14) Dividends on preferred stock (185) (195) (202) Dividends on common stock (1,598) (1,647) (1,657) Other, net (236) 22 191 Net cash provided by (used in) financing activities (10,108) (1,375) 10,729
Effect of change in foreign currency exchange rates on cash
and cash equivalents balances
(397) (478) 163 Change in cash and cash equivalents 79 (444) 3,962 Cash and cash equivalents, including subsidiaries held-for-sale, beginning of year 20,116 20,560 16,598 Cash and cash equivalents, including subsidiaries held-for-sale, end of year $ 20,195
$ 20,116 $ 20,560
Cash and cash equivalents, subsidiaries held-for-sale,
beginning of year
$ 69
$ 765 $ -
Cash and cash equivalents, subsidiaries held-for-sale, end
of year
$ - $ 69 $ 765 Cash and cash equivalents, beginning of year $ 20,047 $ 19,795 $ 16,598 Cash and cash equivalents, end of year $ 20,195 $ 20,047 $ 19,795 Supplemental disclosures of cash flow information Net cash paid (received) for: Interest $ 905 $ 914 $ 891 Income tax $ 1,056 $ 1,102 $ 787 Business acquisitions (Note 3): Assets $ - $ - $ 2,190 Liabilities - - 315 Cash paid, excluding transaction costs $ -
$ - $ 1,875
Non-cash transactions:
Fixed maturity securities available-for-sale received in
connection with pension risk transfer transactions
$ 8,707
$ 423 $ 2,037
Real estate and real estate joint ventures acquired in
satisfaction of debt
$ 495
$ 174 $ 10
Increase in equity securities due to in-kind distributions
received from other limited partnership interests
$ 96
$ 380 $ 108
Reclassification of certain other invested assets to
contractholder-directed equity securities and fair value
option securities
$ - $ 309 $ -
See accompanying notes to the consolidated financial statements.
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MetLife, Inc.
Notes to the Consolidated Financial Statements
1. Business, Basis of Presentation and Summary of Significant Accounting
Policies
0ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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