METROPOLITAN LIFE INSURANCE CO – 10-Q – 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         77
       Business                                                           77
       Summary of Critical Accounting Estimates                           79

       Results of Operations                                              80
       Adoption of New Accounting Pronouncements                          87
       Future Adoption of New Accounting Pronouncements                   87
       Non-GAAP and Other Financial Disclosures                           87


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Forward-Looking Statements and Other Financial Information
For purposes of this discussion, "MLIC," the "Company," "we," "our" and "us"
refer to Metropolitan Life Insurance Company, a New York corporation
incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company
is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its
subsidiaries and affiliates, "MetLife"). Management's narrative analysis of the
Company's results of operations is presented pursuant to General Instruction
H(2)(a) of Form 10-Q. This narrative analysis should be read in conjunction with
Metropolitan Life Insurance Company's Annual Report on Form 10-K for the year
ended December 31, 2020 (the "2020 Annual Report"), the cautionary language
regarding forward-looking statements included below, the "Risk Factors" set
forth in Part II, Item 1A, and the additional risk factors referred to therein,
and the Company's interim condensed consolidated financial statements included
elsewhere herein.
This narrative analysis may contain or incorporate by reference information that
includes or is based upon forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. See "Note Regarding
Forward-Looking Statements" for cautionary language regarding forward-looking
statements.
This narrative analysis includes references to our performance measure, adjusted
earnings, that is not based on accounting principles generally accepted in the
United States of America ("GAAP"). See "- Non-GAAP and Other Financial
Disclosures" for definitions and a discussion of this and other financial
measures, and "- Results of Operations" for reconciliations of historical
non-GAAP financial measures to the most directly comparable GAAP measures.
Business
Overview
MLIC is a provider of insurance, annuities, employee benefits and asset
management. MLIC is organized into two segments: U.S. and MetLife Holdings. In
addition, the Company reports certain of its results of operations in Corporate
& Other. See Note 2 of the Notes to the Interim Condensed Consolidated Financial
Statements for further information on the Company's segments and Corporate &
Other.
COVID-19 Pandemic and Current Market Conditions
We continue to closely monitor developments relating to the novel coronavirus
COVID-19 pandemic (the "COVID-19 Pandemic") and assess its impact on our
business. The COVID-19 Pandemic continues to impact the global economy and
financial markets and has caused volatility in the global equity, credit and
real estate markets. Governments and central banks around the world have
responded to the COVID-19 Pandemic with unprecedented fiscal and monetary
policies, which have had significant effects and may have ongoing effects on
financial markets and the global economy. These policy responses include fiscal
and monetary stimulus measures, including, but not limited to, financial
assistance, liquidity programs, new financing facilities and reductions in the
level of interest rates. The forecasts of the members of the Board of Governors
of the Federal Reserve System suggest that the policy rate is likely to remain
near zero into 2022, with possible increase thereafter.
We have implemented risk management and business continuity plans and taken
preventive measures and other precautions, such as employee business travel
restrictions and remote work arrangements which, to date, have enabled us to
maintain our critical business processes, customer service levels, relationships
with key vendors, financial reporting systems, internal controls over financial
reporting and disclosure controls and procedures.
We continue to grant certain accommodations to our customers and borrowers,
including (i) relaxing claim documentation requirements for disability claims
and (ii) payment deferrals and other loan modifications on certain commercial,
agricultural and residential mortgage loans. See Note 5 of the Notes to the
Interim Condensed Consolidated Financial Statements for further information
regarding COVID-19 Pandemic-related mortgage loan concessions. See also "-
Results of Operations" for further information regarding the effect of the
COVID-19 Pandemic on our businesses.
In addition, the possibility of government shutdowns or a failure to raise the
U.S. debt ceiling, due to a policy impasse or otherwise, could adversely impact
our business and liquidity.
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Regulatory Developments
The following discussion on regulatory developments should be read in
conjunction with "Business - Regulation" in the 2020 Annual Report, as amended
or supplemented here.
National Association of Insurance Commissioners
Risk-Based Capital
The National Association of Insurance Commissioners ("NAIC") adopted revisions
to certain factors used to calculate Life Risk-Based Capital ("RBC"), which is
the denominator of the RBC ratios, in light of changes to U.S. tax laws in
recent years. These revisions have resulted in increased RBC charges and reduced
our RBC ratios. The NAIC has approved RBC revisions for corporate bonds, real
estate equity and longevity risk that will take effect at year-end 2021 and are
expected to have a modest net positive RBC impact on us.
NYDFS Guidance on Diversity and Corporate Governance
On March 16, 2021, the New York State Department of Financial Services ("NYDFS")
stated it expects the insurers it regulates to make diversity of their
leadership a business priority and a key element of their corporate governance.
The NYDFS collected data from insurers that met certain New York premium
thresholds, including Metropolitan Life Insurance Company, regarding the
diversity of their corporate boards and management. The NYDFS plans to publish
such data on an aggregate basis to measure progress in the industry. In
addition, the NYDFS will include diversity-related questions in its examination
process starting in 2022.
Securities, Broker-Dealer and Investment Adviser Regulation
In April 2021, the Appellate Division of the New York State Supreme Court
overturned NYDFS Regulation 187-Suitability and Best Interests in Life Insurance
and Annuity Transactions for being unconstitutionally vague. The NYDFS has
appealed the decision.
Environmental Laws and Regulations
On March 25, 2021, the NYDFS issued for public comment proposed guidance for New
York domestic insurers, which states that insurers are expected to take a
proportionate approach, based on their business, to managing their exposure to
the financial risks from climate change. The NYDFS intends to formally adopt the
guidance, as modified by the comment process, and it has integrated questions on
this topic as part of its supervisory activities.
On July 14, 2021, the NYDFS published notice of the adoption of amendments to
regulations governing enterprise risk management, effective August 13, 2021.
Among other provisions, the amendments require that certain additional risks,
including climate change risk, be specifically included in an insurance group's
enterprise risk management function.
The U.S. Securities and Exchange Commission (the "SEC") is continuing its focus
on climate, and environmental, social and governance ("ESG") risks and
opportunities, and has published its rulemaking list which contains several
ESG-related rulemakings that the SEC is considering.
London Interbank Offered Rate
The Financial Conduct Authority, the United Kingdom regulator of London
Interbank Offered Rates ("LIBOR"), previously indicated that it intends to stop
persuading or compelling panel banks to submit quotes used to determine LIBOR
after 2021. On March 5, 2021, the Intercontinental Exchange Benchmark
Administration, the administrator of LIBOR, announced that it will cease the
publication of one week and two-month U.S. Dollar LIBOR and all non-USD (GBP,
EUR, CHF and JPY) LIBOR settings at the end of December 2021, but will extend
the publication of the remaining U.S. Dollar LIBOR settings (overnight and one,
three, six and 12 month U.S. Dollar LIBOR) until the end of June 2023. U.S. bank
regulators have advised banks to cease writing, subject to certain limited
exceptions, new U.S. Dollar LIBOR contracts by the end of 2021.
We use LIBOR and other interbank offered rates as interest reference rates in
many of our financial instruments. Existing contract fallback provisions, and
whether, how, and when we and others develop and adopt alternative reference
rates, will influence the effect of any changes to or discontinuation of LIBOR
on us. We actively participate in the New York Federal Reserve Bank convened
Alternative Reference Rate Committee ("ARRC") and other industry association
efforts on the transition to alternative reference rates. In April 2021, the
State of New York enacted legislation to address the transition from LIBOR for
certain New York law governed agreements, which is generally consistent with the
ARRC's recommendations to facilitate the transition. We continue to assess
current and alternative reference rates' merits, limitations, risks and
suitability for our investment and insurance processes.
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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 Interim Condensed 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 value of business acquired
("VOBA");
(iii)  estimated fair values of investments in the absence of quoted market
values;
(iv)  investment allowance for credit loss and impairments;
(v)  estimated fair values of freestanding derivatives and the recognition and
estimated fair value of embedded derivatives requiring bifurcation;
(vi)  measurement of employee benefit plan liabilities;
(vii)  measurement of income taxes and the valuation of deferred tax assets; and
(viii)  liabilities for litigation and regulatory matters.
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.
The Company's critical accounting estimates are described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Summary of Critical Accounting Estimates" and Note 1 of the Notes to the
Consolidated Financial Statements included in the 2020 Annual Report.
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