10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
Form 10-Q
(Mark One)
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission file number: 001-15787
________________________________________
MetLife, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 13-4075851 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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200 Park Avenue, New York, N.Y. | | 10166-0188 |
(Address of principal executive offices) | | (Zip Code) |
(212) 578-9500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | þ | | | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No þ
At April 29, 2016, 1,098,666,690 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
Table of Contents |
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Item 1. | Financial Statements (at March 31, 2016 (Unaudited) and December 31, 2015 and for the Three Months Ended March 31, 2016 and 2015 (Unaudited)) | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
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As used in this Form 10‑Q, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10‑Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) difficult conditions in the global capital markets; (2) increased volatility and disruption of the global capital and credit markets, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities, generate fee income and market-related revenue and finance statutory reserve requirements and may require us to pledge collateral or make payments related to declines in value of specified assets, including assets supporting risks ceded to certain of our captive reinsurers or hedging arrangements associated with those risks; (3) exposure to global financial and capital market risks, including as a result of the disruption in Europe and possible withdrawal of one or more countries from the Euro zone; (4) impact on us of comprehensive financial services regulation reform, including potential regulation of MetLife, Inc. as a non-bank systemically important financial institution, or otherwise; (5) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how we conduct our business, including those compelling the liquidation of certain financial institutions; (6) regulatory, legislative or tax changes relating to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (7) adverse results or other consequences from litigation, arbitration or regulatory investigations; (8) our ability to address difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from (a) business acquisitions and integrating and managing the growth of such acquired businesses, (b) dispositions of businesses via sale, initial public offering, spin-off or otherwise, (c) entry into joint ventures, or (d) legal entity reorganizations; (9) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (10) investment losses and defaults, and changes to investment valuations; (11) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (12) impairments of goodwill and realized losses or market value impairments to illiquid assets; (13) defaults on our mortgage loans; (14) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (15) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (16) downgrades in our claims paying ability, financial strength or credit ratings; (17) a deterioration in the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (18) availability and effectiveness of reinsurance or indemnification arrangements, as well as any default or failure of counterparties to perform; (19) differences between actual claims experience and underwriting and reserving assumptions; (20) ineffectiveness of risk management policies and procedures; (21) catastrophe losses; (22) increasing cost and limited market capacity for statutory life insurance reserve financings; (23) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, and for personnel; (24) exposure to losses related to variable annuity guarantee benefits, including from significant and sustained downturns or extreme volatility in equity markets, reduced interest rates, unanticipated policyholder behavior, mortality or longevity; (25) regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (26) MetLife, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet its free cash flow targets and debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (27) the possibility that MetLife, Inc.’s Board of Directors may influence the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (28) changes in accounting standards, practices and/or policies; (29) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (30) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (31) inability to attract and retain sales representatives; (32) provisions of laws and our incorporation documents may delay, deter or prevent takeovers and corporate combinations involving MetLife; (33) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery systems, cyber- or other information security systems and management continuity planning; (34) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; and (35) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission.
MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S. Securities and Exchange Commission.
Corporate Information
We announce financial and other information about MetLife to our investors through the MetLife Investor Relations web page at www.metlife.com, as well as U.S. Securities and Exchange Commission filings, press releases, public conference calls and webcasts. MetLife encourages investors to visit the Investor Relations web page from time to time, as information is updated and new information is posted. The information found on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the U.S. Securities and Exchange Commission, and any references to our website are intended to be inactive textual references only.
Note Regarding Reliance on Statements in Our Contracts
See “Exhibit Index — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Quarterly Report on Form 10-Q.
Part I — Financial Information
Item 1. Financial Statements
MetLife, Inc.
Interim Condensed Consolidated Balance Sheets
March 31, 2016 (Unaudited) and December 31, 2015
(In millions, except share and per share data)
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| | March 31, 2016 | | December 31, 2015 |
Assets | | | | |
Investments: | | | | |
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $343,412 and $332,964, respectively; includes $3,396 and $4,277, respectively, relating to variable interest entities) | | $ | 371,981 |
| | $ | 351,402 |
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Equity securities available-for-sale, at estimated fair value (cost: $3,010 and $2,997, respectively) | | 3,374 |
| | 3,321 |
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Fair value option and trading securities, at estimated fair value (includes $360 and $404, respectively, of actively traded securities; and $10 and $13, respectively, relating to variable interest entities) | | 14,993 |
| | 15,024 |
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Mortgage loans (net of valuation allowances of $381 and $318, respectively; includes $169 and $172, respectively, at estimated fair value, relating to variable interest entities; includes $392 and $314, respectively, under the fair value option) | | 68,651 |
| | 67,102 |
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Policy loans (includes $0 and $4, respectively, relating to variable interest entities) | | 11,257 |
| | 11,258 |
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Real estate and real estate joint ventures (includes $47 and $47, respectively, of real estate held-for-sale) | | 8,733 |
| | 8,433 |
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Other limited partnership interests (includes $27 and $27, respectively, relating to variable interest entities) | | 7,022 |
| | 7,096 |
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Short-term investments, principally at estimated fair value (includes $0 and $26, respectively, relating to variable interest entities) | | 11,621 |
| | 9,299 |
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Other invested assets, principally at estimated fair value (includes $43 and $43, respectively, relating to variable interest entities) | | 27,095 |
| | 22,524 |
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Total investments | | 524,727 |
| | 495,459 |
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Cash and cash equivalents, principally at estimated fair value (includes $18 and $85, respectively, relating to variable interest entities) | | 13,290 |
| | 12,752 |
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Accrued investment income (includes $1 and $23, respectively, relating to variable interest entities) | | 4,198 |
| | 3,988 |
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Premiums, reinsurance and other receivables (includes $3 and $21, respectively, relating to variable interest entities) | | 27,843 |
| | 22,702 |
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Deferred policy acquisition costs and value of business acquired (includes $0 and $240, respectively, relating to variable interest entities) | | 23,973 |
| | 24,130 |
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Current income tax recoverable | | 125 |
| | 161 |
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Goodwill | | 9,729 |
| | 9,477 |
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Other assets (includes $3 and $148, respectively, relating to variable interest entities) | | 7,496 |
| | 7,666 |
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Separate account assets (includes $0 and $1,022, respectively, relating to variable interest entities) | | 306,047 |
| | 301,598 |
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Total assets | | $ | 917,428 |
| | $ | 877,933 |
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Liabilities and Equity | | | | |
Liabilities | | | | |
Future policy benefits (includes $0 and $716, respectively, relating to variable interest entities) | | $ | 196,967 |
| | $ | 191,879 |
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Policyholder account balances (includes $0 and $21, respectively, relating to variable interest entities) | | 207,593 |
| | 202,722 |
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Other policy-related balances (includes $0 and $238, respectively, relating to variable interest entities) | | 14,435 |
| | 14,255 |
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Policyholder dividends payable | | 706 |
| | 720 |
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Policyholder dividend obligation | | 2,586 |
| | 1,783 |
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Payables for collateral under securities loaned and other transactions | | 41,165 |
| | 36,871 |
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Short-term debt | | 100 |
| | 100 |
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Long-term debt (includes $55 and $63, respectively, at estimated fair value, relating to variable interest entities) | | 17,915 |
| | 18,023 |
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Collateral financing arrangements | | 4,127 |
| | 4,139 |
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Junior subordinated debt securities | | 3,168 |
| | 3,194 |
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Deferred income tax liability | | 13,776 |
| | 10,592 |
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Other liabilities (includes $0 and $81, respectively, relating to variable interest entities) | | 32,878 |
| | 23,561 |
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Separate account liabilities (includes $0 and $1,022, respectively, relating to variable interest entities) | | 306,047 |
| | 301,598 |
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Total liabilities | | 841,463 |
| | 809,437 |
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Contingencies, Commitments and Guarantees (Note 13) | |
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Redeemable noncontrolling interests in partially-owned consolidated subsidiaries | | — |
| | 77 |
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Equity | | | | |
MetLife, Inc.’s stockholders’ equity: | | | | |
Preferred stock, par value $0.01 per share; $2,100 aggregate liquidation preference | | — |
| | — |
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Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,161,534,632 and 1,159,590,766 shares issued, respectively; 1,098,526,527 and 1,098,028,525 shares outstanding, respectively | | 12 |
| | 12 |
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Additional paid-in capital | | 30,769 |
| | 30,749 |
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Retained earnings | | 37,301 |
| | 35,519 |
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Treasury stock, at cost; 63,008,105 and 61,562,241 shares, respectively | | (3,172 | ) | | (3,102 | ) |
Accumulated other comprehensive income (loss) | | 10,865 |
| | 4,771 |
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Total MetLife, Inc.’s stockholders’ equity | | 75,775 |
| | 67,949 |
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Noncontrolling interests | | 190 |
| | 470 |
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Total equity | | 75,965 |
| | 68,419 |
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Total liabilities and equity | | $ | 917,428 |
| | $ | 877,933 |
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See accompanying notes to the interim condensed consolidated financial statements.
MetLife, Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
(In millions, except per share data)
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| | Three Months Ended March 31, |
| | 2016 | | 2015 |
Revenues | | | | |
Premiums | | $ | 9,693 |
| | $ | 9,253 |
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Universal life and investment-type product policy fees | | 2,344 |
| | 2,394 |
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Net investment income | | 4,559 |
| | 5,461 |
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Other revenues | | 487 |
| | 495 |
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Net investment gains (losses): | | | | |
Other-than-temporary impairments on fixed maturity securities | | (78 | ) | | (8 | ) |
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss) | | — |
| | (10 | ) |
Other net investment gains (losses) | | 93 |
| | 304 |
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Total net investment gains (losses) | | 15 |
| | 286 |
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Net derivative gains (losses) | | 1,335 |
| | 821 |
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Total revenues | | 18,433 |
| | 18,710 |
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Expenses | | | | |
Policyholder benefits and claims | | 9,678 |
| | 9,257 |
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Interest credited to policyholder account balances | | 1,326 |
| | 1,995 |
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Policyholder dividends | | 315 |
| | 339 |
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Other expenses | | 4,192 |
| | 4,060 |
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Total expenses | | 15,511 |
| | 15,651 |
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Income (loss) before provision for income tax | | 2,922 |
| | 3,059 |
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Provision for income tax expense (benefit) | | 719 |
| | 896 |
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Net income (loss) | | 2,203 |
| | 2,163 |
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Less: Net income (loss) attributable to noncontrolling interests | | 2 |
| | 5 |
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Net income (loss) attributable to MetLife, Inc. | | 2,201 |
| | 2,158 |
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Less: Preferred stock dividends | | 6 |
| | 30 |
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Net income (loss) available to MetLife, Inc.’s common shareholders | | $ | 2,195 |
| | $ | 2,128 |
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Comprehensive income (loss) | | $ | 8,388 |
| | $ | 3,101 |
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Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax | | 93 |
| | 63 |
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Comprehensive income (loss) attributable to MetLife, Inc. | | $ | 8,295 |
| | $ | 3,038 |
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Net income (loss) available to MetLife, Inc.’s common shareholders per common share: | | | | |
Basic | | $ | 1.99 |
| | $ | 1.89 |
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Diluted | | $ | 1.98 |
| | $ | 1.87 |
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Cash dividends declared per common share | | $ | 0.375 |
| | $ | 0.350 |
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See accompanying notes to the interim condensed consolidated financial statements.
MetLife, Inc.
Interim Condensed Consolidated Statements of Equity
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
(In millions) |
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| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock at Cost | | Accumulated Other Comprehensive Income (Loss) | | Total MetLife, Inc.’s Stockholders’ Equity | | Noncontrolling Interests (1) | | Total Equity |
Balance at December 31, 2015 | | $ | — |
| | $ | 12 |
| | $ | 30,749 |
| | $ | 35,519 |
| | $ | (3,102 | ) | | $ | 4,771 |
| | $ | 67,949 |
| | $ | 470 |
| | $ | 68,419 |
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Treasury stock acquired in connection with share repurchases | | | |
| |
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| | | | (70 | ) | | | | (70 | ) | | | | (70 | ) |
Stock-based compensation | | | | | | 20 |
| | | | | | | | 20 |
| | | | 20 |
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Dividends on preferred stock | | | | | | | | (6 | ) | | | | | | (6 | ) | | | | (6 | ) |
Dividends on common stock | | | | | | | | (413 | ) | | | | | | (413 | ) | | | | (413 | ) |
Change in equity of noncontrolling interests | | | | | | | | | | | | | | — |
| | (373 | ) | | (373 | ) |
Net income (loss) | | | | | | | | 2,201 |
| | | | | | 2,201 |
| | 2 |
| | 2,203 |
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Other comprehensive income (loss), net of income tax | | | | | | | | | | | | 6,094 |
| | 6,094 |
| | 91 |
| | 6,185 |
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Balance at March 31, 2016 | | $ | — |
| | $ | 12 |
| | $ | 30,769 |
| | $ | 37,301 |
| | $ | (3,172 | ) | | $ | 10,865 |
| | $ | 75,775 |
| | $ | 190 |
| | $ | 75,965 |
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| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock at Cost | | Accumulated Other Comprehensive Income (Loss) | | Total MetLife, Inc.’s Stockholders’ Equity | | Noncontrolling Interests (1) | | Total Equity |
Balance at December 31, 2014 | | $ | 1 |
| | $ | 12 |
| | $ | 30,543 |
| | $ | 32,020 |
| | $ | (1,172 | ) | | $ | 10,649 |
| | $ | 72,053 |
| | $ | 507 |
| | $ | 72,560 |
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Treasury stock acquired in connection with share repurchases | | | | | | | | | | (986 | ) | | | | (986 | ) | | | | (986 | ) |
Stock-based compensation | | | | | | 89 |
| | | | | | | | 89 |
| | | | 89 |
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Dividends on preferred stock | | | | | | | | (30 | ) | | | | | | (30 | ) | | | | (30 | ) |
Dividends on common stock | | | | | | | | (394 | ) | | | | | | (394 | ) | | | | (394 | ) |
Change in equity of noncontrolling interests | | | | | |
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| | | | | | | | — |
| | (26 | ) | | (26 | ) |
Net income (loss) | | | | | | | | 2,158 |
| | | | | | 2,158 |
| | 5 |
| | 2,163 |
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Other comprehensive income (loss), net of income tax | | | | | | | | | | | | 880 |
| | 880 |
| | 58 |
| | 938 |
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Balance at March 31, 2015 | | $ | 1 |
| | $ | 12 |
| | $ | 30,632 |
| | $ | 33,754 |
| | $ | (2,158 | ) | | $ | 11,529 |
| | $ | 73,770 |
| | $ | 544 |
| | $ | 74,314 |
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(1) | Net income (loss) attributable to noncontrolling interests did not exclude any gains of redeemable noncontrolling interests in partially-owned consolidated subsidiaries at March 31, 2016. Net income (loss) attributable to noncontrolling interests excluded gains of redeemable noncontrolling interests in partially-owned consolidated subsidiaries of less than $1 million at March 31, 2015. |
See accompanying notes to the interim condensed consolidated financial statements.
MetLife, Inc.
Interim Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)
(In millions)
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| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Net cash provided by (used in) operating activities | $ | 1,964 |
| | $ | 2,686 |
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Cash flows from investing activities | | | |
Sales, maturities and repayments of: | | | |
Fixed maturity securities | 35,095 |
| | 35,647 |
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Equity securities | 631 |
| | 58 |
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Mortgage loans | 2,857 |
| | 2,719 |
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Real estate and real estate joint ventures | 56 |
| | 280 |
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Other limited partnership interests | 295 |
| | 279 |
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Purchases of: | | | |
Fixed maturity securities | (37,247 | ) | | (33,305 | ) |
Equity securities | (675 | ) | | (107 | ) |
Mortgage loans | (4,413 | ) | | (5,559 | ) |
Real estate and real estate joint ventures | (233 | ) | | (140 | ) |
Other limited partnership interests | (281 | ) | | (275 | ) |
Cash received in connection with freestanding derivatives | 1,337 |
| | 947 |
|
Cash paid in connection with freestanding derivatives | (1,173 | ) | | (1,494 | ) |
Cash received under repurchase agreements (Note 6) | — |
| | 199 |
|
Cash paid under reverse repurchase agreements (Note 6) | — |
| | (199 | ) |
Net change in policy loans | 85 |
| | (7 | ) |
Net change in short-term investments | (2,302 | ) | | (5,690 | ) |
Net change in other invested assets | 252 |
| | (167 | ) |
Other, net | (23 | ) | | (86 | ) |
Net cash provided by (used in) investing activities | (5,739 | ) | | (6,900 | ) |
Cash flows from financing activities | | | |
Policyholder account balances: | | | |
Deposits | 19,925 |
| | 22,463 |
|
Withdrawals | (19,310 | ) | | (22,736 | ) |
Net change in payables for collateral under securities loaned and other transactions | 4,161 |
| | 1,985 |
|
Long-term debt issued | — |
| | 1,492 |
|
Long-term debt repaid | (5 | ) | | (7 | ) |
Collateral financing arrangements repaid | (12 | ) | | — |
|
Treasury stock acquired in connection with share repurchases | (70 | ) | | (986 | ) |
Dividends on preferred stock | (6 | ) | | (30 | ) |
Dividends on common stock | (413 | ) | | (394 | ) |
Other, net | (30 | ) | | (64 | ) |
Net cash provided by (used in) financing activities | 4,240 |
| | 1,723 |
|
Effect of change in foreign currency exchange rates on cash and cash equivalents balances | 73 |
| | (190 | ) |
Change in cash and cash equivalents | 538 |
| | (2,681 | ) |
Cash and cash equivalents, beginning of period | 12,752 |
| | 10,808 |
|
Cash and cash equivalents, end of period | $ | 13,290 |
| | $ | 8,127 |
|
Supplemental disclosures of cash flow information | | | |
Net cash paid (received) for: | | | |
Interest | $ | 249 |
| | $ | 214 |
|
Income tax | $ | 125 |
| | $ | 147 |
|
Non-cash transactions:
| | | |
Reduction of fixed maturity securities in connection with a reinsurance transaction | $ | 224 |
| | $ | — |
|
Deconsolidation of operating joint venture (Note 6): | | | |
Reduction of fixed maturity securities | $ | 917 |
| | $ | — |
|
Reduction of noncontrolling interests
| $ | 373 |
| | $ | — |
|
See accompanying notes to the interim condensed consolidated financial statements.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“MetLife” and the “Company” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is a global provider of life insurance, annuities, employee benefits and asset management. MetLife is organized into six segments: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”).
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from estimates.
Consolidation
The accompanying interim condensed consolidated financial statements include the accounts of MetLife, Inc. and its subsidiaries, as well as partnerships and joint ventures in which the Company has control, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
Prior to January 1, 2016, certain international subsidiaries had a fiscal year cutoff of November 30th. Accordingly, the Company’s interim condensed consolidated financial statements reflect the assets and liabilities of such subsidiaries as of November 30, 2015 and the operating results of such subsidiaries for the three months ended February 28, 2015. Effective January 1, 2016, the Company converted its Japan operations to calendar year-end reporting. The elimination of a one-month reporting lag of a subsidiary is considered a change in accounting principle and requires retrospective application. While the Company believes that eliminating the lag in the reporting of its Japan operations was preferable in order to consistently reflect events, economic conditions and global trends in the financial statements, the Company determined that it was impracticable to apply the effects of the lag elimination to financial reporting periods prior to January 1, 2015. The effect of not retroactively applying this change in accounting, however, was not material to the 2015 or 2016 consolidated financial statements. Therefore, the Company reported the cumulative effect of the change in accounting principle in net income for the three months ended March 31, 2016 and did not retrospectively apply the effects of this change to prior periods. See Note 2.
The Company uses the equity method of accounting for equity securities when it has significant influence or at least 20% interest and for real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations, but does not have a controlling financial interest. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. The Company uses the cost method of accounting for investments in which it has virtually no influence over the investee’s operations.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the 2016 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.
The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2015 consolidated balance sheet data was derived from audited consolidated financial statements included in MetLife, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2015 (the “2015 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2015 Annual Report.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Adoption of New Accounting Pronouncement
Effective January 1, 2016, the Company retrospectively adopted new guidance relating to the consolidation of certain entities. The objective of the new standard is to improve targeted areas of the consolidation guidance and to reduce the number of consolidation models. The new consolidation standard provides guidance on how a reporting entity (i) evaluates whether the entity should consolidate limited partnerships and similar entities, (ii) assesses whether the fees paid to a decision maker or service provider are variable interests in a VIE, and (iii) assesses the variable interests in a VIE held by related parties of the reporting entity. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The adoption of the new guidance did not impact which entities are consolidated by the Company. The consolidated VIE assets and liabilities and unconsolidated VIE carrying amounts and maximum exposure to loss as of March 31, 2016, disclosed in Note 6, reflect the application of the new guidance.
Future Adoption of New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on stock compensation (Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting. The new guidance is effective for the fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and requires either a modified retrospective, a retrospective or a prospective transition approach depending upon the type of change. Early adoption is permitted in any interim or annual period. The new guidance changes several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences when awards vest or are settled; (b) classification of awards as either equity or liabilities due to statutory tax withholding requirements; and (c) classification on the statement of cash flows. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02, Leases - Topic 842). The new guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires a modified retrospective transition approach which includes a number of optional practical expedients. Early adoption is permitted. The new guidance requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current guidance, leases would be classified as finance or operating leases. However, unlike current guidance, the new guidance will require both types of leases to be recognized on the balance sheet. Lessor accounting will remain largely unchanged from current guidance except for certain targeted changes. The new guidance will also require new qualitative and quantitative disclosures. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In January 2016, the FASB issued new guidance (ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option (“FVO”) that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In May 2015, the FASB issued new guidance on short-duration insurance contracts (ASU 2015-09, Financial Services - Insurance (Topic 944): Disclosures about Short-Duration Contracts). The amendments in this new guidance are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments to these estimates, including information on: (i) reconciling from the claim development table to the balance sheet liability, (ii) methodologies and judgments in estimating claims, and (iii) the timing, and frequency of claims. The adoption will not have an impact on the Company’s consolidated financial statements other than expanded disclosures in Note 4.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
In May 2014, the FASB issued a comprehensive new revenue recognition standard (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), effective for fiscal years beginning after December 15, 2016 and interim periods within those years and should be applied retrospectively. In August 2015, the FASB amended the guidance to defer the effective date by one year, effective for the fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance will supersede nearly all existing revenue recognition guidance under GAAP; however, it will not impact the accounting for insurance contracts, leases, financial instruments and guarantees. For those contracts that are impacted by the new guidance, the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
2. Segment Information
MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in Corporate & Other.
On January 12, 2016, MetLife, Inc. announced its plan to pursue the separation of a substantial portion of its Retail segment, which is organized into two U.S. businesses, Life & Other and Annuities, as well as certain portions of its Corporate Benefit Funding segment and Corporate & Other (the “Separation”). The Company is currently evaluating structural alternatives for the proposed Separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale. The completion of a public offering would depend on, among other things, the U.S. Securities and Exchange Commission (“SEC”) filing and review process, as well as market conditions. A Separation, depending on the specific form, would be subject to the satisfaction of various conditions and approvals, including, among other things, approval of any transaction by the MetLife, Inc. Board of Directors, satisfaction of any applicable requirements of the SEC, and receipt of insurance and other regulatory approvals and other anticipated conditions.
Americas
The Americas consists of the following segments:
Retail
The Retail segment offers a broad range of protection products and services and a variety of annuities to individuals and employees of corporations and other institutions, and is organized into two U.S. businesses: Life & Other and Annuities. Life & Other insurance products and services include variable life, universal life, term life and whole life products. Additionally, through broker-dealer affiliates, the Company offers a full range of mutual funds and other securities products. Life & Other products and services also include individual disability income products and personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance. Annuities includes a variety of variable, fixed and indexed annuities which provide for both asset accumulation and asset distribution needs.
Group, Voluntary & Worksite Benefits
The Group, Voluntary & Worksite Benefits segment offers a broad range of protection products and services to individuals and corporations, as well as other institutions and their respective employees. Group, Voluntary & Worksite Benefits insurance products and services include life, dental, group short- and long-term disability and accidental death and dismemberment (“AD&D”) coverages. In addition, the Group, Voluntary & Worksite Benefits segment offers property & casualty insurance, including private passenger automobile, homeowners and personal excess liability, which is offered to employees on a voluntary basis, long-term care, critical illness, vision and accident & health coverages, as well as prepaid legal plans.
Corporate Benefit Funding
The Corporate Benefit Funding segment offers a broad range of annuity and investment products, including guaranteed interest contracts and other stable value products, income annuities and separate account contracts for the investment management of defined benefit and defined contribution plan assets. This segment also includes structured settlements and certain products to fund postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
Latin America
The Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident & health insurance, group medical, dental, credit insurance, endowment and retirement & savings products written in Latin America. The Latin America segment also includes U.S. direct business, comprised of group and individual products sold through sponsoring organizations, affinity groups and direct to consumer. Products included are life, dental, group short- and long-term disability, AD&D coverages, property & casualty and other accident & health coverages, as well as non-insurance products such as identity protection.
Asia
The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include whole life, term life, variable life, universal life, accident & health insurance, fixed and variable annuities, credit insurance and endowment products.
EMEA
The EMEA segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident & health insurance, credit insurance, annuities, endowment and retirement & savings products.
Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external integration costs, internal resource costs for associates committed to acquisitions, enterprise-wide strategic initiative restructuring charges, various start-up businesses (including expatriate benefits insurance and the investment management business through which the Company offers fee-based investment management services to institutional clients) and certain run-off businesses. Corporate & Other also includes assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan. Under this in-force reinsurance agreement, the Company reinsures living and death benefit guarantees issued in connection with variable annuity products. Additionally, Corporate & Other includes interest expense related to the majority of the Company’s outstanding debt and expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes the elimination of intersegment amounts, which generally relate to intersegment loans, which bear interest rates commensurate with related borrowings.
Financial Measures and Segment Accounting Policies
Operating earnings is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is the Company’s measure of segment performance and is reported below. Operating earnings should not be viewed as a substitute for net income (loss). The Company believes the presentation of operating earnings as the Company measures it for management purposes enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.
Operating earnings is defined as operating revenues less operating expenses, both net of income tax.
Operating revenues and operating expenses exclude results of discontinued operations and other businesses that have been or will be sold or exited by MetLife and are referred to as divested businesses. In addition, for the three months ended March 31, 2016, operating revenues and operating expenses exclude the financial impact of converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change to prior periods and is referred to as lag elimination. Operating revenues also excludes net investment gains (losses) and net derivative gains (losses). Operating expenses also excludes goodwill impairments.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:
| |
• | Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”); |
| |
• | Net investment income: (i) includes investment hedge adjustments which represent earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) includes income from discontinued real estate operations, (iii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iv) excludes certain amounts related to contractholder-directed unit-linked investments and (v) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and |
| |
• | Other revenues are adjusted for settlements of foreign currency earnings hedges. |
The following additional adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:
| |
• | Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) 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, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”) and (iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”); |
| |
• | Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes amounts related to net investment income earned on contractholder-directed unit-linked investments; |
| |
• | Amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs and (iii) Market Value Adjustments; |
| |
• | Amortization of negative VOBA excludes amounts related to Market Value Adjustments; |
| |
• | Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and |
| |
• | Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements, and (iii) acquisition, integration and other costs. |
Operating earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance. In addition to the tax impact of the adjustments mentioned above, provision for income tax expense (benefit) also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months ended March 31, 2016 and 2015. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for operating earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s business.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
The Company’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. The Company’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, operating earnings or net income (loss).
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Operating Results |
|
|
|
|
|
| Americas |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016 |
| Retail |
| Group, Voluntary & Worksite Benefits |
| Corporate Benefit Funding |
| Latin America |
| Total |
| Asia |
| EMEA |
| Corporate & Other |
| Total |
| Adjustments |
| Total Consolidated |
|
| (In millions) |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums |
| $ | 1,740 |
|
| $ | 4,294 |
|
| $ | 358 |
|
| $ | 691 |
|
| $ | 7,083 |
|
| $ | 1,658 |
|
| $ | 500 |
|
| $ | 26 |
|
| $ | 9,267 |
|
| $ | 426 |
|
| $ | 9,693 |
|
Universal life and investment-type product policy fees |
| 1,149 |
|
| 185 |
|
| 80 |
|
| 268 |
|
| 1,682 |
|
| 350 |
|
| 95 |
|
| 24 |
|
| 2,151 |
|
| 193 |
|
| 2,344 |
|
Net investment income |
| 1,880 |
|
| 447 |
|
| 1,342 |
|
| 257 |
|
| 3,926 |
|
| 618 |
|
| 80 |
|
| 82 |
|
| 4,706 |
|
| (147 | ) |
| 4,559 |
|
Other revenues |
| 215 |
|
| 131 |
|
| 70 |
|
| 7 |
|
| 423 |
|
| 17 |
|
| 20 |
|
| 27 |
|
| 487 |
|
| — |
|
| 487 |
|
Net investment gains (losses) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 15 |
|
| 15 |
|
Net derivative gains (losses) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,335 |
|
| 1,335 |
|
Total revenues |
| 4,984 |
| | 5,057 |
| | 1,850 |
| | 1,223 |
| | 13,114 |
| | 2,643 |
| | 695 |
| | 159 |
| | 16,611 |
| | 1,822 |
| | 18,433 |
|
Expenses |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
| |
Policyholder benefits and claims and policyholder dividends |
| 2,458 |
|
| 4,034 |
|
| 962 |
|
| 617 |
|
| 8,071 |
|
| 1,236 |
|
| 261 |
|
| 25 |
|
| 9,593 |
|
| 400 |
|
| 9,993 |
|
Interest credited to policyholder account balances |
| 522 |
|
| 37 |
|
| 310 |
|
| 80 |
|
| 949 |
|
| 319 |
|
| 29 |
|
| 4 |
|
| 1,301 |
|
| 25 |
|
| 1,326 |
|
Capitalization of DAC |
| (255 | ) |
| (36 | ) |
| — |
|
| (97 | ) |
| (388 | ) |
| (385 | ) |
| (101 | ) |
| (2 | ) |
| (876 | ) |
| (105 | ) |
| (981 | ) |
Amortization of DAC and VOBA |
| 373 |
|
| 40 |
|
| 5 |
|
| 73 |
|
| 491 |
|
| 286 |
|
| 102 |
|
| 2 |
|
| 881 |
|
| 114 |
|
| 995 |
|
Amortization of negative VOBA |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (64 | ) |
| (3 | ) |
| — |
|
| (67 | ) |
| (32 | ) |
| (99 | ) |
Interest expense on debt |
| 2 |
|
| — |
|
| 2 |
|
| — |
|
| 4 |
|
| — |
|
| — |
|
| 308 |
|
| 312 |
|
| — |
|
| 312 |
|
Other expenses |
| 1,149 |
|
| 712 |
|
| 120 |
|
| 371 |
|
| 2,352 |
|
| 851 |
|
| 333 |
|
| 174 |
|
| 3,710 |
|
| 255 |
|
| 3,965 |
|
Total expenses |
| 4,249 |
| | 4,787 |
| | 1,399 |
| | 1,044 |
| | 11,479 |
| | 2,243 |
| | 621 |
| | 511 |
| | 14,854 |
| | 657 |
| | 15,511 |
|
Provision for income tax expense (benefit) |
| 203 |
|
| 96 |
|
| 156 |
|
| 42 |
|
| 497 |
|
| 95 |
|
| 11 |
|
| (181 | ) |
| 422 |
|
| 297 |
|
| 719 |
|
Operating earnings |
| $ | 532 |
| | $ | 174 |
| | $ | 295 |
| | $ | 137 |
| | $ | 1,138 |
| | $ | 305 |
| | $ | 63 |
| | $ | (171 | ) |
| 1,335 |
|
|
|
|
|
Adjustments to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,822 |
|
|
|
| |
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (657 | ) |
|
|
| |
Provision for income tax (expense) benefit |
| (297 | ) |
|
|
| |
Net income (loss) |
| $ | 2,203 |
|
|
|
| $ | 2,203 |
|
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Operating Results | | | | |
| | Americas | | | | | | | | | | | | |
Three Months Ended March 31, 2015 | | Retail | | Group, Voluntary & Worksite Benefits | | Corporate Benefit Funding | | Latin America | | Total | | Asia | | EMEA | | Corporate & Other | | Total | | Adjustments | | Total Consolidated |
| | (In millions) |
Revenues | | | | | | | | | | | | | | | | | | | | | | |
Premiums | | $ | 1,749 |
| | $ | 4,117 |
| | $ | 418 |
| | $ | 699 |
| | $ | 6,983 |
| | $ | 1,752 |
| | $ | 508 |
| | $ | 10 |
| | $ | 9,253 |
| | $ | — |
| | $ | 9,253 |
|
Universal life and investment-type product policy fees | | 1,236 |
| | 188 |
| | 54 |
| | 294 |
| | 1,772 |
| | 397 |
| | 102 |
| | 23 |
| | 2,294 |
| | 100 |
| | 2,394 |
|
Net investment income | | 1,980 |
| | 478 |
| | 1,430 |
| | 218 |
| | 4,106 |
| | 684 |
| | 83 |
| | 109 |
| | 4,982 |
| | 479 |
| | 5,461 |
|
Other revenues | | 251 |
| | 113 |
| | 71 |
| | 10 |
| | 445 |
| | 28 |
| | 10 |
| | 20 |
| | 503 |
| | (8 | ) | | 495 |
|
Net investment gains (losses) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 286 |
| | 286 |
|
Net derivative gains (losses) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 821 |
| | 821 |
|
Total revenues | | 5,216 |
| | 4,896 |
| | 1,973 |
| | 1,221 |
| | 13,306 |
| | 2,861 |
| | 703 |
| | 162 |
| | 17,032 |
| | 1,678 |
| | 18,710 |
|
Expenses | | | | | | | | | | | | | | | | | | | | | | |
Policyholder benefits and claims and policyholder dividends | | 2,449 |
| | 3,835 |
| | 991 |
| | 581 |
| | 7,856 |
| | 1,340 |
| | 239 |
| | 12 |
| | 9,447 |
| | 149 |
| | 9,596 |
|
Interest credited to policyholder account balances | | 542 |
| | 37 |
| | 293 |
| | 86 |
| | 958 |
| | 337 |
| | 30 |
| | 6 |
| | 1,331 |
| | 664 |
| | 1,995 |
|
Capitalization of DAC | | (247 | ) | | (36 | ) | | (6 | ) | | (111 | ) | | (400 | ) | | (435 | ) | | (133 | ) | | — |
| | (968 | ) | | — |
| | (968 | ) |
Amortization of DAC and VOBA | | 375 |
| | 41 |
| | 5 |
| | 78 |
| | 499 |
| | 326 |
| | 128 |
| | — |
| | 953 |
| | 72 |
| | 1,025 |
|
Amortization of negative VOBA | | — |
| | — |
| | — |
| | — |
| | — |
| | (86 | ) | | (4 | ) | | — |
| | (90 | ) | | (10 | ) | | (100 | ) |
Interest expense on debt | | (1 | ) | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 297 |
| | 297 |
| | 1 |
| | 298 |
|
Other expenses | | 1,176 |
| | 664 |
| | 124 |
| | 425 |
| | 2,389 |
| | 904 |
| | 362 |
| | 145 |
| | 3,800 |
| | 5 |
| | 3,805 |
|
Total expenses | | 4,294 |
| | 4,541 |
| | 1,408 |
| | 1,059 |
| | 11,302 |
| | 2,386 |
| | 622 |
| | 460 |
| | 14,770 |
| | 881 |
| | 15,651 |
|
Provision for income tax expense (benefit) | | 269 |
| | 127 |
| | 196 |
| | 31 |
| | 623 |
| | 148 |
| | 11 |
| | (188 | ) | | 594 |
| | 302 |
| | 896 |
|
Operating earnings | | $ | 653 |
| | $ | 228 |
| | $ | 369 |
| | $ | 131 |
| | $ | 1,381 |
| | $ | 327 |
| | $ | 70 |
| | $ | (110 | ) | | 1,668 |
| | | | |
Adjustments to: | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | | | | | | | | | | 1,678 |
| | | | |
Total expenses | | | | | | | | | | | | | | | | | | (881 | ) | | | | |
Provision for income tax (expense) benefit | | (302 | ) | | | | |
Net income (loss) | | $ | 2,163 |
| | | | $ | 2,163 |
|
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:
|
| | | | | | | |
| March 31, 2016 | | December 31, 2015 |
| (In millions) |
Retail | $ | 354,705 |
| | $ | 347,257 |
|
Group, Voluntary & Worksite Benefits | 49,950 |
| | 46,476 |
|
Corporate Benefit Funding | 231,484 |
| | 225,015 |
|
Latin America | 68,949 |
| | 65,266 |
|
Asia | 122,187 |
| | 113,895 |
|
EMEA | 27,720 |
| | 26,767 |
|
Corporate & Other | 62,433 |
| | 53,257 |
|
Total | $ | 917,428 |
| | $ | 877,933 |
|
3. Pending Disposition
On February 28, 2016, MetLife, Inc. entered into a purchase agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”) pursuant to which MassMutual will acquire MetLife’s U.S. Retail advisor force and certain assets associated with the MetLife Premier Client Group, including MetLife’s affiliated broker-dealer, MetLife Securities, Inc. (“MSI”), a wholly-owned subsidiary of MetLife, Inc. MassMutual will also assume all of the liabilities that relate to or arise from such assets and that arise or occur at or after the closing of the transactions contemplated by the purchase agreement. In addition, MassMutual will acquire all of the issued and outstanding shares of MSI. The purchase price is approximately $300 million, subject to customary adjustments. The transactions contemplated by the purchase agreement are subject to certain closing conditions, including regulatory approval. The Company recorded certain charges to computer software and employee benefit plans related to the transactions during the three months ended March 31, 2016. See Notes 8 and 11.
4. Insurance
Guarantees
As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2015 Annual Report, the Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”) and the portions of both non-life-contingent guaranteed minimum withdrawal benefits (“GMWBs”) and the GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 7.
The Company also issues other annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Insurance (continued)
Information regarding the Company’s guarantee exposure, which includes direct and assumed business, but excludes offsets from hedging or ceded reinsurance, if any, was as follows at:
|
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2016 | | December 31, 2015 | |
| In the Event of Death | | At Annuitization | | In the Event of Death | | At Annuitization | |
| (In millions) | |
Annuity Contracts (1) | | | | | | | | |
Variable Annuity Guarantees | | | | | | | | |
Total account value (2), (3) | $ | 180,216 |
| | $ | 90,785 |
| | $ | 181,413 |
| | $ | 91,240 |
| |
Separate account value | $ | 150,726 |
| | $ | 87,235 |
| | $ | 151,901 |
| | $ | 87,841 |
| |
Net amount at risk (2) | $ | 10,475 |
| (4 | ) | $ | 3,412 |
| (5 | ) | $ | 10,339 |
| (4 | ) | $ | 2,762 |
| (5 | ) |
Average attained age of contractholders | 67 years |
| | 66 years |
| | 66 years |
| | 66 years |
| |
Other Annuity Guarantees | | | | | | | | |
Total account value (3) | N/A |
| | $ | 1,583 |
| | N/A |
| | $ | 1,560 |
| |
Net amount at risk | N/A |
| | $ | 425 |
| (6 | ) | N/A |
| | $ | 422 |
| (6 | ) |
Average attained age of contractholders | N/A |
| | 51 years |
| | N/A |
| | 51 years |
| |
|
| | | | | | | | | | | | | | | |
| March 31, 2016 | | December 31, 2015 |
| Secondary Guarantees | | Paid-Up Guarantees | | Secondary Guarantees | | Paid-Up Guarantees |
| (In millions) |
Universal and Variable Life Contracts (1) | | | | | | | |
Total account value (3) | $ | 16,818 |
| | $ | 3,428 |
| | $ | 17,211 |
| | $ | 3,461 |
|
Net amount at risk (7) | $ | 176,200 |
| | $ | 18,718 |
| | $ | 175,958 |
| | $ | 19,047 |
|
Average attained age of policyholders | 57 years |
| | 62 years |
| | 57 years |
| | 62 years |
|
__________________
| |
(1) | The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. |
| |
(2) | Includes amounts, which are not reported on the consolidated balance sheets, from assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan. |
| |
(3) | Includes the contractholder’s investments in the general account and separate account, if applicable. |
| |
(4) | Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death. |
| |
(5) | Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved. |
| |
(6) | Defined as either the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date or the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. These amounts represent the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date. |
| |
(7) | Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date. |
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.
Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
|
| | | | | | | | |
| | March 31, 2016 | | December 31, 2015 |
| | (In millions) |
Closed Block Liabilities | | | | |
Future policy benefits | | $ | 41,046 |
| | $ | 41,278 |
|
Other policy-related balances | | 270 |
| | 249 |
|
Policyholder dividends payable | | 484 |
| | 468 |
|
Policyholder dividend obligation | | 2,586 |
| | 1,783 |
|
Other liabilities | | 799 |
| | 380 |
|
Total closed block liabilities | | 45,185 |
| | 44,158 |
|
Assets Designated to the Closed Block | | | | |
Investments: | | | | |
Fixed maturity securities available-for-sale, at estimated fair value | | 28,739 |
| | 27,556 |
|
Equity securities available-for-sale, at estimated fair value | | 108 |
| | 111 |
|
Mortgage loans | | 5,910 |
| | 6,022 |
|
Policy loans | | 4,561 |
| | 4,642 |
|
Real estate and real estate joint ventures | | 458 |
| | 462 |
|
Other invested assets | | 978 |
| | 1,066 |
|
Total investments | | 40,754 |
| | 39,859 |
|
Cash and cash equivalents | | 151 |
| | 236 |
|
Accrued investment income | | 477 |
| | 474 |
|
Premiums, reinsurance and other receivables | | 321 |
| | 56 |
|
Current income tax recoverable | | 7 |
| | 11 |
|
Deferred income tax assets | | 215 |
| | 234 |
|
Total assets designated to the closed block | | 41,925 |
| | 40,870 |
|
Excess of closed block liabilities over assets designated to the closed block | | 3,260 |
| | 3,288 |
|
Amounts included in accumulated other comprehensive income (loss) (“AOCI”) | | | | |
Unrealized investment gains (losses), net of income tax | | 1,963 |
| | 1,382 |
|
Unrealized gains (losses) on derivatives, net of income tax | | 63 |
| | 76 |
|
Allocated to policyholder dividend obligation, net of income tax | | (1,681 | ) | | (1,159 | ) |
Total amounts included in AOCI | | 345 |
| | 299 |
|
Maximum future earnings to be recognized from closed block assets and liabilities | | $ | 3,605 |
| | $ | 3,587 |
|
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Closed Block (continued)
Information regarding the closed block policyholder dividend obligation was as follows:
|
| | | | | | | | |
| | Three Months Ended March 31, 2016 | | Year Ended December 31, 2015 |
| | (In millions) |
Balance, beginning of period | | $ | 1,783 |
| | $ | 3,155 |
|
Change in unrealized investment and derivative gains (losses) | | 803 |
| | (1,372 | ) |
Balance, end of period | | $ | 2,586 |
| | $ | 1,783 |
|
Information regarding the closed block revenues and expenses was as follows:
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2016 | | 2015 |
| | (In millions) |
Revenues | | | | |
Premiums | | $ | 417 |
| | $ | 430 |
|
Net investment income | | 480 |
| | 515 |
|
Net investment gains (losses) | | (28 | ) | | (1 | ) |
Net derivative gains (losses) | | (11 | ) | | 25 |
|
Total revenues | | 858 |
| | 969 |
|
Expenses | | | | |
Policyholder benefits and claims | | 610 |
| | 608 |
|
Policyholder dividends | | 245 |
| | 240 |
|
Other expenses | | 32 |
| | 37 |
|
Total expenses | | 887 |
| | 885 |
|
Revenues, net of expenses before provision for income tax expense (benefit) | | (29 | ) | | 84 |
|
Provision for income tax expense (benefit) | | (11 | ) | | 29 |
|
Revenues, net of expenses and provision for income tax expense (benefit) | | $ | (18 | ) | | $ | 55 |
|
MLIC charges the closed block with federal income taxes, state and local premium taxes and other state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan of Reorgan