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METLIFE INC - Annual Report: 2017 (Form 10-K)

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
Form 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-15787
MetLife, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
13-4075851
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01
 
New York Stock Exchange
Floating Rate Non-Cumulative Preferred Stock, Series A, par value $0.01
 
New York Stock Exchange
5.375% Senior Notes
 
Irish Stock Exchange
5.25% Senior Notes
 
Irish Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, par value $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer 
¨
Non-accelerated filer (Do not check if a smaller reporting company) 
¨

Smaller reporting company
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at June 30, 2017 was approximately $52.1 billion. At February 16, 2018, 1,036,642,696 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for the Annual Meeting of Shareholders to be held on June 12, 2018, to be filed by the registrant with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the year ended December 31, 2017.
 



Table of Contents
 
 
 
 
Page
Part I
Item 1.
 
 
Item 1A.
 
 
Item 1B.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
Part II
Item 5.
 
 
Item 6.
 
 
Item 7.
 
 
Item 7A.
 
 
Item 8.
 
 
Item 9.
 
 
Item 9A.
 
 
Item 9B.
 
 
 
 
 
 
 
Part III
Item 10.
 
 
Item 11.
 
 
Item 12.
 
 
Item 13.
 
 
Item 14.
 
 
 
Part IV
Item 15.
 
 
Item 16.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

As used in this Form 10-K, “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 Annual Report on Form 10‑K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. 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,” “will be,” “will not,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future 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) adverse effects which may arise in connection with the material weaknesses in our internal control over financial reporting or our failure to promptly remediate them; (2) difficult conditions in the global capital markets; (3) 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; (4) exposure to global financial and capital market risks, including as a result of the United Kingdom’s notice of withdrawal from the European Union or other disruption in global political, security or economic conditions; (5) impact on us of comprehensive financial services regulation reform; (6) 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; (7) 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; (8) adverse results or other consequences from litigation, arbitration or regulatory investigations; (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, hedging 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, and any adjustment for nonperformance risk; (25) 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, including failure to achieve projected operational benefit from such transactions and any restrictions, liabilities, losses or indemnification obligations arising from any transitional services or tax arrangements related to the separation of any business, or from the failure of such a separation to qualify for any intended tax-free treatment, (c) entry into joint ventures, or (d) legal entity reorganizations; (26) unanticipated or adverse developments that could adversely affect our achieving expected operational or other benefits from the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”); (27) our equity market exposure to Brighthouse Financial, Inc.; (28) liabilities, losses or indemnification

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obligations arising from our transitional services, investment management or tax arrangements or other agreements with Brighthouse; (29) failure of the separation of Brighthouse to qualify for intended tax-free treatment; (30) legal, regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (31) MetLife, Inc.’s and its subsidiary holding companies’ primary reliance, as holding companies, on dividends from subsidiaries to meet free cash flow targets and debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (32) 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; (33) changes in accounting standards, practices and/or policies; (34) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (35) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (36) difficulties in marketing and distributing products through our distribution channels; (37) provisions of laws and our incorporation documents that may delay, deter or prevent takeovers and corporate combinations involving MetLife; (38) 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; (39) any failure to protect the confidentiality of client information; (40) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; (41) the impact of technological changes on our businesses; and (42) 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.
Note Regarding Reliance on Statements in Our Contracts
See “Exhibit Index — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Annual Report on Form 10-K.

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Part I
Item 1. Business
Index to Business
 
Page

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Business Overview
As used in this Form 10-K, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.
MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management. We hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.
We are also one of the largest institutional investors in the United States with a $457 billion general account portfolio invested primarily in investment grade corporate bonds, structured finance securities, mortgage loans and U.S. Treasury and agency securities, as well as real estate and corporate equity, at December 31, 2017.
Our well-recognized brand, leading market positions, competitive and innovative product offerings and financial strength and expertise should help drive future growth and enhance shareholder value, building on a long history of fairness, honesty and integrity. Over the course of the next several years, we will pursue our refreshed enterprise strategy, focusing on transforming the Company to become more digital, driving efficiencies and innovation to achieve competitive advantage, and simplified, decreasing the costs and risks associated with our highly complex industry to customers and shareholders. One MetLife remains at the center of everything we do: collaborating, sharing best practices, and putting the enterprise first. Digital and simplified are the key enablers of our strategic cornerstones, all of which satisfy the criteria of our Accelerating Value strategic initiative by offering customers truly differentiated value propositions that allow us to establish clear competitive advantages and ultimately drive higher levels of free cash flow:
metlifefourcornerstonev5.jpg
 
 
Optimize value and risk
 
 
Focus on in-force and new business opportunities using Accelerating Value analysis
 
 
Optimize cash and value
 
 
Balance risk across MetLife

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Drive operational excellence
 
 
Become a more efficient, high performance organization
 
 
Focus on the customer with a disciplined approach to unit cost improvement
 
 
Strengthen distribution advantage
 
 
Transform our distribution channels to drive productivity and efficiency through digital enablement, improved customer persistency and deeper customer relationships
 
 
Deliver the right solutions for the right customers
 
 
Use customer insights to deliver differentiated value propositions - products, services and experiences to win the right customers and earn their loyalty
MetLife is organized into five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa (“EMEA”); and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See “— 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. Management continues to evaluate the Company’s segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability.
segmentorg.jpg
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to MetLife, Inc. common shareholders (the “Separation”). MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding. The Separation resulted in the elimination of the Brighthouse Financial segment. The results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations and, therefore, are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income (loss) from discontinued operations on the consolidated statements of operations. The reporting of discontinued operations had no impact on total consolidated assets or liabilities or on total consolidated net income (loss) for any of the years presented. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
In the United States, we provide a variety of insurance and financial services products, including life, dental, disability, property & casualty, guaranteed interest, stable value and annuities to both individuals and groups.
Outside the United States, we provide life, medical, dental, credit and other accident & health insurance, as well as annuities, endowment and retirement & savings products to both individuals and groups. We believe these businesses will continue to grow more quickly than our United States businesses.

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Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2017, 2016 and 2015. Financial information, including revenues, expenses, adjusted earnings, and total assets by segment, as well as premiums, universal life and investment-type product policy fees and other revenues by major product groups, is provided in Note 2 of the Notes to the Consolidated Financial Statements. Adjusted revenues and adjusted earnings are performance measures that are not based on accounting principles generally accepted in the United States of America (“GAAP”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures” for definitions of such measures.
For financial information related to revenues, total assets, and goodwill balances by geographic region, see Notes 2 and 11 of the Notes to the Consolidated Financial Statements.

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Segments and Corporate & Other
U.S.
Product Overview
Our businesses in the U.S. segment offer a broad range of protection products and services aimed at serving the financial needs of our customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. Our U.S. segment is organized into three businesses: Group Benefits, Retirement and Income Solutions and Property & Casualty.
Group Benefits
We have built a leading position in the United States group insurance market through long-standing relationships with many of the largest corporate employers in the United States.
Our Group Benefits business offers life, dental, group short- and long-term disability, individual disability, accidental death and dismemberment (“AD&D”), vision and accident & health coverages, as well as prepaid legal plans. We also sell administrative services-only (“ASO”) arrangements to some employers.
Major Products
Term Life Insurance
Provides a guaranteed benefit upon the death of the insured for a specified time period in return for the periodic payment of premiums. Premiums may be guaranteed at a level amount for the coverage period or may be non-level and non-guaranteed. Term contracts expire without value at the end of the coverage period when the insured party is still living.

Variable Life Insurance
Provides insurance coverage through a contract that gives the policyholder flexibility in investment choices and, depending on the product, in premium payments and coverage amounts, with certain guarantees. Premiums and account balances can be directed by the policyholder into a variety of separate account investment options or directed to the Company’s general account. In the separate account investment options, the policyholder bears the entire risk of the investment results. With some products, by maintaining certain premium level, policyholders may have the advantage of various guarantees that may protect the death benefit from adverse investment experience.

Universal Life Insurance
Provides insurance coverage on the same basis as variable life, except that premiums, and the resulting accumulated balances, are allocated only to the Company’s general account. With some products, by maintaining a certain premium level, policyholders may have the advantage of various guarantees that may protect the death benefit from adverse investment experience.

Dental Insurance
Provides insurance and ASO arrangements that assist employees, retirees and their families in maintaining oral health while reducing out-of-pocket expenses.

Disability
For groups and individuals, benefits such as income replacement, payment of business overhead expenses or mortgage protection, in the event of the disability of the insured.

Accident and Health Insurance
Provides accident, critical illness or hospital indemnity coverage to the insured.
Retirement and Income Solutions
Our Retirement and Income Solutions business provides funding and financing solutions that help institutional customers mitigate and manage liabilities primarily associated with their qualified, nonqualified and welfare employee benefit programs using a spectrum of life and annuity-based insurance and investment products.





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Major Products
Stable Value Products
• General account guaranteed interest contracts (“GICs”) are designed to provide stable value investment options within tax-qualified defined contribution plans by offering a fixed maturity investment with a guarantee of liquidity at contract value for participant transactions.
 
• Separate account GICs are available to defined contribution plan sponsors by offering market value returns on separate account investments with a general account guarantee of liquidity at contract value.

• Private floating rate funding agreements are generally privately-placed, unregistered investment contracts issued as general account obligations with interest credited based on the three-month London Interbank Offered Rate (“LIBOR”). These agreements are used for money market funds, securities lending cash collateral portfolios and short-term investment funds.

Pension Risk Transfers
General account and separate account annuities are offered in connection with defined benefit pension plans which include single premium buyouts allowing for full or partial transfers of pension liabilities.

• General account annuities include nonparticipating group contract benefits purchased for retired employees or active employees covered under terminating or ongoing pension plans.
 
• Separate account annuities include both participating and non-participating group contract benefits. Participating contract benefits are purchased for retired, terminated, or active employees covered under active or terminated pension plans. The assets supporting the guaranteed benefits for each contract are held in a separate account, however, the Company fully guarantees all benefit payments. Non-participating contracts have economic features similar to our general account product, but offer the added protection of an insulated separate account. Under U.S. GAAP, these annuity contracts are treated as general account products.
Institutional Income Annuities
General account contracts that are guaranteed payout annuities purchased for employees upon retirement or termination of employment. They can be life or non-life contingent non-participating contracts which do not provide for any loan or cash surrender value and, with few exceptions, do not permit future considerations.
Tort Settlements
• Structured settlement annuities are customized annuities designed to serve as an alternative to a lump sum payment in a lawsuit initiated because of personal injury, wrongful death, or a workers’ compensation claim or other claim for damages. Surrenders are generally not allowed, although commutations are permitted in certain circumstances. Guaranteed payments consist of life contingent annuities, term certain annuities and lump sums.
Capital Markets Investment Products
• Funding agreement-backed notes are part of a medium term note program, under which funding agreements are issued to a special-purpose trust that issues marketable notes in U.S. dollars or foreign currencies. The proceeds of these note issuances are used to acquire a funding agreement with matching interest and maturity payment terms from Metropolitan Life Insurance Company (“MLIC”). The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors.

• Funding agreement-backed commercial paper is issued by a special purpose limited liability company which deposits the proceeds under a master funding agreement issued to it by MLIC. The commercial paper is issued in U.S. dollars or foreign currencies, receives the same short-term credit rating as MLIC and is marketed by major investment banks’ broker-dealer operations.

Through the Federal Home Loan Bank (“FHLB”) advance program, certain of our insurance subsidiaries are members of regional FHLBs and issue funding agreements to their respective FHLBs. Through the Federal Agricultural Mortgage Corporation (“Farmer Mac”) program, MLIC has issued funding agreements to a subsidiary of Farmer Mac.

Other Products and Services
Specialized life insurance products and funding agreements designed specifically to provide solutions for funding postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.



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Property & Casualty
Our Property & Casualty business offers personal and commercial lines of property and casualty insurance, including private passenger automobile, homeowners’ and personal excess liability insurance. In addition, we offer to small business owners property, liability and business interruption insurance.
Major Products
Auto Insurance
Provides coverage for private passenger automobiles, utility automobiles and vans, motorcycles, motor homes, antique or classic automobiles, trailers, liability, uninsured motorist, no fault or personal injury protection, as well as collision and comprehensive insurance.

Homeowners’ Insurance
Provides protection for homeowners, renters, condominium owners and residential landlords against losses arising out of damage to dwellings and contents from a wide variety of perils, as well as coverage for liability arising from ownership or occupancy.

Small Business Owners’ Insurance
Provides property, liability and business interruption insurance for small business owners arising out of damages to property and/or business interruption from a variety of perils.

Operations
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Sales Distribution
In the U.S., we market our products and services through various distribution channels. Our Group Benefits and Retirement and Income Solutions products are sold via sales forces primarily comprising MetLife employees. Personal lines property & casualty insurance products are directly marketed to employees at their employer’s worksite. Personal and commercial lines property & casualty insurance products are also marketed and sold to individuals and small business owners by independent agents and property & casualty specialists through a direct marketing channel.
Group Benefits Distribution
We distribute Group Benefits products and services through a sales force that is segmented by the size of the target customer. Marketing representatives sell either directly to corporate and other group customers or through an intermediary, such as a broker or consultant. In addition, voluntary products are sold by specialists. Employers have been emphasizing voluntary products and, as a result, we have increased our focus on communicating and marketing to employees in order to further foster sales of those products.
We have entered into several operating joint ventures and other arrangements with third parties to expand opportunities to market and distribute Group Benefits products and services. We also sell our Group Benefits products and services through sponsoring organizations and affinity groups and provide life and dental coverage to certain employees of the U.S. Government.
Retirement and Income Solutions Distribution
We distribute Retirement and Income Solutions products and services through dedicated sales teams and relationship managers. We may sell products directly to benefit plan sponsors and advisors or through brokers, consultants or other intermediaries. In addition, these sales professionals work with individual, group and global distribution areas to better reach and service customers, brokers, consultants and other intermediaries.
Property & Casualty Distribution
We market and sell Property & Casualty products through independent agents, property & casualty specialists and association/affinity organizations.
We are a leading provider of personal lines property & casualty insurance products offered to employees at their employer’s worksite. Marketing representatives market personal lines property & casualty insurance products to employers through a variety of means, including broker referrals and cross-selling to group customers. Once permitted by the employer, MetLife commences marketing efforts to employees, enabling them to purchase coverage and to request payroll deduction over the telephone.
We also offer commercial property & casualty products through a variety of sponsored relationships, including association/affinity organizations. Marketing representatives market commercial property & casualty insurance products to small business owners through a variety of means including broker referrals and members of third party professional organizations. Once permitted by the sponsoring organization, MetLife commences marketing to small business owners, enabling them to purchase coverage directly over the internet and/or telephone.
Asia
Product Overview
Our Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees.
Major Products
Life Insurance
Provides whole and term life, endowments, universal and variable life, as well as group products.

Accident & Health Insurance
Provides a full range of health products, including hospital indemnity, medical reimbursement, critical illness policies, as well as personal accident coverage.

Retirement and Savings
Provides both fixed and variable annuities as well as regular savings products.


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Operations
We operate in 10 jurisdictions throughout Asia, with our largest operation in Japan. We also maintain an innovation center in Singapore and a data analytics center of excellence in Malaysia.
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Sales Distribution
Our Asia operations are geographically diverse encompassing both developed and emerging markets. We market our products and services through a multi-channel, digitally-enabled distribution strategy, including career agency, bancassurance, direct marketing, brokerage, other third-party distribution and e-commerce.
Japan’s multi-channel distribution strategy consists of career agents, independent agents, bancassurance, direct marketing and brokers. While digitally-enabled face-to-face channels continue to be core to our business in Japan, other channels, including bancassurance and direct marketing, are a critical part of Japan’s distribution strategy. Our Japan operation has maintained its position in bancassurance due to its strong distribution relationship with Japan’s mega banks, trust banks and various regional banks, as well as with the Japan Post. The direct marketing channel focuses on accident and health sales using traditional television and print media, as well as a growing e-commerce operation.
Outside of Japan, our distribution strategies differ by market but generally utilize a combination of career agents, independent agents, bancassurance relationships and direct marketing (including inbound and outbound telemarketing, online lead generation and sales). Our expertise in direct marketing is supported by our proprietary data analytics center of excellence in Malaysia that generates improved customer insights and enhanced sales leads. Furthermore, in select markets, we use independent brokers and an employee sales force to sell group products.


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Latin America
Product Overview
Our Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions, and their respective employees.
Major Products
Life Insurance
Provides universal, variable and term life products. For a description of these products, see “U.S.  Product Overview Group Benefits.”

Retirement and Savings
Provides fixed annuities and pension products. Fixed annuities provide for both asset accumulation and asset distribution needs. Deposits made into deferred annuity contracts are allocated to the Company’s general account and are credited with interest at rates we determine, subject to specified minimums. Fixed income annuities provide a guaranteed monthly income for a specified period of years and/or for the life of the annuitant. Our savings oriented pension products are offered under a mandatory privatized social security system. See Note 3 of the Notes to the Consolidated Financial Statements for information about the disposition of MetLife Afore, S.A. de C.V. (“MetLife Afore”), the Company’s pension fund management business in Mexico.

Accident & Health Insurance
Provides group and individual major medical, accidental, and supplemental health products, including accidental death and disability, medical reimbursement, hospital indemnity and medical coverage for serious medical conditions, as well as dental products.

Credit Insurance
Provides policies designed to fulfill certain loan obligations in the event of the policyholder’s death.


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Operations
In Latin America, our largest operations are in Mexico and Chile.
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Sales Distribution
In Latin America, we market our products and services through a multi-channel distribution strategy which varies by geographic region and stage of market development.
The region has an exclusive and captive agency distribution network which also sells a variety of individual life, accident & health, and pension products. In the direct marketing channel, we work with sponsors and telesales representatives selling mainly accident & health and individual life products directly to consumers. We currently work with active brokers with sales of group and individual life, accident & health, group medical, dental and pension products, and worksite marketing.


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EMEA
Product Overview
Our EMEA segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees.
Major Products
Life Insurance
Provides both traditional and non-traditional life insurance products, such as whole and term life, endowments and variable life products, as well as group term life programs in most markets.

Accident & Health Insurance
Provides individual and group personal accident and supplemental health products, including AD&D, hospital indemnity, scheduled medical reimbursement plans, and coverage for serious medical conditions. In addition, we provide individual and group major medical coverage in select markets.

Retirement and Savings
Provides fixed annuities and pension products, including group pension programs in select markets. In Romania, we provide through a specialized pension company a savings oriented pension product under the mandatory privatized social security system.

Credit Insurance
Provides policies designed to fulfill certain loan obligations in the event of the policyholder’s death.


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Operations
We operate in several countries across EMEA, with our largest operations in the Gulf region, Poland, United Kingdom (“U.K.”) and Turkey.
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Sales Distribution
Our EMEA operations are geographically diverse encompassing both developed and emerging markets. We hold leading positions in several markets in the Middle East and Central & Eastern Europe, and focus on attractive niche segments in more developed markets. Emerging markets represent a significant part of the region’s overall earnings. Our businesses in EMEA employ a multi-channel distribution strategy, including captive and independent agency, bancassurance and direct-to-consumer.

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MetLife Holdings
Product Overview
Our MetLife Holdings segment consists of operations relating to products and businesses that we no longer actively market in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, long-term care insurance, as well as the assumed variable annuity guarantees from our former operating joint venture in Japan.
Major Products
Variable, Universal and Term Life Insurance
These life products are similar to those offered by our Group Benefits business, except that these products were historically marketed to individuals through various retail distribution channels. For a description of these products, see “U.S. Product Overview Group Benefits.”

Whole Life Insurance
Provides a benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Whole life insurance includes policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash, or apply them to increase death benefits, increase cash values available upon surrender or reduce the premiums required to maintain the contract in-force.

Variable Annuities
Provides for both asset accumulation and asset distribution needs. Variable annuities allow the contractholder to allocate deposits into various investment options in a separate account, as determined by the contractholder. In certain variable annuity products, contractholders may also choose to allocate all or a portion of their account to the Company’s general account and are credited with interest at rates we determine, subject to specified minimums. Contractholders may also elect certain minimum death benefit and minimum living benefit guarantees for which additional fees are charged and where asset allocation restrictions may apply.

Fixed and Indexed-Linked Annuities

Fixed annuities provide for both asset accumulation and asset distribution needs. Deposits made into deferred annuity contracts are allocated to the Company’s general account and are credited with interest at rates we determine, subject to specified minimums. Fixed income annuities provide a guaranteed monthly income for a specified period of years and/or for the life of the annuitant. Additionally, the Company has issued indexed-linked annuities which allow the contractholder to participate in returns from equity indices.

Long-term Care
Provides protection against the potentially high costs of long-term health care services. Generally pay benefits to insureds who need assistance with activities of daily living or have a cognitive impairment.

Corporate & Other
Overview
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external integration and disposition costs, internal resource costs for associates committed to acquisitions and dispositions, enterprise-wide strategic initiative restructuring charges and 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, as well as the direct to consumer portion of the U.S. Direct business). Corporate & Other also includes interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includes the elimination of intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates commensurate with related borrowings. As a result of the Separation, for the years ended 2016 and 2015, Corporate & Other includes corporate overhead costs previously allocated to the former Brighthouse Financial segment.

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Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations when a policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to provide for future annuity payments. Our liabilities for future policy benefits and claims are established based on estimates by actuaries of how much we will need to pay for future benefits and claims. For life insurance and annuity products, we calculate these liabilities based on assumptions and estimates, including estimated premiums to be received over the assumed life of the policy, the timing of the event covered by the insurance policy, the amount of benefits or claims to be paid and the investment returns on the investments we make with the premiums we receive. We establish liabilities for claims and benefits based on assumptions and estimates of losses and liabilities incurred. Amounts for actuarial liabilities are computed and reported on the consolidated financial statements in conformity with GAAP. For more details on policyholder liabilities see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Liability for Future Policy Benefits” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities.”
Pursuant to applicable insurance laws and regulations, MetLife, Inc.’s insurance subsidiaries, including affiliated captive reinsurers, establish statutory reserves, reported as liabilities, to meet their obligations on their respective policies. These statutory reserves are established in amounts sufficient to meet policy and contract obligations, when taken together with expected future premiums and interest at assumed rates. Statutory reserves and actuarial liabilities for future policy benefits generally differ based on accounting guidance.
U.S. state insurance laws and regulations require certain MetLife entities to submit to superintendents of insurance, with each annual report, an opinion and memorandum of a qualified actuary that the statutory reserves and related actuarial amounts recorded in support of specified policies and contracts, and the assets supporting such statutory reserves and related actuarial amounts, make adequate provision for their statutory liabilities with respect to these obligations. See “— Regulation — U.S. Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis.”
Insurance regulators in many of the non-U.S. jurisdictions in which we operate require certain MetLife entities to prepare a sufficiency analysis of the reserves presented in the locally required regulatory financial statements, and to submit that analysis to the regulatory authorities. See “— Regulation — International Regulation.”
Underwriting and Pricing
Our Global Risk Management Department (“GRM”) contains a dedicated unit, the primary responsibility of which is the development of product pricing standards and independent pricing and underwriting oversight for MetLife’s insurance businesses. Further important controls around management of underwriting and pricing processes include regular experience studies to monitor assumptions against expectations, formal new product approval processes, periodic updates to product profitability studies and the use of reinsurance to manage our exposures, as appropriate. See “— Reinsurance Activity.”
Underwriting
Underwriting generally involves an evaluation of applications by a professional staff of underwriters and actuaries, who determine the type and the amount of insurance risk that we are willing to accept. We employ detailed underwriting policies, guidelines and procedures designed to assist the underwriter to properly assess and quantify such risks before issuing policies to qualified applicants or groups.
Insurance underwriting considers not only an applicant’s medical history, but also other factors such as financial profile, foreign travel, vocations and alcohol, drug and tobacco use. Group underwriting generally evaluates the risk characteristics of each prospective insured group, although with certain voluntary products and for certain coverages, members of a group may be underwritten on an individual basis. We generally perform our own underwriting; however, certain policies are reviewed by intermediaries under guidelines established by us. Generally, we are not obligated to accept any risk or group of risks from, or to issue a policy or group of policies to, any employer or intermediary. Requests for coverage are reviewed on their merits and a policy is not issued unless the particular risk or group has been examined and approved in accordance with our underwriting guidelines.
The underwriting conducted by our remote underwriting offices and intermediaries, as well as our corporate underwriting office, is subject to periodic quality assurance reviews to maintain high standards of underwriting and consistency. Such offices are also subject to periodic external audits by reinsurers with whom we do business.

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We have established oversight of the underwriting process that facilitates quality sales and serves the needs of our customers, while supporting our financial strength and business objectives. Our goal is to achieve the underwriting, mortality and morbidity levels reflected in the assumptions in our product pricing. This is accomplished by determining and establishing underwriting policies, guidelines, philosophies and strategies that are competitive and suitable for the customer, the agent and us.
For our Property & Casualty business, our underwriting function has six principal aspects: evaluating potential voluntary and worksite employer accounts and independent agencies; establishing guidelines for the binding of risks; reviewing coverage bound by agents; underwriting potential insureds, on a case by case basis, presented by agents outside the scope of their binding authority; pursuing information necessary in certain cases to enable issuance of a policy within our guidelines; and ensuring that renewal policies continue to be written at rates commensurate with risk. Subject to very few exceptions, agents in each of the distribution channels have binding authority for risks which fall within our published underwriting guidelines. Risks falling outside the underwriting guidelines may be submitted for approval to the underwriting department; alternatively, agents in such a situation may call the underwriting department to obtain authorization to bind the risk themselves. In most states, we generally have the right within a specified period (usually the first 60 days) to cancel any policy.
We continually review our underwriting guidelines in light of applicable regulations and to ensure that our policies remain competitive and supportive of our marketing strategies and profitability goals.
Pricing
Product pricing reflects our pricing standards, which are consistent for our global businesses. GRM, as well as regional finance and product teams, are responsible for pricing and oversight for all of our insurance businesses. Product pricing is based on the expected payout of benefits calculated through the use of assumptions for mortality, morbidity, expenses, persistency and investment returns, as well as certain macroeconomic factors, such as inflation. Investment-oriented products are priced based on various factors, which may include investment return, expenses, persistency and optionality and possible variability of results. For certain products, pricing may include prospective and retrospective experience rating features. Prospective experience rating involves the evaluation of past experience for the purpose of determining future premium rates and we bear all prior year gains and losses. Retrospective experience rating also involves the evaluation of past experience for the purpose of determining the actual cost of providing insurance for the customer; however, the contract includes certain features that allow us to recoup certain losses or distribute certain gains back to the policyholder based on actual prior years’ experience.
Rates for group benefit products are based on anticipated earnings and expenses for the book of business being underwritten. Renewals are generally reevaluated annually or biannually and are re-priced to reflect actual experience on such products. Products offered by Retirement and Income Solutions are priced on demand. Pricing reflects expected investment returns, as well as mortality, longevity and expense assumptions appropriate for each product. This business is generally nonparticipating and illiquid, as policyholders have few or no options or contractual rights to cash values.
Rates for individual life insurance products are highly regulated and generally must be approved by the regulators of the jurisdictions in which the product is sold. Generally, such products are renewed annually and may include pricing terms that are guaranteed for a certain period of time. Individual disability income products are based on anticipated results for the occupation being underwritten. Fixed and variable annuity products are also highly regulated and approved by the respective regulators. Such products generally include penalties for early withdrawals and policyholder benefit elections to tailor the form of the product’s benefits to the needs of the opting policyholder. We periodically reevaluate the costs associated with such options and will periodically adjust pricing levels on our guarantees. Further, from time to time, we may also reevaluate the type and level of guarantee features currently being offered.
For our Property & Casualty business, our ability to set and change rates is subject to regulatory oversight. Rates for our major lines of property & casualty insurance are based on our proprietary database, rather than relying on rating bureaus. We determine prices in part from a number of variables specific to each risk. The pricing of personal lines insurance products takes into account, among other things, the expected frequency and severity of losses, the costs of providing coverage (including the costs of acquiring policyholders and administering policy benefits and other administrative and overhead costs such as reinsurance), competitive factors and profit considerations. The major pricing variables for personal lines insurance include characteristics of the insured property, such as age, make and model or construction type, as well as characteristics of the insureds, such as driving record and loss experience, and the insured’s personal financial management. As a condition of our license to do business in each state, we, like all other personal lines insurers, are required to write or share the cost of private passenger automobile and homeowners insurance for higher risk individuals who would otherwise be unable to obtain such insurance. This “involuntary” market, also called the “shared market,” is governed by the applicable laws and regulations of each state, and policies written in this market are generally written at rates higher than standard rates and typically afford less coverage.
We continually review our pricing guidelines in light of applicable regulations and to ensure that our policies remain competitive and supportive of our marketing strategies and profitability goals.

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Reinsurance Activity
We enter into reinsurance agreements primarily as a purchaser of reinsurance for our various insurance products and also as a provider of reinsurance for some insurance products issued by third parties. We participate in reinsurance activities in order to limit losses, minimize exposure to significant risks, and provide additional capacity for future growth. We enter into various agreements with reinsurers that cover individual risks, group risks or defined blocks of business, primarily on a coinsurance, yearly renewable term, excess or catastrophe excess basis. These reinsurance agreements spread risk and minimize the effect of losses. The extent of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances, to maximum retention limits based on the characteristics of coverages. We also cede first dollar mortality risk under certain contracts. In addition to reinsuring mortality risk, we reinsure other risks, as well as specific coverages. We obtain reinsurance for capital requirement purposes and also when the economic impact of the reinsurance agreement makes it appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse us for the ceded amount in the event a claim is paid. Cessions under reinsurance agreements do not discharge our obligations as the primary insurer. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.
We reinsure our business through a diversified group of well-capitalized, highly rated reinsurers. We analyze recent trends in arbitration and litigation outcomes in disputes, if any, with our reinsurers. We monitor ratings and evaluate the financial strength of our reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. We generally secure large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. Additionally, we enter into reinsurance agreements for risk and capital management purposes with several affiliated captive reinsurers. Captive reinsurers are affiliated insurance companies licensed under specific provisions of insurance law of their respective jurisdictions, such as the Special Purpose Financial Captive law adopted by several states including Vermont and South Carolina, and have a very narrow business plan that specifically restricts the majority or all of their activity to reinsuring business from their affiliates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions.”
U.S.
For our Group Benefits business, we generally retain most of the risk and only cede particular risk on certain client arrangements. The majority of our reinsurance activity within this business relates to the following client agreements:
Employer sponsored captive programs: through these programs, employers buy a group life insurance policy with the condition that a portion of the risk is reinsured back to a captive insurer sponsored by the client.
Risk-sharing agreements: through these programs, clients require that we reinsure a portion of the risk back to third parties, such as minority-owned reinsurers.
Multinational pooling: through these agreements, employers buy many group insurance policies which are aggregated in a single insurer via reinsurance.
The risks ceded under these agreements are generally quota shares of group life and disability policies. The cessions vary from 50% to 90% of all the risks of the policies.
For our Property & Casualty business, we purchase reinsurance to manage our exposure to large losses (primarily catastrophe losses) and to protect statutory surplus. We cede losses and premiums based upon the exposure of the policies subject to reinsurance. To manage exposure to large property & casualty losses, we purchase property catastrophe, casualty and property per risk excess of loss reinsurance protection.
For our Retirement and Income Solutions business, we have periodically engaged in reinsurance activities on an opportunistic basis. There were no such transactions during the periods presented.
Asia, Latin America and EMEA
For certain of our life insurance products, we currently reinsure risks in excess of $5 million to external reinsurers on a yearly renewable term basis. We may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements.

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For selected large corporate clients, we reinsure group employee benefits or credit insurance business with various client-affiliated reinsurance companies, covering policies issued to the employees or customers of the clients. Additionally, we cede and assume risk with other insurance companies when either company requires a business partner with the appropriate local licensing to issue certain types of policies in certain jurisdictions. In these cases, the assuming company typically underwrites the risks, develops the products and assumes most or all of the risk.
We also have reinsurance agreements in-force that reinsure a portion of the living and death benefit guarantees issued in connection with variable annuity products. Under these agreements, we pay reinsurance fees associated with the guarantees collected from policyholders, and receive reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
MetLife Holdings
For our life products, we have historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. For the periods presented, we reinsured 90% of the mortality risk in excess of $2 million for most products. In addition to reinsuring mortality risk as described above, we reinsure other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. On a case by case basis, we may retain up to $20 million per life and reinsure 100% of amounts in excess of the amount we retain. We also assume portions of the risk associated with certain whole life policies issued by a former affiliate and reinsure certain term life policies and universal life policies with secondary death benefit guarantees to such former affiliate. We evaluate our reinsurance programs routinely and may increase or decrease our retention at any time.
For our other products, we have a reinsurance agreement in-force to reinsure the living and death benefit guarantees issued in connection with certain variable annuity guarantees from our former operating joint venture in Japan. Under this agreement, we receive reinsurance fees associated with the guarantees collected from policyholders, and provide reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
Catastrophe Coverage
We have exposure to catastrophes which could contribute to significant fluctuations in our results of operations. We use excess reinsurance agreements, under which the direct writing company reinsures risk in excess of a specific dollar value for each policy within a class of policies, to provide greater diversification of risk and minimize exposure to larger risks. Such excess reinsurance agreements include retention reinsurance agreements and quota share reinsurance agreements. Retention reinsurance agreements provide for a portion of a risk to remain with the direct writing company, and quota share reinsurance agreements provide for the direct writing company to transfer a fixed percentage of all risks of a class of policies. Our life insurance products, particularly group life, subject us to catastrophe risk which we do not reinsure other than through our ongoing mortality reinsurance program which transfers risk at the individual policy level. For the U.S. and EMEA, we purchase catastrophe coverage to insure risks issued within territories that we believe are subject to the greatest catastrophic risks. For all of our other segments, we use excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.
Reinsurance Recoverables
For information regarding ceded reinsurance recoverable balances, included in premiums, reinsurance and other receivables on the consolidated balance sheets, see Note 6 of the Notes to the Consolidated Financial Statements.

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Regulation
Overview
In the U.S., our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, MetLife, Inc. and its U.S. insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. Furthermore, some of MetLife’s operations, products and services are subject to consumer protection laws, securities, broker-dealer and investment adviser regulations, environmental and unclaimed property laws and regulations, and to the Employee Retirement Income Security Act of 1974 (“ERISA”). See “— U.S. Regulation.”
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in which they are located or operate. In addition, our investment and pension companies outside of the U.S. are subject to oversight by the relevant securities, pension and other authorities of the jurisdictions in which the companies operate. Our non-U.S. insurance businesses are also subject to current and developing solvency regimes which impose various capital and other requirements. Additionally, we may be subject in the future to enhanced capital standards, supervision and additional requirements of other international and global regulatory initiatives. See “— International Regulation.”
U.S. Regulation
Insurance Regulation
State insurance regulation generally aims at supervising and regulating insurers, with the goal of protecting policyholders and ensuring that insurance companies remain solvent. Insurance regulators have increasingly sought information about the potential impact of activities in holding company systems as a whole, and some jurisdictions have adopted laws and regulations enhancing “group-wide” supervision, as supported by the National Association of Insurance Commissioners’ (“NAIC”) Solvency Modernization Initiative. See “— NAIC” for information regarding group-wide supervision.
Each of MetLife’s insurance subsidiaries operating in the United States is licensed and regulated in each U.S. jurisdiction where it conducts insurance business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects and business conduct of insurers. State laws in the U.S. grant insurance regulatory authorities broad administrative powers with respect to, among other things:
licensing companies and agents to transact business;
calculating the value of assets to determine compliance with statutory requirements;
mandating certain insurance benefits;
regulating certain premium rates;
reviewing and approving certain policy forms, including required policyholder disclosures;
regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements, and identifying and paying to the states benefits and other property that is not claimed by the owners;
regulating advertising;
protecting privacy;
establishing statutory capital and reserve requirements and solvency standards;
specifying the conditions under which a ceding company can take credit for reinsurance in its statutory financial statements (i.e., reduce its reserves by the amount of reserves ceded to a reinsurer);
fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts;
adopting and enforcing suitability standards with respect to the sale of annuities and other insurance products;
approving changes in control of insurance companies;
restricting the payment of dividends and other transactions between affiliates; and
regulating the types, amounts and valuation of investments.

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Each insurance subsidiary is required to file reports, generally including detailed annual financial statements, with insurance regulatory authorities in each of the jurisdictions in which it does business, and its operations and accounts are subject to periodic examination by such authorities. These subsidiaries must also file, and in many jurisdictions and in some lines of insurance obtain regulatory approval for, rules, rates and forms relating to the insurance written in the jurisdictions in which they operate.
State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys general from time to time make inquiries regarding compliance by MetLife, Inc. and its insurance subsidiaries with insurance, securities and other laws and regulations regarding the conduct of our insurance and securities businesses. We cooperate with such inquiries and take corrective action when warranted. See Note 20 of the Notes to the Consolidated Financial Statements. In addition, we have informed the New York State Department of Financial Services (the “NYDFS”) about our practices in connection with the payment of pension benefits to annuitants and related matters, and the NYDFS is examining the issue. The U.S. Securities and Exchange Commission (“SEC”) staff is also investigating this matter, and several additional regulators have made inquiries into these practices, including as to related disclosures. Similarly, the SEC staff is investigating the matter relating to our calculation of certain reserves associated with variable annuity guarantees assumed from a former operating joint venture in Japan. We have also informed other regulators of this matter. We are fully cooperating with each. See “Controls and Procedures” and “Risk Factors Risks Related to the Material Weaknesses We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.”
Holding Company Regulation
Insurance holding company laws and regulations vary from jurisdiction to jurisdiction, but generally require a controlled insurance company (i.e., insurers that are subsidiaries of insurance holding companies) to register with state regulatory authorities and to file with those authorities certain reports, including information concerning its capital structure, ownership, financial condition, certain intercompany transactions and general business operations. These insurance holding company laws and regulations are generally based on the NAIC Insurance Holding Company System Model Act (“Model Holding Company Act”) and the Insurance Holding Company System Model Regulation (“Regulation”), which serve as a basis for action by the states. See “ NAIC” for further information on the Model Holding Company Act and Regulation.
State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions payable by insurance company subsidiaries to their parent companies, as well as on transactions between an insurer and its affiliates. Dividends in excess of prescribed limits and transactions above a specified size between an insurer and its affiliates require the approval of the insurance regulator in the insurer’s state of domicile. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources MetLife, Inc. Liquidity and Capital Sources Dividends from Subsidiaries.” See also “Dividend Restrictions” in Note 15 of the Notes to the Consolidated Financial Statements for further information regarding such limitations, as well as the New York Insurance Law, which permits MLIC to pay stockholder dividends to MetLife, Inc. in any calendar year without prior insurance regulatory clearance under one of two alternative formulations.
Federal Initiatives
Although the insurance business in the United States is primarily regulated by the states, federal initiatives often have an impact on our business in a variety of ways. From time to time, federal measures are proposed that may significantly affect the insurance business. Impacted areas include financial services regulation, securities regulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies. See “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) effected the most far-reaching overhaul of financial regulation in the United States in decades, including the creation of the Financial Stability Oversight Council (“FSOC”), which was given the authority to designate certain financial companies as non-bank systemically important financial institutions (“non-bank SIFI”) subject to supervision by the Federal Reserve Board and the Federal Reserve Bank of New York (collectively with the Federal Reserve Board, the “Federal Reserve”). The Trump Administration has released a memorandum that generally delayed all pending regulations from publication in the Federal Register pending their review and approval by a department or agency head appointed or designated by President Trump. Additionally, President Trump and the majority party have expressed goals to amend Dodd-Frank. On October 26, 2017, the Secretary of the Treasury issued a report on asset management and insurance that recommended activities-based evaluations of systemic risk in the insurance industry rather than an entity-based approach. The report also supported primary regulation of the U.S. insurance industry by the states rather than the federal government. On November 17, 2017, the Secretary also issued a report recommending changes to the FSOC non-bank SIFI designations, including prioritizing an activities-based approach instead of individual designations, and enhancing the analytical process, engagement, and transparency of the designation process. We are not able to predict with certainty whether such actions would have a material effect on our business operations and cannot currently identify all of the risks or opportunities, if any, that may be posed to our businesses as a result of changes to, or legislative replacements for, Dodd-Frank. See “Risk Factors Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.” On January 23, 2018, the U.S. Court of Appeals for the District of Columbia Circuit dismissed the FSOC appeal of the district court’s decision rescinding MetLife, Inc.’s designation as a non-bank SIFI. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Summary Other Key Information Non-Bank SIFI.”
Dodd-Frank established the Federal Insurance Office (“FIO”) within the Department of the Treasury, which has the authority to participate in the negotiations of international insurance agreements with foreign regulators for the U.S., as well as to collect information about the insurance industry and recommend prudential standards. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance, including serving as a non-voting member of the FSOC and making recommendations to the FSOC regarding insurers to be designated for more stringent regulation. On December 12, 2013, the FIO issued a report, mandated by Dodd-Frank, which, among other things, urged the states to modernize and promote greater uniformity in insurance regulation. The report also discussed potential federal solutions if states failed to modernize and improve regulation, and some of the report’s recommendations, for instance, favored a greater federal role in monitoring financial stability and identifying issues or gaps in the regulation of large national and internationally active insurers. We cannot predict with certainty whether such recommendations will be adopted or what impact they may have on us.
Under the provisions of Dodd-Frank relating to the resolution or liquidation of certain types of financial institutions, if MetLife, Inc. or another financial institution were to become insolvent or were in danger of defaulting on its obligations, it could be compelled to undergo liquidation with the Federal Deposit Insurance Corporation (“FDIC”) as receiver. For this new regime to be applicable, a number of determinations would have to be made, including that a default by the affected company would have serious adverse effects on financial stability in the U.S. While under this new regime an insurance company would be resolved in accordance with state insurance law, if the FDIC were to be appointed as the receiver for another type of company (including an insurance holding company such as MetLife, Inc.), the liquidation of that company would occur under the provisions of the new liquidation authority, and not under the Bankruptcy Code, which ordinarily governs liquidations. The FDIC’s purpose under the liquidation regime is to mitigate the systemic risks the institution’s failure poses, which is different from that of a bankruptcy trustee under the Bankruptcy Code. In such a liquidation, the holders of such company’s debt could in certain respects be treated differently than under the Bankruptcy Code. As required by Dodd-Frank, the FDIC has established rules relating to the priority of creditors’ claims and the potentially dissimilar treatment of similarly situated creditors. These provisions could apply to some financial institutions whose outstanding debt securities we hold in our investment portfolios.
Dodd-Frank also includes provisions that may impact the investments and investment activities of MetLife, Inc. and its subsidiaries, including the federal regulation of such activities. Until the various final regulations are promulgated pursuant to Dodd-Frank, and perhaps for some time thereafter, the full impact of Dodd-Frank on such activities will remain unclear.

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Health Care Regulation
The Patient Protection and Affordable Care Act (“PPACA”), signed into law on March 23, 2010, and The Health Care and Education Reconciliation Act of 2010, signed into law on March 30, 2010 (together, the “Affordable Care Act”), impose obligations on MetLife as an enterprise, and as a provider of non-medical health insurance benefits and as a purchaser of certain of these products. In 2014, we became subject to an excise tax called the “health insurer fee,” the cost of which is primarily passed on to group purchasers of certain of our dental and vision insurance products. The health insurer fee was suspended pursuant to legislation during the 2017 calendar year but is in force for the 2018 calendar year. On January 22, 2018, the health insurer fee was suspended for the 2019 calendar year. The Affordable Care Act and its related regulations have resulted in increased and unpredictable costs to provide certain products and may have additional adverse effects. See “Risk Factors — Regulatory and Legal Risks — Legislative and Regulatory Activity in Health Care and Other Employee Benefits Could Affect our Profitability as a Provider of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit Products.” It has also harmed our competitive position, as the Affordable Care Act has a disparate impact on our products compared to products offered by our not-for-profit competitors. On December 22, 2017, President Trump signed into law H.R.1, commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) which, among other things, reduced the penalties imposed by the Affordable Care Act for failure to obtain health insurance to zero, effectively repealing the “individual mandate.” Congress has yet to develop a consensus on whether to make additional changes to the Affordable Care Act.
On July 14, 2014, the District of Columbia (“DC”) adopted a law that imposes an assessment on health insurers doing business in DC, including those that issue non-medical health-related products that are not subject to regulation under the Affordable Care Act. MetLife and other similarly impacted insurers are currently funding litigation sponsored by the American Council of Life Insurers (ACLI) to challenge the legality of DC’s assessment. While the financial impact to the Company of DC’s action will be minimal, if other states decide to adopt this model, there could be an impact on product pricing and sales. Additionally, Connecticut has levied, and Maryland has proposed legislation to levy, assessments in connection with their healthcare exchanges, and other states may also consider levying assessments on both medical and non-medical health insurers to fund their healthcare exchanges. On June 25, 2015, the U.S. Supreme Court, in the King v. Burwell decision, upheld the payment of tax credits to individuals who purchase coverage in states that have a federally facilitated healthcare exchange rather than a state healthcare exchange. Had the Supreme Court not upheld this payment, it is likely more states would have been compelled to create their own exchanges and possibly assess insurers for the fees of running these exchanges.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 also includes certain provisions for defined benefit pension plan funding relief. As part of our Retirement and Income Solutions business, we offer general account and separate account group annuity products that enable a plan sponsor to transfer these risks, often in connection with the termination of defined benefit pension plans. See “Risk Factors — Regulatory and Legal Risks — Legislative and Regulatory Activity in Health Care and Other Employee Benefits Could Affect our Profitability as a Provider of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit Products” for further information regarding the potential effect of such regulation.
Guaranty Associations and Similar Arrangements
Most of the U.S. jurisdictions in which our insurance subsidiaries are admitted to transact business require life, health and property & casualty insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers, or those that may become impaired, insolvent or fail, for example, following the occurrence of one or more catastrophic events or for other reasons. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. In addition, certain states have government owned or controlled organizations providing life, health, and property & casualty insurance to their citizens, whose activities could place additional stress on the adequacy of guaranty fund assessments. Many of these organizations have the power to levy assessments similar to those of the guaranty associations described above. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.
We have established liabilities for guaranty fund assessments that we consider adequate. See Note 20 of the Notes to the Consolidated Financial Statements for additional information on the guaranty association assessments.

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Insurance Regulatory Examinations and Other Activities
As part of their regulatory oversight process, state insurance departments conduct periodic detailed examinations of the books, records, accounts, and business practices of insurers domiciled in their states. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. Except as otherwise disclosed in Note 20 of the Notes to the Consolidated Financial Statements, during the years ended December 31, 2017, 2016 and 2015, MetLife did not receive any material adverse findings resulting from state insurance department examinations of its insurance subsidiaries.
Regulatory authorities in a small number of states, Financial Industry Regulatory Authority (“FINRA”) and, occasionally, the SEC, have had investigations or inquiries relating to sales of individual life insurance policies or annuities or other products issued by MLIC, General American Life Insurance Company (“GALIC”) and MetLife Securities, Inc. (“MSI”), a broker-dealer which was part of the U.S. Retail Advisor Force Divestiture. These investigations have focused on the conduct of particular financial services representatives, the sale of unregistered or unsuitable products, the misuse of client assets, and sales and replacements of annuities and certain riders on such annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief, including restitution payments. We may continue to receive, and may resolve, further investigations and actions on these matters in a similar manner. See Note 20 of the Notes to the Consolidated Financial Statements.
In addition, claims payment practices by insurance companies have received increased scrutiny from regulators. See Note 20 of the Notes to the Consolidated Financial Statements for further information regarding retained asset accounts and unclaimed property inquiries, including pension benefits, and related litigation and sales practices claims.
The International Association of Insurance Supervisors (“IAIS”) has encouraged U.S. insurance supervisors, such as the NYDFS, to establish Supervisory Colleges for U.S.-based insurance groups with international operations, including MetLife, to facilitate cooperation and coordination among the insurance groups’ supervisors and to enhance the member regulators’ understanding of an insurance group’s risk profile. In October 2017, a Supervisory College meeting was chaired by the NYDFS and attended by MetLife’s key U.S. and international regulators. We have not received any reports or recommendations from the Supervisory College meeting, and we do not expect any outcome of the meeting to have a material adverse effect on our business.
Policy and Contract Reserve Adequacy Analysis
Annually, our U.S. insurance subsidiaries, including affiliated captive reinsurers, are required to conduct an analysis of the adequacy of all statutory reserves. In each case, a qualified actuary must submit an opinion that states that the statutory reserves make adequate provision, according to accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the U.S. insurance subsidiary. The adequacy of the statutory reserves is considered in light of the assets held by the insurer with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the consideration anticipated to be received and retained under the related policies and contracts. The Company may increase reserves in order to submit an opinion without qualification. Since the inception of this requirement, our U.S. insurance subsidiaries that are required by their states of domicile to provide these opinions have provided such opinions without qualifications.
NAIC
The NAIC’s mission is to assist state insurance regulatory authorities in serving the public interest and achieving the insurance regulatory goals of its members, the state insurance regulatory officials. State insurance regulators may act independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight. The NAIC provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures Manual (the “Manual”), which states have largely adopted by regulation. However, statutory accounting principles continue to be established by individual state laws, regulations and permitted practices, which may differ from the Manual. Changes to the Manual or modifications by the various state insurance departments may impact the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries.

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The Model Holding Company Act and Regulation include a requirement that the ultimate controlling person of a U.S. insurer file an annual enterprise risk report with the lead state of the insurance holding company system identifying risks likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. To date, all of the states where MetLife has domestic insurers have enacted a version of the revised Model Holding Company Act, including the enterprise risk reporting requirement. The Model Holding Company Act also authorizes state insurance commissioners to act as global group-wide supervisors for internationally active insurance groups, as well as other insurers that choose to opt in for the group-wide supervision. The Model Holding Company Act creates a selection process for the group-wide supervisor, extends confidentiality protection to communications with the group-wide supervisor, and outlines the duties of the group-wide supervisor. To date, a number of jurisdictions have adopted laws and regulations enhancing group-wide supervision.
The NAIC has concluded its “Solvency Modernization Initiative,” which was designed to review the U.S. financial regulatory system and all aspects of financial regulation affecting insurance companies. Though broad in scope, the NAIC’s Solvency Modernization Initiative focused on: (i) capital requirements; (ii) corporate governance and risk management; (iii) group supervision; (iv) statutory accounting and financial reporting; and (v) reinsurance. In furtherance of this initiative, the NAIC adopted the Corporate Governance Annual Disclosure Model Act and Regulation. The model, which requires insurers to make an annual confidential filing regarding their corporate governance policies, has been adopted in nineteen states as of January 2018, including certain of our insurance subsidiaries’ domiciliary states. In addition, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA Model Act”), which has been enacted by our insurance subsidiaries’ domiciliary states. The ORSA Model Act requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed environments. The assessment must be documented in a confidential annual summary report, a copy of which must be made available to regulators as required or upon request. MetLife, Inc. has submitted on behalf of the enterprise an Own Risk and Solvency Assessment (“ORSA”) summary report to the NYDFS annually since this requirement became effective.
The NAIC has approved a new valuation manual containing a principle-based approach to the calculation of life insurance reserves. Principle-based reserving is designed to better address reserving for products, including the current generation of products for which the current formulaic basis for reserve determination does not work effectively. The principle-based approach became effective on January 1, 2017 in the states where it had been adopted, to be followed by a three-year phase-in period (at the option of insurance companies on a product-by-product basis) for new business since it was enacted into law by the required number of state legislatures. To date, principle-based reserving has been adopted by all of the states where our insurance subsidiaries are domiciled, except in New York where the NYDFS has publicly stated its intention to implement this approach, subject to a working group of the NYDFS establishing the necessary reserves safeguards and the adoption of enabling legislation by the New York legislature, which is currently pending.
In 2015, the NAIC commenced an initiative to study variable annuity solvency regulations, with the goal of curtailing the use of variable annuity captives. In connection with this initiative, the NAIC engaged a third-party consultant to develop recommendations regarding reserve and capital requirements, which the NAIC exposed for comment on December 1, 2017. The NAIC is expected to consider the recommendations, which, if adopted, likely would apply to insurers’ existing and new business and likely would materially change the sensitivity of the balance sheet (including reserve and capital requirements) to capital markets. It is not possible to predict whether the amount of reserves or capital required to support our variable annuity contracts would increase or decrease if the NAIC adopts any new model laws, regulations and/or other standards applicable to variable annuity business after considering such recommendations, nor is it possible to predict the extent to which any such recommendations would affect the effectiveness and design of our risk mitigation and hedging programs. Furthermore, no assurances can be given to whether any such model laws, regulations and/or other standards will be adopted or to the timing of any such adoption.
In August of 2017, the NAIC released a paper on macro-prudential initiatives, in which they proposed potential enhancements in supervisory practices related to liquidity, recovery and resolution, capital stress testing and exposure concentrations. We expect the NAIC to further develop these proposed enhancements during 2018.

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We currently utilize capital markets solutions to finance a portion of our statutory reserve requirements for several products, including, but not limited to, our level premium term life subject to the NAIC Model Regulation Valuation of Life Insurance Policies (commonly referred to as XXX), and universal and variable life policies with secondary guarantees (“ULSG”) subject to NAIC Actuarial Guideline 38 (commonly referred to as AXXX), as well as MLIC’s closed block. Future capacity for these statutory reserve funding structures in the marketplace is not guaranteed. In 2014, the NAIC approved a new regulatory framework applicable to the use of captive insurers in connection with Regulation XXX and Guideline AXXX transactions. Among other things, the framework called for more disclosure of an insurer’s use of captives in its statutory financial statements, and narrows the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations. In 2014, the NAIC implemented the framework through an actuarial guideline (“AG 48”), which requires the actuary of the ceding insurer that opines on the insurer’s reserves to issue a qualified opinion if the framework is not followed. The requirements of AG 48 became effective as of January 1, 2015 in all states without any further action necessary by state legislatures or insurance regulators to implement them, and apply prospectively to new policies issued and new reinsurance transactions entered into on or after January 1, 2015. The NAIC has adopted an update to AG 48 and a model regulation that contains the same substantive requirements as the updated AG 48. The states have started to adopt the model regulation.
We cannot predict the capital and reserve impacts or compliance costs, if any, that may result from the above initiatives, or what impact these initiatives will have on our business, financial condition or results of operations, although since the Separation, principle-based reserving and the potential limitations on the use of variable annuity captives have less of an impact, given our discontinuance of retail life sales.
Surplus and Capital; Risk-Based Capital
Insurers are required to maintain their capital and surplus at or above minimum levels prescribed by the laws of their respective jurisdictions. Regulators have discretionary authority, in connection with the continued licensing of our U.S. insurance subsidiaries, to limit or prohibit an insurer’s sales to policyholders if, in their judgment, the regulators determine that such insurer has not maintained the minimum surplus or capital or that the further transaction of business will be hazardous to policyholders. Most of our U.S. insurance subsidiaries are subject to risk-based capital (“RBC”) requirements that were developed by the NAIC and adopted by their respective states of domicile. 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 and is calculated on an annual basis. The major categories of risk involved are asset risk, insurance risk, interest rate risk, market risk and business risk. 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. 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 our subsidiaries subject to these requirements was in excess of each of those RBC levels. See “Statutory Equity and Income” in Note 15 of the Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Statutory Capital and Dividends.” The NAIC is also studying RBC adjustments for bonds, real estate, equity and collateral pledged to support FHLB advances, as well as longevity risk. It is premature to project the impact of any potential regulatory changes resulting from such studies. The NAIC is also studying RBC revisions for operational risk.
The NAIC has been considering development of a methodology for the calculation of capital for all the entities in an insurance holding company group, including non-U.S. entities. The goal is to provide U.S. regulators with a method to aggregate the available capital and the minimum capital of each entity in a group in a way that applies to all groups regardless of their structure. The NAIC has stated that the calculation will be a regulatory tool and will not constitute a requirement or standard. Nonetheless, any new group capital calculation methodology may incorporate existing risk-based capital concepts. It is not possible to predict what impact any such regulatory tool may have on our business.
While not required by or filed with insurance regulators, we calculate internally defined combined RBC ratios (“Combined RBC Ratios”), which are determined by dividing the sum of total adjusted capital for MetLife, Inc.’s principal U.S. insurance subsidiaries, excluding American Life Insurance Company (“American Life”), by the sum of company action level RBC for such subsidiaries. We calculate Combined RBC Ratios based on NAIC capital and reserving requirements (“NAIC-Based Combined RBC Ratios”). We also calculate Combined RBC Ratios derived from the statutory-basis financial statements as filed with insurance regulators (“Statement-Based Combined RBC Ratios”), which include additional reserve and capital requirements as required by the NYDFS for MLIC, the Company’s New York domiciled insurance subsidiary.

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NAIC-Based Combined RBC Ratios and Statement-Based Combined RBC Ratios were both negatively impacted by the Separation and the group annuity reserve increase. The NAIC-Based Combined RBC Ratio was in excess of 400% at both December 31, 2017 and 2016, and the Statement-Based Combined RBC Ratio was in excess of 390% and 400% at December 31, 2017 and 2016, respectively. We are not aware of any NAIC adoptions or state insurance department regulation changes that would have a material impact on the Combined RBC Ratios of our U.S. insurance subsidiaries.
Regulation of Investments
Each of our U.S. insurance subsidiaries is subject to state laws and regulations that require diversification of investment portfolios and limit the amount of investments that an insurer may have in certain asset categories, such as below investment grade fixed income securities, real estate equity, other equity investments, and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring surplus and, in some instances, would require divestiture of such non-qualifying investments. We believe that the investments made by each of MetLife, Inc.’s U.S. insurance subsidiaries complied, in all material respects, with such regulations at December 31, 2017.
Cybersecurity Regulation
Pursuant to U.S. federal and state laws, and laws of other jurisdictions in which we operate, various government agencies have established rules protecting the privacy and security of personal information. In addition, most U.S. states and a number of jurisdictions outside the United States have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information. The area of cybersecurity has also come under increased scrutiny by insurance regulators. On March 1, 2017, New York’s new cybersecurity regulation for financial services institutions, including banking and insurance entities under its jurisdiction, became effective. Among other things, this new regulation requires these entities to establish and maintain a cybersecurity program designed to protect consumers’ private data. The new regulation specifically provides for: (i) controls relating to the governance framework for a cybersecurity program, including funding and staffing requirements, management oversight, and periodic reporting to senior management; (ii) risk-based minimum standards for technology systems, including access controls, for data protection; (iii) minimum standards for cyber breach responses, including an incident response plan, preservation of data to respond to such breaches, and notice to NYDFS of material events; and (iv) identification and documentation of material deficiencies, remediation plans and annual certifications of regulatory compliance to the NYDFS.
In addition, on October 24, 2017, the NAIC adopted the Insurance Data Security Model Law (the “Cybersecurity Model Law”), which establishes standards for data security and for the investigation of and notification of insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. The Cybersecurity Model Law now goes on to the states for adoption into state law. If adopted as state legislation, the Cybersecurity Model Law would impose significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems.
New York Insurance Regulation 210
Insurance Regulation 210 will go into effect in New York on March 19, 2018. Insurance Regulation 210 establishes standards for the determination and any readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer's discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York State. Examples of NGEs include cost of insurance for life insurance policies or crediting rates for annuities. The regulation requires insurers to notify policyholders at least 60 days in advance of any adverse change in NGEs and, with respect to life insurance, to notify the NYDFS at least 120 days prior to any such changes. Additionally, the regulation requires insurers to file annually with NYDFS to inform the NYDFS of any adverse changes made in the prior year. The regulation does not permit insurers to increase profit margins for in-force policies or to adjust NGEs in order to recoup past losses.
ERISA and Fiduciary Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA and the Internal Revenue Code of 1986, as amended (the “Code”). As such, our activities are subject to the restrictions imposed by ERISA and the Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in certain prohibited transactions. The applicable provisions of ERISA and the Code are subject to enforcement by the Department of Labor (“DOL”), the Internal Revenue Service (“IRS”) and the Pension Benefit Guaranty Corporation.

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The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA plans and participants and Individual Retirement Accounts (“IRAs”) if the investment recommendation results in fees paid to an individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment recommendation chosen, unless an exemption or exception is available. Similarly, without an exemption or exception, fiduciary advisors are prohibited from receiving compensation from third parties in connection with their advice. ERISA also affects certain of our in-force insurance policies and annuity contracts, as well as insurance policies and annuity contracts we may sell in the future.
The DOL issued regulations, which became for the most part applicable on June 9, 2017, that substantially expanded the definition of “investment advice” and require that an impartial or “best interests” standard be met in providing such advice, thereby broadening the circumstances under which MetLife or its representatives, in providing investment advice with respect to ERISA plans, plan participants or IRAs, could be deemed a fiduciary under ERISA or the Code. Pursuant to the final regulations, certain communications with plans, plan participants and IRA holders, including the sales of products and investment management or advisory services, could be deemed fiduciary investment advice, thus causing increased exposure to fiduciary liability if the distributor does not recommend what is in the client’s best interests. While the final regulations also provide that, to a limited extent, contracts sold and advice provided prior to the applicable date do not have to be modified to comply with the new investment advice regulations, there is a lack of clarity surrounding some of the conditions for qualifying for this limited exception. The DOL also issued amendments to certain of its prohibited transaction exemptions and issued a new exemption that applies more onerous disclosure and contract requirements to, and increases fiduciary requirements and fiduciary liability exposure in respect of, certain transactions involving ERISA plans, plan participants and IRAs. On November 27, 2017, the changes the rule made to existing prohibited transaction exemptions and contract and disclosure requirements of the new exemption (other than the impartial interest standard) were delayed until July 1, 2019 in order to give the DOL the time necessary to consider public comments made in July and September 2017, as well as a February 2017 directive from the President to analyze the rule’s impact on access to retirement information and financial advice. The rule is also being challenged in the Fifth Circuit Court of Appeals (and elsewhere), where a decision is expected during the first quarter of 2018.
Concurrent with the rule delay, on November 24, 2017 the NAIC issued an exposure draft of an expanded Suitability in Annuity Transactions Model Regulation, intended to result in the adoption of a “best interest” standard on a nationwide basis. We are working with industry trade associations to provide comments on the draft. In addition, on December 27, 2017 the NYDFS proposed revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard, but also would expand the scope of the regulations to include sales of life insurance policies, as well as annuities to consumers. The NYDFS proposed revisions to Insurance Regulation 187 are open for public comment until February 25, 2018. These developments leave open the possibility of further modifications to the federal rule. In addition, Insurance Regulation 187 may result in additional requirements on insurers and agents concerning both new and in-force annuity and life insurance products. We cannot predict what other proposals may be made, what legislation or regulations may be introduced or enacted, or what impact any such legislation or regulations may have on our business, product sales, results of operations and financial condition. See “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
On December 14, 2017, the DOL released its semiannual regulatory agenda, which proposes revisions to Form 5500, the form used for ERISA annual reporting, proposed jointly with the IRS and the Pension Benefit Guaranty Corporation in 2016. The revisions affect employee pension and welfare benefit plans, including our ERISA plans, and require audits of information, self-directed brokerage account disclosure and additional extensive disclosure. We cannot predict the effect these proposals will have on our business, if enacted, or what other proposals may be made, what legislation may be introduced or enacted, or what impact any such legislation may have on our results of operations and financial condition.

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In addition, the DOL has issued a number of regulations that increase the level of disclosure that must be provided to plan sponsors and participants. The participant disclosure regulations and the regulations that require service providers to disclose fee and other information to plan sponsors took effect in 2012. In John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank (1993), the U.S. Supreme Court held that certain assets in excess of amounts necessary to satisfy guaranteed obligations under a participating group annuity general account contract are “plan assets.” Therefore, these assets are subject to certain fiduciary obligations under ERISA, which requires fiduciaries to perform their duties solely in the interest of ERISA plan participants and beneficiaries. On January 5, 2000, the Secretary of Labor issued final regulations indicating, in cases where an insurer has issued a policy backed by the insurer’s general account to or for an employee benefit plan, the extent to which assets of the insurer constitute plan assets for purposes of ERISA and the Code. The regulations apply only with respect to a policy issued by an insurer on or before December 31, 1998 (“Transition Policy”). No person will generally be liable under ERISA or the Code for conduct occurring prior to July 5, 2001, where the basis of a claim is that insurance company general account assets constitute plan assets. An insurer issuing a new policy that is backed by its general account and is issued to or for an employee benefit plan after December 31, 1998 will generally be subject to fiduciary obligations under ERISA, unless the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so that assets supporting a Transition Policy will not be considered plan assets for purposes of ERISA and the Code. These requirements include detailed disclosures to be made to the employee benefits plan and the requirement that the insurer must permit the policyholder to terminate the policy on 90 days’ notice and receive without penalty, at the policyholder’s option, either (i) the unallocated accumulated fund balance (which may be subject to market value adjustment) or (ii) a book value payment of such amount in annual installments with interest. We have taken and continue to take steps designed to ensure compliance with these regulations.
Consumer Protection Laws
Numerous federal and state laws affect MetLife, Inc.’s earnings and activities, including federal and state consumer protection laws. As part of Dodd-Frank, Congress established the Consumer Financial Protection Bureau (“CFPB”) to supervise and regulate institutions that provide certain financial products and services to consumers. Although the consumer financial services subject to the CFPB’s jurisdiction generally exclude insurance business of the kind in which we engage, the CFPB does have authority to regulate non-insurance consumer services we provide.
In August 2013, MetLife Bank, National Association (“MetLife Bank”) merged with and into MetLife Home Loans LLC (“MLHL”), its former subsidiary, with MLHL as the surviving, non-bank entity. The sole purpose of MLHL is to wind-down the limited remaining activities and fulfill remaining obligations and duties of MetLife Bank, some of which subject MLHL to certain federal consumer financial protection laws and certain state laws.
Regulation of Over-the-Counter Derivatives
Dodd-Frank includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets which requires clearing of certain types of transactions currently traded OTC and which imposes additional costs, including new reporting and margin requirements, and will likely impose additional regulation on the Company, including new capital requirements. Our costs of risk mitigation are increasing under Dodd-Frank. For example, Dodd-Frank imposes requirements to pledge variation and/or initial margin (i) for “OTC-cleared” transactions (OTC derivatives that are cleared and settled through central clearing counterparties), and (ii) for “OTC-bilateral” transactions (OTC derivatives that are bilateral contracts between two counterparties); the margin requirements for OTC-cleared transactions and the variation margin requirements for OTC-bilateral derivatives are already in effect, while the initial margin requirements for OTC-bilateral transactions will likely be applicable to us in September 2020. These increased margin requirements, combined with increased capital charges for our counterparties and central clearinghouses with respect to non-cash collateral, will likely require increased holdings of cash and highly liquid securities with lower yields causing a reduction in income and less favorable pricing for OTC-cleared and OTC-bilateral transactions. Centralized clearing of certain OTC derivatives exposes us to the risk of a default by a clearing member or clearinghouse with respect to our cleared derivative transactions. We use derivatives to mitigate a wide range of risks in connection with our businesses, including the impact of increased benefit exposures from certain of our annuity products that offer guaranteed benefits. We have always been subject to the risk that hedging and other management procedures might prove ineffective in reducing the risks to which insurance policies expose us or that unanticipated policyholder behavior or mortality, combined with adverse market events, could produce economic losses beyond the scope of the risk management techniques employed. Any such losses could be increased by higher costs of writing derivatives (including customized derivatives) and the reduced availability of customized derivatives that might result from the implementation of Dodd-Frank and comparable international derivatives regulations.

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Dodd-Frank also expanded the definition of “swap” and mandated the SEC and U.S. Commodity Futures Trading Commission (“CFTC”) (collectively, the “Commissions”) to study whether “stable value contracts” should be treated as swaps. Pursuant to the new definition and the Commissions’ interpretive regulations, products offered by our insurance subsidiaries other than stable value contracts might also be treated as swaps, even though we believe otherwise. Should such products become regulated as swaps, we cannot predict how the rules would be applied to them or the effect on such products’ profitability or attractiveness to our clients. Federal banking regulators have recently adopted new rules that will apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and certain of their affiliates. These new rules, which will begin to go into effect in 2019, will generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or delay certain rights of their counterparties including counterparties’ default rights (such as the right to terminate the contracts or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements (such as guarantees) arising in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution or similar proceeding. To the extent that any of the derivatives, securities lending agreements or repurchase agreements that we enter into are subject to these new rules, it could limit our recovery in the event of a default and increase our counterparty risk.
Securities, Broker-Dealer and Investment Adviser Regulation
Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable annuity contracts and variable life insurance policies, as well as certain fixed interest rate or index-linked contracts with features that require them to be registered as securities (“registered fixed contracts”). As a result, some of MetLife, Inc.’s subsidiaries and their activities in offering and selling variable insurance contracts and policies are subject to extensive regulation under these securities laws.
Federal and state securities laws and regulations generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting new or existing products, regulate the issuance, sale and distribution of our products and limit or restrict the conduct of business for failure to comply with such laws and regulations. We may also be subject to similar laws and regulations in the foreign countries in which we provide investment advisory services, offer products similar to those described above, or conduct other activities.
Some of our subsidiaries are registered as investment advisers with the SEC under the Investment Advisers Act of 1940, as amended, and are also registered as investment advisers in various states, as applicable.
Some of our subsidiaries and their activities in offering and selling variable insurance products and certain fixed interest rate or index-linked contracts are subject to extensive regulation under the federal securities laws administered by the SEC. These subsidiaries issue variable annuity contracts and variable life insurance policies through separate accounts that are registered with the SEC as investment companies under the Investment Company Act of 1940 (the “Investment Company Act”). Each registered separate account is generally divided into sub-accounts, each of which invests in an underlying mutual fund which is itself a registered investment company under the Investment Company Act. In addition, the variable annuity contracts and variable life insurance policies issued by these registered separate accounts are registered with the SEC under the Securities Act of 1933 (“Securities Act”). Some of our subsidiaries also issue fixed interest rate or index-linked contracts with features that require them to be registered as securities under the Securities Act. Other subsidiaries are registered with the SEC as broker-dealers under the Securities Exchange Act of 1934 (“Exchange Act”), and are members of, and subject to regulation by, FINRA. Certain variable contract separate accounts sponsored by our subsidiaries are exempt from registration, but may be subject to other provisions of the federal securities laws. As a result of Dodd-Frank, there have been a number of changes proposed or adopted to the laws and regulations that govern the conduct of our variable and registered fixed insurance products business and the firms that distribute these products. The future impact of recently adopted revisions to laws and regulations, as well as revisions that are still in the proposal stage, on the way we conduct our business and the products we sell is unclear.
Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations regarding compliance by MetLife, Inc. and its subsidiaries with securities and other laws and regulations. We cooperate with such inquiries and examinations and take corrective action when warranted.

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Environmental Considerations
As an owner and operator of real property, we are subject to extensive federal, state and local environmental laws and regulations. Inherent in such ownership and operation is also the risk that there may be potential environmental liabilities and costs in connection with any required remediation of such properties. In addition, we hold equity interests in companies that could potentially be subject to environmental liabilities. We routinely have environmental assessments performed with respect to real estate being acquired for investment and real property to be acquired through foreclosure. We cannot provide assurance that unexpected environmental liabilities will not arise. However, based on information currently available to us, we believe that any costs associated with compliance with environmental laws and regulations or any remediation of such properties will not have a material adverse effect on our business, results of operations or financial condition.
Unclaimed Property
We are subject to the laws and regulations of states and other jurisdictions concerning identification, reporting and escheatment of unclaimed or abandoned funds, and are subject to audit and examination for compliance with these requirements. See “Controls and Procedures” and “Risk Factors Risks Related to the Material Weaknesses We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.” See also Note 20 of the Notes to the Consolidated Financial Statements.
International Regulation
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in which they are located or operate. Regulation of our insurance operations outside of the U.S. includes minimum capital, solvency and operational requirements. The authority of our international operations to conduct business is subject to licensing requirements, permits and approvals, and these authorizations are subject to modification and revocation. Periodic examinations of insurance company books and records, financial reporting requirements, market conduct examinations and policy filing requirements are among the techniques used by regulators to supervise our non-U.S. insurance businesses. We also have investment and pension companies in certain foreign jurisdictions that provide mutual fund, pension and other financial products and services. Those entities are subject to securities, investment, pension and other laws and regulations. In some jurisdictions, some of our insurance products are considered “securities” under local law and may be subject to local securities regulations and oversight by local securities regulators.
Our international operations are exposed to increased political, legal, financial, operational and other risks. See “Risk Factors — Risks Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability” and “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
On June 23, 2016, the U.K. held a referendum regarding its membership in the European Union (“EU”), resulting in a vote in favor of leaving the EU. The U.K. government triggered the withdrawal process by notifying the EU on March 29, 2017 of the U.K.’s intention to withdraw from the EU. The member withdrawal provisions in the applicable EU treaty provide that the U.K. and the EU will negotiate a withdrawal agreement during a maximum two-year period (unless such period is extended by unanimous vote of the other EU member states). In the meantime, the U.K. remains a member of the EU with unchanged rights to access the single EU market in goods and services. Our U.K. business model utilizes certain rights to operate cross-border insurance and investment operations which may be modified or eliminated as a result of the U.K. exiting the EU. Operating expenses within our businesses could increase as a result of uncertainties during the negotiation period and upon the U.K.’s withdrawal.
Other changes in the laws and regulations of jurisdictions that affect our customers and independent sales intermediaries or their operations also may affect our business relationships with them and their ability to purchase or distribute our products. Such actions may negatively affect our business in these jurisdictions.
In Chile, in September 2015, a Presidential Advisory Committee issued several recommendations to reform the pension system and on August 10, 2017, Chilean President Bachelet submitted a pension reform proposal comprised of three legislative components: (i) a 5% additional contribution from employers; (ii) a public independent entity to manage the additional funds; and (iii) legislative text that modifies pension fund administrator regulations. When President-elect Piñera assumes office in March 2018, it is unclear whether he will introduce amendments to the existing bill in Congress or submit a new proposal. Certain of these proposals, if enacted, may have a significant adverse effect on our business in Chile.

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The European Insurance and Occupational Pensions Authority (“EIOPA”), along with European legislation, requires European regulators, such as the Central Bank of Ireland (“CBI”), to establish Supervisory Colleges for European Economic Area (“EEA”)-based insurance groups with significant European operations, including MetLife, to facilitate cooperation and coordination among the insurance groups’ European supervisors and to enhance the member regulators’ understanding of an insurance group’s risk profile. A November 2017 Supervisory College was chaired by the CBI and was attended by MetLife’s key European regulators. We do not expect the outcome of the meeting to have a material adverse effect on our business. The next European Supervisory College is scheduled to take place in the second half of 2018.
Part of our international insurance operations may be subject to assessments, generally based on their proportionate share of business written in the relevant jurisdiction, for certain obligations to policyholders and claimants resulting from the insolvency of insurance companies. See “— Japan.” Annually, many of our international insurance operations are required to conduct an analysis of the sufficiency of all statutory reserves. In most of those cases, a locally qualified actuary must submit an analysis of the likelihood that the reserves make good and sufficient provision for the associated contractual obligations and related expenses of the insurer. Local regulatory and actuarial standards for this vary widely; the required implied certainty of the signing actuary’s opinion varies equally widely.
We expect the scope and extent of regulation outside of the U.S., as well as regulatory oversight, generally, to continue to increase. The regulatory environment in the jurisdictions in which we operate and changes in laws could have a material adverse effect on our results of operations.
Solvency Regimes
Our insurance business throughout the EEA is subject to Solvency II and its implementing rules, which cover the capital adequacy, risk management and regulatory reporting for issuers and reinsurers. Solvency II codifies and harmonizes the EU insurance regulation. Capital requirements are forward-looking and based on the risk profile of each individual insurance company in order to promote comparability, transparency and competitiveness. In line with the requirements, MetLife entities calculate and report their solvency capital requirement using a standard formula prescribed by the EU Directive and further regulation by the EIOPA.
Mexico adopted a reform of its Insurance Law in February 2013. In accordance with this reform, a Solvency II-type regulatory framework became effective on January 1, 2016, which instituted changes to reserve and capital requirements and corporate governance and fostered greater transparency. In line with the requirements of the local Solvency II, insurance companies calculate and report their capital requirement using a standard formula designed by the local regulators (“CNSF”). In addition, as required, certain MetLife entities must submit annual ORSA reports to the CNSF on an ongoing basis.
In Chile, the law implementing Solvency II-like regulation continues in the studies stage. However, the Chilean insurance regulator has already issued two resolutions, one for governance and the other for risk management and control framework requirements. MetLife Chile has already implemented governance changes and risk policies to comply with these resolutions. A fifth impact study was completed and submitted in July 2017. On March 31, 2016, the local regulator issued a final regulation that requires insurance companies to implement a risk appetite framework and produce an ORSA. The first such report was submitted to the local regulator in September 2017. Even though a formal implementation date has not yet been set, it is estimated that the new solvency and supervisory regime could be in force by 2020.
In July 2015, the Superintendence of Private Insurance, the Brazilian insurance regulator (“SUSEP”), issued a regulation establishing (i) a framework for minimum capital requirements based on risk and (ii) criteria for investment activities in insurance companies. In November 2015, SUSEP issued an additional regulation requiring insurance companies operating in Brazil to adopt a formal risk management function by the end of 2016 and to implement a formal enterprise risk management framework in 2017. In December 2016, MetLife Brazil formalized the designation of a local Risk Manager in Brazil in compliance with local regulation and in 2017 completed the implementation of governance structures and risk management framework components in accordance with local regulatory requirements.
In China, the business of our joint venture (as well as the industry) has been implementing China Risk Oriented Solvency System (“C-ROSS”), a new risk-based solvency regime, which became effective on January 1, 2016. Like Solvency II, C-ROSS focuses on risk management and has three pillars (strengthen quantitative capital requirements, enhance qualitative supervision and establish a governance and market discipline process). In September 2017, the regulator announced a three-year plan aimed at improving C-ROSS rules in line with the changing market environment.

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Other International and Global Regulatory Initiatives
The IAIS, an association of insurance supervisors and regulators and a member of the Financial Stability Board (“FSB”), an international entity established to coordinate, develop and promote regulatory, supervisory and other financial sector policies in the interest of financial stability, is participating in the FSB’s initiative to identify and manage systemic risk globally. Beginning in 2013, the FSB annually designated certain insurers as globally systemically important insurers (“G-SIIs”) using an assessment methodology developed and implemented by the IAIS. In November 2016, MetLife, Inc. and eight other firms were designated as G-SIIs; in November 2017, the FSB announced it would not publish a new list of G-SIIs pending further consideration in late 2018. The FSB also recommended that the IAIS continue development of an activities-based approach to assessing and managing potential systemic risk in the insurance sector.
Current standards call for additional requirements for G-SIIs, which include higher loss absorbency (“HLA”) requirements, and more intensive supervision, among other requirements. In February 2017 the IAIS confirmed that the risk-based global insurance capital standard (“ICS”) will replace basic capital requirements as the basis for a revised HLA and that work on revisions is deferred until adoption of the ICS by the IAIS in 2019. HLA implementation is to be delayed until 2022 for the 2020 group of G-SIIs. In November 2017, the IAIS announced an agreement regarding further development and implementation of the ICS, and the impact on timing of further development and implementation of HLA requirements is unclear.
All IAIS proposals would need to be implemented at the consolidated group level by legislation or regulation in each applicable jurisdiction. As MetLife, Inc. is no longer a U.S. non-bank SIFI and none of its regulators have proposed implementing the G-SII or other capital requirements, the impact on MetLife, Inc. of such global proposals is uncertain.
Japan
Our operations in Japan are subject to regulation and examination by Japan’s Financial Services Agency (“FSA”). Our operations in Japan are required to file with the FSA annual reports for each fiscal year (ending March 31) which include financial statements. These annual reports are not prepared on a U.S. GAAP basis. Similar to the U.S., Japanese law provides that insurers in Japan must maintain specified solvency standards for the protection of policyholders and to support the financial strength of licensed insurers. As of September 30, 2017, the solvency margin ratio of our Japan operations was in excess of four times the 200% solvency margin ratio that would require corrective action, as disclosed in our most recent regulatory filing in Japan. Most Japanese life insurers maintain a solvency margin ratio well in excess of the legally mandated minimum.
A portion of the annual earnings of our Japan operations may be repatriated each year, and may further be distributed to MetLife, Inc. as a dividend. We may determine not to repatriate profits from the Japan operations or to repatriate a reduced amount in order to maintain or improve the solvency margin of the Japan operations or for other reasons. In addition, the FSA may limit or not permit profit repatriations or other transfers of funds to the U.S. if such transfers would be detrimental to the solvency or financial strength of our Japan operations or for other reasons.
Our operations in Japan are subject to assessments to cover obligations to policyholders in the event of insolvency of other insurance companies. Under the Japanese Insurance Business Law, all licensed life insurers in Japan are assessed on an annual basis by the Life Insurance Policyholders Protection Corporation of Japan. These assessments are aggregated across all licensed life insurers in Japan and, in the event of a life insurance company insolvency, are used to satisfy certain obligations to policyholders and claimants of such insolvent company.
Company Ratings
Insurer financial strength ratings represent the opinions of rating agencies, including A.M. Best Company (“A.M. Best”), Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Global Ratings (“S&P”), regarding the ability of an insurance company to meet its financial obligations to policyholders and contractholders.
Rating Stability Indicators
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.

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Insurer Financial Strength Ratings
The following insurer financial strength ratings represent each rating agency’s opinion of MetLife, Inc.’s principal insurance subsidiaries’ ability to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations directed toward the protection of investors in MetLife, 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.
Our insurer financial strength ratings at the date of this filing are indicated in the following table. Outlook is stable unless otherwise indicated. Additional information about financial strength ratings can be found on the websites of the respective rating agencies.
 
A.M. Best
 
Fitch
 
Moody's
 
S&P
Ratings Structure
“A++ (superior)” to “S (suspended)”
 
“AAA (exceptionally strong)” to “C (distressed)”
 
“Aaa (highest quality)” to “C (lowest rated)”
 
“AAA (extremely strong)” to “SD (Selective Default)” or “D (Default)”
American Life Insurance Company 
NR
 
NR
 
A1
 
AA-
 
 
5th of 21
 
4th of 22
General American Life Insurance Company 
A+
 
AA-
 
Aa3
 
AA-
2nd of 16
 
4th of 19
 
4th of 21
 
4th of 22
Metropolitan Life Insurance Company 
A+
 
AA-
 
Aa3
 
AA-
2nd of 16
 
4th of 19
 
4th of 21
 
4th of 22
MetLife Insurance K.K. (MetLife Japan)
NR 
 
NR 
 
NR 
 
AA-
 
 
 
4th of 22
Metropolitan Tower Life Insurance Company
A+
 
NR
 
Aa3
 
NR
2nd of 16
 
 
4th of 21
 
__________________
NR = Not rated
See “Risk Factors — Risks Related to Our Business — A Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings Could Result in a Loss of Business and Materially Adversely Affect Our Financial Condition and Results of Operations.” See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Rating Agencies” for an in depth description of the impact of a ratings downgrade.
Competition
The life insurance industry remains highly competitive. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Competitive Pressures.” We believe that the competition we face is based on a number of factors, including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition. We compete globally with a large number of other insurance companies, as well as non-insurance financial services companies, such as banks, broker-dealers and asset managers, for individual consumers, employer and other group customers, as well as agents and other distributors of insurance and investment products. Some of these companies offer a broader array of products, have more competitive pricing or, with respect to other insurance companies, have higher claims paying ability ratings. In the United States and Japan, we compete with a large number of domestic and foreign-owned life insurance companies, many of which offer products in categories on which we focus. Elsewhere, we compete with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies. Many of our group insurance products are underwritten annually and, accordingly, there is a risk that group purchasers may be able to obtain more favorable terms from competitors rather than renewing coverage with us.

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We believe that the continued volatility of the financial markets and its impact on the capital position of many competitors will continue to strain the competitive environment. Although the U.S. regulatory environment has improved at the federal level, the life insurance industry continues to face challenges globally and, within the U.S., at the state level. In the current environment, we believe that financial strength, technological efficiency and organizational agility are the most significant differentiators and that we are building a company that is well positioned to succeed in any environment. For example, the Company primarily distributes its products through a variety of third-party distribution channels, including banks and broker-dealers. These distribution partners are currently placing greater emphasis on the financial strength of the company whose products they sell. An increase in bank and broker-dealer consolidation activity could increase competition for access to distributors. The effects of financial market volatility may also lead to consolidation in the life insurance industry.
Competition for employees in our industry is intense, and we need to be able to attract and retain highly skilled people with knowledge of our business and industry experience to support our business. In selected global markets, we continue to undertake several initiatives to grow our career agency forces, while continuing to enhance the efficiency and production of our sales representatives. These initiatives may not succeed in attracting and retaining productive agents. See “— Segments and Corporate & Other” for information on sales distribution.
Numerous aspects of our business are subject to regulation. Legislative and other changes affecting the regulatory environment can affect our competitive position within the life insurance industry and within the broader financial services industry. See “— Regulation.”
Employees
At October 1, 2017, we had approximately 49,000 employees, calculated consistent with Regulation S-K Item 402(u) without exempting any employees under Regulation S-K Item 402(u)(4). We believe that our relations with our employees are satisfactory.

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Executive Officers
Set forth below is information regarding the executive officers of MetLife, Inc.:
Name
 
Age
 
Position with MetLife and Business Experience
Steven A. Kandarian
 
65
 
 
Chairman of the Board of MetLife, Inc. (January 2012-present) (Director of MetLife, Inc. since 2011)
 
 
 
 
 
President and Chief Executive Officer (May 2011-present) of MetLife, Inc.
 
 
 
 
 
Executive Vice President and Chief Investment Officer of MetLife, Inc. (April 2005-April 2011)
Stephen W. Gauster
 
47
 
 
Senior Vice President and Interim General Counsel of MetLife, Inc. (July 2017-present)
 
 
 
 
 
Senior Vice President and Chief Counsel, General Corporate Section of the Law Department (January 2016-June 2017)
 
 
 
 
 
Senior Vice President, Chief Corporate Counsel and Assistant Secretary, Assurant, Inc., an insurance company (September 2008-December 2015)
Steven J. Goulart
 
59
 
 
Executive Vice President and Chief Investment Officer of MetLife, Inc. (May 2011-present)
 
 
 
 
 
Head of the Portfolio Management Unit as Senior Managing Director of MLIC (January 2011-April 2011)
 
 
 
 
 
Senior Vice President and Treasurer, MetLife, Inc. (July 2009-April 2011)
John C.R. Hele
 
59
 
 
Executive Vice President and Chief Financial Officer of MetLife, Inc. (September 2012-present)
 
 
 
 
 
Executive Vice President, Chief Financial Officer and Treasurer, Arch Capital Group Ltd., an insurance and reinsurance company (April 2009-August 2012)
Michel Khalaf
 
54
 
 
President, U.S. Business of MetLife, Inc. (July 2017-present)
 
 
 
 
 
President, EMEA of MetLife, Inc. (November 2011-present)
 
 
 
 
 
Executive Vice President of MLIC (January 2011-November 2011)
 
 
 
 
 
Regional President, Middle East, Africa and South Asia, ALICO (November 2008-November 2011) (Mr. Khalaf joined MetLife as a result of the acquisition of ALICO)
Esther S. Lee
 
59
 
 
Executive Vice President and Global Chief Marketing Officer of MetLife, Inc. (January 2015-present)
 
 
 
 
 
Senior Vice President, Brand Marketing, Advertising and Sponsorships of AT&T, Inc., a communications company (August 2011-December 2014)
 
 
 
 
 
Senior Vice President, Brand Marketing and Advertising of AT&T, Inc. (June 2009-July 2011)
Martin J. Lippert
 
58
 
 
Executive Vice President and Head of Global Technology and Operations of MetLife, Inc. (November 2011-present)
 
 
 
 
 
Executive Vice President and Head of Global Technology of MetLife, Inc. (September 2011-November 2011)
Ramy Tadros
 
42
 
 
Executive Vice President and Chief Risk Officer of MetLife, Inc. (September 2017-present)
 
 
 
 
 
Management Consultant, Oliver Wyman, Inc., a consulting company (September 1997-July 2017)
Susan Podlogar
 
54
 
 
Executive Vice President and Chief Human Resources Officer of MetLife, Inc. (July 2017-present)
 
 
 
 
 
Vice President Human Resources Global Medical Devices, Human Resources Executive Committee, Johnson & Johnson, a medical devices, pharmaceutical and consumer products company
 (May 2016-June 2017)
 
 
 
 
 
Vice President Human Resources EMEA, Global Total Rewards, Human Resources Executive Committee, Johnson & Johnson (January 2015-May 2016)
 
 
 
 
 
Vice President Human Resources Global Total Rewards, Human Resources Executive Committee, Johnson & Johnson (January 2012-May 2015)

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Trademarks
We have a worldwide trademark portfolio that we consider important in the marketing of our products and services, including, among others, the trademark “MetLife.” We also have the exclusive global license to use the Peanuts® characters in the area of financial services under an advertising and premium agreement with Peanuts Worldwide, LLC up to December 31, 2019. As a result of the acquisition of American Life and Delaware American Life Insurance Company (“DelAm”) (collectively, “ALICO”), we acquired trademarks of American Life, including the “ALICO” trademark. In addition, as a result of our acquisition of ProVida, we acquired “PROVIDA” and other trademarks. We believe that our rights in our trademarks and under our Peanuts® characters license are well protected.
Available Information
MetLife files periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at its Headquarters Office, 100 F Street, N.E., Washington D.C. 20549 or by calling the SEC at 1-202-551-8090 or 1-800-SEC-0330 (Office of Investor Education and Advocacy). In addition, the SEC maintains an internet website (www.sec.gov) that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC, including MetLife, Inc.
MetLife makes available, free of charge, on its website (www.metlife.com) through the Investor Relations web page, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to all those reports, as soon as reasonably practicable after filing (furnishing) such reports to the SEC. MetLife encourages investors to visit the Investor Relations web page from time to time, where it announces additional financial and other information about it to its investors, including in press releases, public conference calls and webcasts. The information found on MetLife’s website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document MetLife files with the SEC, and any references to MetLife’s website are intended to be inactive textual references only.
Item 1A. Risk Factors
Risks Related to the Material Weaknesses
We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price
We have identified material weaknesses in MetLife, Inc.’s internal control over financial reporting related to the administrative and accounting practices of certain Retirement and Income Solutions (“RIS”) group annuity reserves, the untimely communication and escalation of issues regarding those reserves throughout the Company, and controls over the calculation of reserves relating to variable annuity guarantees assumed from a former operating joint venture in Japan and included within MetLife Holdings. Based on the material weaknesses, our management has determined that MetLife, Inc. has not maintained effective internal control over financial reporting as of December 31, 2017, and our independent registered public accounting firm, Deloitte and Touche LLP, has expressed an adverse opinion on MetLife Inc.’s internal control over financial reporting as of December 31, 2017. See “Controls and Procedures” for a discussion of MetLife Inc.’s internal control over financial reporting and the material weaknesses.
The material weaknesses, or a failure to promptly remediate them, may adversely affect our business, our reputation, our results of operations and the market price of our common stock. If we are unable to remediate the material weaknesses in a timely manner, our investors, regulators, customers and other business partners may lose confidence in our business or our financial reports, and our access to capital markets may be adversely affected. In addition, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and regulations of the SEC and other regulatory authorities, could be adversely affected, which may result in violations of applicable securities laws, state insurance laws and regulations, stock exchange listing requirements and the covenants under our debt agreements. We are also exposed to lawsuits and investigations, and we could be exposed to additional legal actions. In such actions, a governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different or additional risks. Legal actions against us may result in payments including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, ERISA, or other laws and regulations. We could incur significant costs in connection with these actions. We have not accrued for any such liabilities.
The control deficiencies resulting in the material weaknesses, in the aggregate, if not effectively remediated could also result in misstatements of accounts or disclosures related to liabilities for certain RIS group annuity contracts or certain assumed variable annuity guarantees that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

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We have informed the New York State Department of Financial Services (the “NYDFS”) about our practices in connection with the payment of pension benefits to annuitants and related matters, and the NYDFS is examining the issue. The SEC staff is also investigating this matter, and several additional regulators have made inquiries into these practices, including as to related disclosures. Similarly, the SEC staff is investigating the matter relating to our calculation of certain reserves associated with variable annuity guarantees assumed from the former operating joint venture in Japan. We have also informed other regulators of this matter. We are fully cooperating with each. It is possible that other jurisdictions may pursue similar investigations or inquiries. See “Controls and Procedures.”
In addition, we cannot be certain that we will not identify additional control deficiencies or material weaknesses in the future. If we identify future control deficiencies or material weaknesses, these may lead to additional adverse effects on our business, our reputation, our results of operations, and the market price of our common stock.
Economic Environment and Capital Markets-Related Risks
Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility and disruptions in financial asset classes or various markets, including global capital markets, can have an adverse effect on us, in part because we have a large investment portfolio and our insurance liabilities are sensitive to changing market factors. Global market factors, including interest rates, credit spreads, equity prices, derivative prices and availability, real estate markets, foreign currency exchange rates, consumer spending, business investment, government spending, the volatility and strength of the capital markets, and deflation and inflation, all affect our financial condition, as well as the volume, profitability and results of our business operations and our ability to receive dividends from our insurance subsidiaries and meet our obligations at MetLife, Inc., either directly or by virtue of their impact on the business and economic environment generally and on general levels of economic activity, employment and customer behavior specifically. Disruptions in one market or asset class can also spread to other markets or asset classes. Upheavals in the financial markets can also affect our financial condition (including our liquidity and capital levels) as a result of mismatched impacts on the value of our assets and our liabilities. While our diversified business mix and geographically diverse business operations partially mitigate these risks, correlation across regions, countries and global market factors may reduce the benefits of diversification.
At times throughout the past several years, volatile conditions have characterized financial markets, including in recent months. Significant market volatility, and government actions taken in response, may exacerbate some of the risks we face. Concerns about political, security and/or economic conditions in the U.K., Mexico and South Korea have recently contributed to global market volatility. This market volatility has affected the performance of various asset classes at various times, and it could continue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Current Environment.” Events following the U.K.’s referendum on June 23, 2016 and the uncertainties, including foreign currency exchange risks, associated with its withdrawal from the EU, have contributed to market volatility, both in the United States and beyond. Such events and uncertainties could contribute to weakening gross domestic product (“GDP”) growth, primarily in the U.K. and Europe. The magnitude and longevity of the potential negative economic impacts would depend on the detailed agreements reached by the U.K. and EU as a result of the exit negotiations and negotiations regarding trade and other arrangements. In addition, the impact on global capital markets, the economy and MetLife of the transition occurring in the United States government and the priorities of the Trump Administration remains uncertain. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Financial and Economic Environment.” Any of these factors could have significant adverse effects on the economy and financial markets generally.

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To the extent these uncertain financial market conditions persist, our revenues, reserves and net investment income, as well as the demand for certain of our products, are likely to remain under pressure. Similarly, sustained periods of low interest rates and risk asset returns could reduce income from our investment portfolio, increase our liabilities for claims and future benefits, and increase the cost of risk transfer measures such as hedging, causing our profit margins to erode as a result of reduced income from our investment portfolio and increase in insurance liabilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Impact of a Sustained Low Interest Rate Environment.” Also, in the event of extreme prolonged market events, such as the global credit crisis, we could incur significant capital and/or operating losses due to, among other reasons, losses incurred in our general account and as a result of the impact on us of guarantees, including increases in liabilities, capital maintenance obligations and/or collateral requirements associated with our affiliated reinsurers and other similar arrangements. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to sustained periods of low market returns, low levels of U.S. interest rates, and/or heightened market volatility, which may also increase the cost and limit the availability of the hedging instruments and other protective measures we take to mitigate such risk, or increase the cost of our insurance liabilities, which could have a material adverse effect on the statutory capital and earnings of our insurance subsidiaries, as well as impair our financial strength ratings.
Following the Separation, we continue to hold a block of variable insurance products and certain other products issued through separate accounts. The account values of these products decrease as a result of declining equity markets. Lower interest rates generally increase account values in the near term, but may result in lower returns in fixed income vehicles in the future. Decreases in account values reduce certain fees generated by these products, cause the amortization of deferred policy acquisition costs (“DAC”) to accelerate, may increase the level of insurance liabilities we must carry to support such products issued with any associated guarantees and could require us to provide additional funding to our captive reinsurers.
In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our financial and insurance products could be adversely affected. Group insurance, in particular, is affected by higher unemployment rates. In addition, we may experience an elevated incidence of claims, adverse utilization of benefits relative to our best estimate expectations and lapses or surrenders of policies. Furthermore, our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Such adverse changes in the economy could negatively affect our earnings and capitalization and have a material adverse effect on our business, results of operations and financial condition.
Difficult conditions in the global capital markets and the economy may continue to raise the possibility of legislative, judicial, regulatory and other governmental actions. The Trump Administration has released a memorandum that generally delayed all pending regulations from publication in the Federal Register pending their review and approval by a department or agency head appointed or designated by President Trump. See “Business Regulation U.S. Regulation Insurance Regulation Federal Initiatives.” In addition, the Trump Administration is currently renegotiating certain international trade agreements with other countries, including the North American Free Trade Agreement (“NAFTA”) with Canada and Mexico. We cannot predict with certainty what other proposals may be made or what legislation or regulations may be introduced or enacted, or what impact any such legislation or regulations may have on our business, results of operations and financial condition. See “ Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” and “ Risks Related to Our Business Competitive Factors May Adversely Affect Our Market Share and Profitability” below.
Adverse Global Capital and Credit Market Conditions May Significantly Affect Our Ability to Meet Liquidity Needs, Our Access to Capital and Our Cost of Capital
The global capital and credit markets may be subject to periods of extreme volatility. Disruptions in capital markets could cause our liquidity and credit capacity to be limited.
We need liquidity to pay claims and other operating expenses, interest on our debt and dividends on our capital stock, provide our subsidiaries with cash or collateral, maintain our securities lending activities and replace certain maturing liabilities. Without sufficient liquidity, we could be forced to curtail our operations and limit our investments, and our business and financial results may suffer. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources.”

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In the event global capital market or other conditions have an adverse impact on our capital and liquidity, or our stress-testing indicates that such conditions could have such an impact beyond expectations and our current resources do not satisfy our needs or regulatory requirements, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as the then current market conditions, regulatory considerations, availability of credit to us and the financial services industry generally, our credit ratings and credit capacity, and the perception of our customers and lenders regarding our long- or short-term financial prospects if we incur large operating or investment losses or if the level of our business activity decreases due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient and, in such case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
Our liquidity requirements may change if, among other things, we are required to return significant amounts of cash collateral on short notice under securities lending or derivatives agreements or we are required to post collateral or make payments related to declines in market value of specified counterparty credit risk. See “ Investments-Related Risks Should the Need Arise, We May Have Difficulty Selling Certain Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner and Realizing Full Value Given Their Illiquid Nature,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Securities Lending” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Liquidity.”
Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital needed to operate our business, most significantly in our insurance operations. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities, satisfy regulatory capital requirements, and access the capital necessary to grow our business. See “ Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.” As a result, we may be forced to delay raising capital, issue different types of securities than we would have otherwise, less effectively deploy such capital, issue shorter tenor securities than we prefer, or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility. Our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the financial markets.
We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period
We are exposed to significant global financial and capital markets risks, including changes in interest rates, credit spreads, equity prices, real estate markets, foreign currency exchange rates, market volatility, global economic performance in general, the performance of specific obligors, including governments, included in our investment portfolio, derivatives and other factors outside our control. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Financial and Economic Environment” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Current Environment.”
Interest Rate Risk
Some of our products, principally traditional life, universal life, fixed annuities and guaranteed interest contracts, as well as funding agreements and structured settlements, expose us to the risk that changes in interest rates will reduce our investment margin or “spread,” or the difference between the amounts that we are required to pay under the contracts in our general account and the rate of return we earn on general account investments intended to support obligations under such contracts. Our spread is a key component of our net income.
In a low interest rate environment, we may be forced to reinvest proceeds from investments that have matured or have been prepaid or sold at lower yields, which will reduce our investment margin. Moreover, borrowers may prepay or redeem the fixed income securities and commercial, agricultural or residential mortgage loans in our investment portfolio with greater frequency in order to borrow at lower market rates, thereby exacerbating this risk. Although lowering interest crediting rates can help offset decreases in spreads on some products, our ability to lower these rates is limited to the portion of our in-force product portfolio that has adjustable interest crediting rates, and could be limited by competition or contractually guaranteed minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our spread could decrease or potentially become negative, which could have a material adverse effect on our results of operations and financial condition. See “ Risks Related to Our Business Guarantees Within Certain of Our Products May Decrease Our Earnings, Increase the Volatility of Our Results, Result in Higher Risk Management Costs and Expose Us to Increased Counterparty Risk.”

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Our expectation for future spreads is an important component in the amortization of DAC and value of business acquired (“VOBA”). Significantly lower spreads may cause us to accelerate amortization, thereby reducing net income in the affected reporting period and potentially negatively affecting our credit instrument covenants or rating agency assessment of our financial condition. In addition, during periods of declining interest rates, life insurance and annuity products may be relatively more attractive investments to consumers. This could result in increased premium payments on products with flexible premium features, repayment of policy loans and increased persistency, or a higher percentage of insurance policies remaining in-force from year to year, during a period when our new investments carry lower returns. A decline in market interest rates could also reduce our return on investments that do not support particular policy obligations. During periods of sustained lower interest rates, our reserves for policy liabilities may not be sufficient to meet future policy obligations and may need to be strengthened. Accordingly, declining and sustained lower interest rates may materially affect our results of operations, financial position, cash flows, and ability to take dividends from operating insurance companies, as well as significantly reduce our profitability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Impact of a Sustained Low Interest Rate Environment.”
As a global insurance company, we are also affected by the monetary policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and of central banks around the world. Actions resulting from these policies may have an impact on the pricing levels of risk-bearing investments, and may adversely impact the income we earn on our investments or the level of product sales. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Current Environment.”
Increases in interest rates could also negatively affect our profitability. In periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the investments in our general account with higher yielding investments needed to fund the higher crediting rates necessary to keep interest rate sensitive products competitive. We, therefore, may have to accept a lower spread and, thus, lower profitability or face a decline in sales and greater loss of existing contracts and related assets. In addition, policy loans, surrenders and withdrawals may tend to increase as policyholders seek investments with higher perceived returns as interest rates rise. This process may result in cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in interest rates, which may result in realized investment losses. Unanticipated withdrawals, terminations and substantial policy amendments may cause us to accelerate the amortization of DAC and VOBA, which reduces net income and potentially negatively affects our credit instrument covenants and rating agency assessment of our financial condition, and may also cause us to accelerate the amortization of negative VOBA, which increases net income. An increase in interest rates could also have a material adverse effect on the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that comprise a substantial portion of our investment portfolio. Additionally, an increase in interest rates could increase our daily settlement payments on interest rate futures and cleared swaps, which may result in increased cash outflows and increase our liquidity needs. Finally, an increase in interest rates could result in decreased fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds. However, this increase in interest rates would typically cause any guaranteed living benefits to decline in value. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Impact of a Sustained Low Interest Rate Environment.”
We manage interest rate risk as part of our asset and liability management strategies, which include maintaining an investment portfolio with diversified maturities that has a weighted average duration that reflects the duration of our estimated liability cash flow profile. We also use derivatives to mitigate interest rate risk. Although we take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate the interest rate risk of our fixed income investments relative to our interest rate sensitive liabilities. In addition, asymmetrical and non-economic accounting may cause material changes to our net income and stockholders’ equity in any given period because our non-qualified derivatives are recorded at fair value through earnings, while the related hedged items either follow an accrual-based accounting model, such as insurance liabilities, or are recorded at fair value through other comprehensive income. See Note 9 of the Notes to the Consolidated Financial Statements for the primary reasons why many of the Company’s derivatives do not qualify for hedge accounting, even though they may be effective economic hedges.
Significant volatility in the markets could cause changes in the risks set forth above which, individually or in tandem, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows through realized investment losses, derivative losses, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves for future policyholder benefits, reduced net investment income and changes in unrealized gain or loss positions.

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Credit Spreads
Our exposure to credit spreads primarily relates to market price volatility and cash flow variability associated with changes in such spreads. Market price volatility can make it difficult to value certain of our securities if trading becomes less frequent, as was the case, for example, during the financial crisis which commenced in 2008. In such case, valuations may include assumptions or estimates that may have significant period-to-period changes, which could have a material adverse effect on our results of operations or financial condition and may require additional reserves. If there is a resumption of significant volatility in the markets, it could cause changes in credit spreads and defaults and a lack of pricing transparency which, individually or in tandem, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Investment Risks.” An increase in credit spreads relative to U.S. Treasury benchmarks can also adversely affect the cost of our borrowing should we need to access credit markets.
Equity Risk
Our primary exposure to equity risk relates to the potential for lower earnings associated with certain of our businesses where fee income is earned based upon the estimated fair value of the assets under management. Downturns and volatility in equity markets can have a material adverse effect on the revenues and investment returns from our savings and investment products and services. The retail variable annuity business in particular is highly sensitive to equity markets, and a sustained weakness or stagnation in the equity markets could decrease revenues and earnings with respect to those products. Furthermore, certain of our variable annuity products offer guaranteed benefits which increase our potential benefit exposure should equity markets decline or stagnate. We use derivatives and reinsurance to mitigate the impact of such increased potential benefit exposures.
We are also exposed to interest rate and equity risk based upon the discount rate and expected long-term rate of return assumptions associated with our pension and other postretirement benefit obligations. Sustained declines in long-term interest rates or equity returns likely would have a negative effect on the funded status of these plans.
In addition, we invest a portion of our investments in leveraged buy-out funds, hedge funds and other private equity funds. The amount and timing of net investment income from such funds tends to be uneven as a result of the performance of the underlying investments. The timing of distributions from such funds, which depends on particular events relating to the underlying investments, as well as the funds’ schedules for making distributions and their needs for cash, can be difficult to predict. As a result, the amount of net investment income from these investments can vary substantially from period to period. Significant volatility could adversely impact returns and net investment income on these alternative investment classes. In addition, the estimated fair value of such investments or other equity securities we hold may be impacted by downturns or volatility in equity markets. See “Quantitative and Qualitative Disclosures About Market Risk.” Additionally, an increase in equity markets could increase settlement payments on equity futures, which may result in increased cash outflows and increase our liquidity needs.
Real Estate Risk
Our primary exposure to real estate risk relates to commercial, agricultural and residential real estate. Our exposure to these risks stems from various factors, including the supply and demand of leasable commercial space, creditworthiness of tenants and partners, capital markets volatility, interest rate fluctuations, commodity prices and farm incomes. Although we manage credit risk and market valuation risk for our commercial, agricultural and residential real estate assets through geographic, property type and product type diversification, as well as asset allocation, general economic conditions in the commercial, agricultural and residential real estate sectors will continue to influence the performance of these investments. These factors, which are beyond our control, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.
Obligor-Related Risks
Country specific volatility due to local economic and/or political concerns may affect the performance of certain of our investments. We have exposure to such volatility, as we maintain general account investments in such countries to support our insurance operations and related policyholder liabilities in these countries and we also have exposure through our global portfolio diversification. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Financial and Economic Environment” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Current Environment Selected Country Investments.”

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Our investment portfolio also contains investments in revenue bonds issued under the auspices of U.S. states and municipalities, and a limited amount of general obligation bonds of U.S. states and municipalities (collectively, “State and political subdivision securities”). Various U.S. states and municipalities have faced budget deficits and financial difficulties. The financial difficulties of such U.S. states and municipalities could have an adverse impact on our State and political subdivision securities and the value of our investment portfolio.
Fixed income securities and mortgage loans represent a significant portion of our investment portfolio. We are subject to the risk that the issuers, or guarantors, of fixed income securities and mortgage loans we own may default on principal and interest payments they owe us. We are also subject to the risk that the underlying collateral within asset-backed securities, including mortgage-backed securities, may default on principal and interest payments causing an adverse change in cash flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening mortgage or credit spreads, or other events that adversely affect the issuers, guarantors or underlying collateral of these securities and mortgage loans could cause the estimated fair value of our portfolio of fixed income securities and mortgage loans and our earnings to decline and the default rate of the fixed income securities and mortgage loans in our investment portfolio to increase.
Foreign Currency Exchange Rate Risks
Our primary foreign currency exchange rate risks are described under “ Risks Related to Our Business Fluctuations in Foreign Currency Exchange Rates Could Negatively Affect Our Profitability.” Changes in foreign currency exchange rates can significantly affect our net investment income in any period, and such changes can be substantial. This risk will increase if a country withdraws from the Euro zone. In such case, the national currency to which such a country may revert will likely be devalued and contracts using the Euro will need to be renegotiated. Any such devaluation and its related consequences for our contracts and investments in any such country could be significant and materially adversely affect our operations and earnings in that country. Any operations we may have in any such withdrawing country could also be materially adversely affected by legal or governmental actions related to conversion from the Euro to a national currency. See “Quantitative and Qualitative Disclosures About Market Risk.”
Derivatives Risk
We use the payments we receive from counterparties pursuant to derivative instruments into which we have entered to offset future changes in the fair value of our assets and liabilities and current or future changes in cash flows. We enter into a variety of derivative instruments, including options, futures, forwards, and interest rate and credit default swaps with a number of counterparties. Amounts that we expect to collect under current and future derivatives are subject to counterparty risk. Our obligations under our products are not changed by our hedging activities and we are liable for our obligations even if our derivative counterparties do not pay us. Such defaults could have a material adverse effect on our financial condition and results of operations. Substantially all of our derivatives require us to pledge or receive collateral or make payments related to any decline in the net estimated fair value of such derivatives executed through a specific broker at a clearinghouse or entered into with a specific counterparty on a bilateral basis. In addition, ratings downgrades or financial difficulties of derivative counterparties may require us to utilize additional capital with respect to the impacted businesses. Furthermore, the valuation of our derivatives could change based on changes to our valuation methodology or the discovery of errors.
Federal banking regulators have recently adopted new rules that will apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and certain of their affiliates. These new rules, which will be applicable beginning in 2019, will generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or delay certain rights of their counterparties including counterparties’ default rights (such as the right to terminate the contracts or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements (such as guarantees) arising in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution or similar proceeding. To the extent that any of the derivatives, securities lending agreements or repurchase agreements that we enter into are subject to these new rules, it could increase our counterparty risk or limit our recovery in the event of a default.
Summary
Significant volatility in the markets could cause changes in interest rates, declines in equity prices, and the strengthening or weakening of foreign currencies against the U.S. dollar which, individually or in tandem, could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows through realized investment losses, derivative losses, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves for future policyholder benefits, reduced net investment income and changes in unrealized gain or loss positions.

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Regulatory and Legal Risks
Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth
Our insurance operations and our pensions and brokerage businesses are subject to a wide variety of insurance and other laws and regulations. See “Business Regulation,” as supplemented by discussions of regulatory developments in our subsequently filed Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Regulatory Developments.”
U.S. Regulation
Insurance Regulation
The NAIC is an organization whose mission is to assist state insurance regulatory authorities in serving the public interest and achieving the insurance regulatory goals of its members, the state insurance regulatory officials. State insurance regulators may act independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, can sometimes lead to additional expense for the insurer and, thus, could have a material adverse effect on our financial condition and results of operations.
In 2015, the NAIC commenced an initiative to study variable annuity solvency regulations, with the goal of curtailing the use of variable annuity captives. In connection with this initiative, the NAIC engaged a third-party consultant to conduct two quantitative impact studies over a two-year period. The NAIC has exposed the consultant’s recommendations for comment which, if adopted, likely would apply to insurers’ existing and new business and likely would materially change the sensitivity of the balance sheet (including reserve and capital requirements) to capital markets. It is not possible to predict whether the amount of reserves or capital required to support our variable annuity contracts would increase or decrease if the NAIC adopts any new model laws, regulations and/or other standards applicable to variable annuity business after considering such recommendations, nor is it possible to predict the extent to which any such model laws, regulations and/or other standards would affect the effectiveness and design of our risk mitigation and hedging programs. Furthermore, no assurances can be given as to whether any such model laws, regulations and/or other standards will be adopted or to the timing of any such adoption.
The NAIC is also studying RBC revisions for bonds, real estate, equity and collateral pledged to support FHLB advances, as well as longevity risk. It is premature to project the impact of any potential regulatory changes resulting from such studies. The NAIC is also studying RBC revisions for operational risk.
The NAIC has modernized the calculation of life insurance reserves through the introduction of principle-based reserving, which became operative on January 1, 2017 in those states where it has been adopted, with a three-year phase-in period, at the option of insurance companies on a product-by-product basis, for new business. To date, principle-based reserving has been adopted by all of the states where our insurance subsidiaries are domiciled, except in New York where the NYDFS has publicly stated its intention to implement this approach, subject to a working group of the NYDFS establishing the necessary reserves safeguards and the adoption of enabling legislation by the New York legislature, which is currently pending. We cannot predict how principle-based reserving will impact the reserves or compliance costs, if any, of our insurance subsidiaries. See “Business Regulation U.S. Regulation Insurance Regulation NAIC.”
The NAIC has been considering development of the group capital calculation assessment tool, a methodology for the calculation of capital for all the entities in an insurance holding company group, including non-U.S. entities. The goal is to provide U.S. regulators with a method to aggregate the available capital and the minimum capital of each entity in a group in a way that applies to all groups regardless of their structure. The NAIC has stated that the calculation will be a regulatory tool and will not constitute a requirement or standard. Nonetheless, any new group capital calculation methodology may incorporate existing risk-based capital concepts. It is not possible to predict what impact any such regulatory tool may have on our business. In August of 2017, the NAIC released a paper on macro-prudential initiatives, in which it proposed potential enhancements in supervisory practices related to liquidity, recovery and resolution, capital stress testing and counterparty exposure concentrations. We expect the NAIC to develop these proposals during 2018. We cannot predict the capital and reserve impacts or compliance costs, if any, that may result from the above initiatives, or what impact these initiatives will have on our business, financial condition or results of operations.

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In addition, following the reduction in the federal corporate income tax rate pursuant to U.S. Tax Reform, the NAIC may revise the methodology or factors used to calculate RBC, which is the denominator of the RBC ratio. If such potential revisions to the NAIC’s RBC calculation would result in a reduction in the RBC ratio for one or more of our insurance subsidiaries below certain prescribed levels, we may be required to hold additional capital in such subsidiary or subsidiaries. Although we do not expect that such potential revisions would impact our current dividend or capital plans, any increase in the amount of capital our insurance subsidiaries are required to hold could reduce the amount of dividends such subsidiaries are able to distribute to MetLife, Inc. Any reduction in the RBC ratios of our insurance subsidiaries could adversely affect their financial strength ratings. For more information regarding U.S. Tax Reform, see “ U.S. Tax Reform Could Have an Impact on Us” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Summary Overview U.S. Tax Reform.”
U.S. Federal Regulation Affecting Insurance
Currently, the business of insurance is primarily regulated at the state level. However, Dodd-Frank established the FIO within the Department of the Treasury, which has the authority to participate in the negotiations of international insurance agreements with foreign regulators for the U.S., as well as to collect information about the insurance industry and recommend prudential standards. On December 12, 2013, the FIO issued a report, mandated by Dodd-Frank, which, among other things, urged the states to modernize and promote greater uniformity in insurance regulation. The report raised the possibility of a greater role for the federal government if states do not achieve greater uniformity in their laws and regulations. We cannot predict with certainty whether any such legislation or regulatory changes will be adopted, or what impact they will have on our business, financial condition or results of operations. Dodd-Frank also created the FSOC, which has the authority to designate certain financial companies as non-bank SIFIs subject to Federal Reserve supervision. On January 23, 2018, the United States District Court of Appeals for the District of Columbia dismissed the FSOC’s appeal of the D.C. Circuit Court’s March 30, 2016 decision that rescinded the FSOC’s designation of MetLife, Inc. as a non-bank SIFI. There can be no assurance that the FSOC will not seek to again designate MetLife, Inc. as a non-bank SIFI subject to regulation that could materially and adversely affect our business and competitive position, such as RBC requirements and leverage limits, liquidity requirements, overall risk management requirements, resolution plan and credit exposure requirements, concentration limits, and other requirements. See “Business Regulation U.S. Regulation Insurance Regulation Federal Initiatives.”
Federal legislation and administrative policies can significantly and adversely affect insurance companies, including policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies.
ERISA and Fiduciary Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA and the Code. As such, our activities are subject to the restrictions imposed by ERISA and the Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and those fiduciaries may not cause a covered plan to engage in certain prohibited transactions. The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA plans and participants and IRAs if the investment recommendation results in fees paid to the individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment recommendation chosen, unless an exemption or exception is available. Similarly, without an exemption or exception, fiduciary advisors are prohibited from receiving compensation from third parties in connection with their advice. ERISA also affects certain of our in-force insurance policies and annuity contracts, as well as insurance policies and annuity contracts we may sell in the future.

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The DOL issued new regulations, which became for the most part applicable on June 9, 2017, that substantially expanded the definition of “investment advice” and require that an impartial or “best interests” standard be met in providing such advice, thereby broadening the circumstances under which MetLife or its representatives, in providing investment advice with respect to ERISA plans, plan participants or IRAs, could be deemed a fiduciary under ERISA or the Code. Pursuant to the final regulations, certain communications with plans, plan participants and IRA holders, including the sales of products, and investment management or advisory services, could be deemed fiduciary investment advice, thus causing increased exposure to fiduciary liability if the distributor does not recommend what is in the client’s best interests. While the final regulations also provide that, to a limited extent, contracts sold and advice provided prior to the applicable date do not have to be modified to comply with the new investment advice regulations, there is lack of clarity surrounding some of the conditions for qualifying for this limited exception. There can be no assurance that the DOL will agree with our interpretation of the provisions of the new regulations, in which case the DOL and IRS could assess significant penalties against a portion of products sold prior to the applicable date. The assessment of such penalties could also trigger substantial litigation risk. Any such penalties and related litigation could adversely affect our results of operations and financial condition.
The DOL also issued amendments to certain of its prohibited transaction exemptions, and issued a new exemption that applies more onerous disclosure and contract requirements to, and increases fiduciary requirements and fiduciary liability exposure in respect of, certain transactions involving ERISA plans, plan participants and IRAs. On November 27, 2017, the changes the rule made to existing prohibited transaction exemptions and contract and disclosure requirements of the new exemption (other than the impartial interest standard) were delayed until July 1, 2019, in order to give the DOL the time necessary to consider public comments made in July and September 2017, as well as a February 2017 directive from the President to analyze the rule’s impact to access to retirement information and financial advice. The rule is also being challenged in the Fifth Circuit Court of Appeals (and elsewhere), where a decision is expected during the first quarter of 2018.
Concurrent with the rule delay, on November 24, 2017 the NAIC issued an exposure draft of an expanded Suitability in Annuity Transactions Model Regulation, intended to result in the adoption of a “best interest” standard on a nationwide basis. We are working with industry trade groups to provide comments to this draft. In addition, on December 27, 2017 the NYDFS proposed revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard, but also would expand the scope of the regulations to include sales of life insurance policies and annuities to consumers. The NYDFS proposed revisions to Regulation 187 are open for public comment until February 25, 2018. These developments leave open the possibility of further modifications to the federal rule. In addition, Insurance Regulation 187 may result in additional requirements on insurers and agents concerning both new and in-force annuity and life insurance products. We cannot predict what other proposals may be made, what legislation or regulations may be introduced or enacted, or what impact any such legislation or regulations may have on our business, product sales, results of operations and financial condition.
While we continue to analyze the impact of the final regulations on our business, we believe they could have an adverse effect in their present form on sales of annuity products to ERISA qualified plans through our independent distribution partners. Under the new regulations, advisors (including independent distributors) who sell fixed index-linked annuities to IRAs, IRA rollovers or 401(k) plans are deemed to be fiduciaries and are prohibited from receiving compensation unless they comply with a prohibited transaction exemption. The exemption requires advisors to comply with impartial conduct standards and may require us to exercise additional oversight of the sales process. Compliance with the prohibited transaction exemption will likely result in increased regulatory burdens on us and our independent distribution partners, changes to our compensation practices and product offerings and increased litigation risk, which could adversely affect our results of operations and financial condition. See “Business — Regulation — U.S. Regulation — ERISA and Fiduciary Considerations.”
There remains uncertainty over whether the regulations will be substantially modified or repealed. Application of a portion of the rules on June 9, 2017 and an additional 18-month delay on the remaining components, in light of the overall reconsideration of the rules requested by President Trump, could create confusion among our distribution partners which could negatively impact product sales. We cannot predict what other proposals may be made, what legislation may be introduced or enacted, or what impact any such legislation may have on our business, results of operations and financial condition.

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International Regulation
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in which they are located or operate. A significant portion of our revenues is generated through operations in foreign jurisdictions, including many countries in early stages of economic and political development. Our international operations may be materially adversely affected by the actions and decisions of foreign authorities and regulators. See “ Risks Related to Our Business Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.” This may also impact many of our customers and independent sales intermediaries. Changes in the laws and regulations that affect these customers and independent sales intermediaries or their operations also may affect our business relationships with them and their ability to purchase or distribute our products, as well as our product design. Accordingly, these changes and actions may negatively affect our business in these jurisdictions. We expect the scope and extent of regulation outside of the U.S., as well as regulatory oversight, generally, to continue to increase. The authority of our international operations to conduct business is subject to licensing requirements, permits and approvals, and these authorizations are subject to modification and revocation. The regulatory environment in the countries in which we operate and changes in laws could have a material adverse effect on our results of operations. See “Business Regulation International Regulation.”
Solvency Regimes
Certain of our businesses are subject to Solvency II, which became effective on January 1, 2016 in the EEA and covers the capital adequacy, risk management and regulatory reporting for issuers and reinsurers, and are subject to Solvency II-like frameworks in Mexico and China, with other similar solvency standards under development in other markets such as Brazil and Chile. See “Business Regulation International Regulation Solvency Regimes.” As requirements are finalized by the regulators, capital requirements might be impacted in a number of jurisdictions. In addition, our legal entity structure throughout Europe may impact our capital requirements, risk management infrastructure and reporting by country.
Other International and Global Regulatory Initiatives
In the wake of the financial crisis, national and international authorities have proposed measures intended to increase the intensity of regulation of large financial institutions, requiring greater coordination among regulators and efforts to harmonize regulatory regimes. There can be no assurance that MetLife will not in the future be subject to enhanced capital standards, supervision and additional requirements, such as G-SII requirements or other group capital standards or insurer capital standards outside of the U.S. See “Business Regulation International Regulation Other International and Global Regulatory Initiatives.”
General
From time to time, regulators raise issues during examinations or audits of MetLife, Inc.’s regulated subsidiaries that could, if determined adversely, have a material impact on us. In addition, the interpretations of regulations by regulators may change and statutes may be enacted with retroactive impact, particularly in areas such as accounting or statutory reserve requirements. Further, a particular regulator or other governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different or additional risks. Compliance with applicable laws and regulations, including regulatory and securities filings requirements, is time consuming and personnel-intensive, and changes in these laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business. Additionally, any failure to strictly comply with regulatory or securities filing requirements, or any other legal or regulatory requirements, could harm our reputation or result in regulatory sanctions or legal claims. Changes to or failure to comply with applicable laws and regulations could thus have a material adverse effect on our financial condition and results of operations.

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The Dodd-Frank Provisions Compelling the Liquidation of Certain Types of Financial Institutions Could Materially and Adversely Affect MetLife, Inc., as Such a Financial Institution and as an Investor in Other Such Financial Institutions, as well as Our Investors
Under provisions of Dodd-Frank, if MetLife, Inc. or another financial institution were to become insolvent or were in danger of defaulting on its obligations and it was determined that such default would have serious effects on financial stability in the U.S., it could be compelled to undergo liquidation with the FDIC as receiver. While under this new regime an insurance company would be resolved in accordance with state insurance law, if the FDIC were appointed as the receiver for another type of a company (including an insurance holding company such as MetLife, Inc.), liquidation of that company would occur under the provisions of the new liquidation authority, and not under the Bankruptcy Code, which ordinarily governs liquidations. In an FDIC-managed liquidation, holders of a company’s debt could in certain respects be treated differently than under the Bankruptcy Code and similarly-situated creditors could be treated differently. In particular, unsecured creditors and shareholders are intended to bear the losses of the company being liquidated. These provisions could also apply to financial institutions whose debt securities we hold in our investment portfolio and could adversely affect our position as a creditor and the value of our holdings.
Legislative and Regulatory Activity in Health Care and Other Employee Benefits Could Affect our Profitability as a Provider of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit Products
The Affordable Care Act has led to fundamental changes in the way that employers, including us, provide health care benefits and other forms of compensation to their employees and former employees. In addition to imposing obligations on MetLife as an enterprise, the Affordable Care Act also imposes requirements and taxes on us as a provider of non-medical health insurance benefits and as a purchaser of certain of these products. See “Business Regulation U.S. Regulation Insurance Regulation Health Care Regulation” for information regarding such requirements and taxes, including the effects of the health insurer fee and of assessments related to public healthcare exchanges. The Affordable Care Act or other related regulations or regulatory actions may adversely affect our ability to continue to offer certain non-medical health and dental insurance products in the same manner as we do today and may continue to result in increased and unpredictable costs to provide certain products thereby harming our competitive position.
In addition, we employ a substantial number of employees in the United States to whom we offer employment-related benefits. We also currently provide benefits to certain of our retirees. These benefits are provided under complex plans that are subject to a variety of regulatory requirements. The Affordable Care Act or related regulations or regulatory actions could adversely affect our ability to attract, retain and motivate our associates. They could also result in increased or unpredictable costs to provide employee benefits, and could harm our competitive position if we are subject to fees, penalties, tax provisions or other limitations in the Affordable Care Act and our competitors are not.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 also includes certain provisions for defined benefit pension plan funding relief. These provisions may impact the likelihood and/or timing of corporate plan sponsors terminating their plans and/or engaging in transactions to partially or fully transfer pension obligations to an insurance company. Consequently, this law could indirectly affect the mix of our business, with fewer pension risk transfers and more non-guaranteed funding products, and adversely impact our results of operations.
Changes in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our Profitability
Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable annuity contracts and variable life insurance policies, as well as certain fixed interest rate or index-linked contracts with features that require them to be registered as securities (“registered fixed contracts”). As a result, some of MetLife, Inc.’s subsidiaries and their activities in offering and selling variable insurance contracts and policies are subject to extensive regulation under these securities laws.
Federal and state securities laws and regulations are primarily intended to ensure the integrity of the financial markets and to protect investors in the securities markets, and to protect investment advisory or brokerage clients. These laws and regulations generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting new and/or existing products, regulate the issuance, sales and distribution of our products and limit or restrict the conduct of business for failure to comply with the securities laws and regulations.

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As a result of Dodd-Frank, there have been a number of changes proposed or adopted to the laws and regulations that govern the conduct of our variable and registered fixed insurance products business and the firms that distribute these products. The future impact of recently adopted revisions to laws and regulations, as well as revisions that are still in the proposal stage, on the way we conduct our business and the products we sell is unclear. Such impact could adversely affect our operations and profitability, including increasing the regulatory and compliance burden upon us, resulting in increased costs, or limiting the type, amount or structure of compensation arrangements into which we may enter with certain of our employees, negatively impacting our ability to compete with other companies in recruiting and maintaining key personnel. See “Business Regulation U.S. Regulation ERISA and Fiduciary Considerations” and “Business Regulation U.S. Regulation Securities, Broker-Dealer and Investment Adviser Regulation.” However, following the change of Administration, we cannot predict with certainty whether any such proposals will be adopted, or what impact adopted revisions will have on our business, financial condition or results of operations. See “ Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” for information regarding the Trump Administration’s expressed goals to amend Dodd-Frank. We also may be subject to similar laws and regulations in the foreign countries in which we offer products or conduct other activities similar to those described above. See “Business Regulation International Regulation.”
The global financial crisis has led to significant changes in economic and financial markets that have, in turn, led to a dynamic competitive landscape for variable and registered fixed product issuers. Our ability to react to rapidly changing market and economic conditions will depend on the continued efficacy of provisions we have incorporated into our product design allowing frequent and contemporaneous revisions of key pricing elements and our ability to work collaboratively with federal securities regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could adversely impact our ability to react to such changing conditions.
Changes in Tax Laws or Interpretations of Such Laws Could Reduce Our Earnings and Materially Impact Our Operations by Increasing Our Corporate Taxes and Making Some of Our Products Less Attractive to Consumers
Changes in domestic or foreign tax laws or interpretations of such laws could increase our corporate taxes and reduce our earnings. Global budget deficits make it likely that governments’ need for additional offsetting revenue will result in future tax proposals that will increase our effective tax rate or have product implications. However, it remains difficult to predict the timing and effect that future tax law changes could have on our earnings both in the U.S. and in foreign jurisdictions. Such changes could not only directly impact our corporate taxes but also could adversely impact our products (both life insurance and retirement plans) by making some of our products less attractive to consumers. A shift away from life insurance and annuity contracts and other tax-deferred products by our customers would reduce our income from sales of these products, as well as the asset base upon which we earn investment income and fees, thereby reducing our earnings and potentially affecting the value of our deferred tax assets.
On December 22, 2017, U.S. Tax Reform was signed into law. See “— U.S. Tax Reform Could Have an Impact on Us” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform.”
U.S. Tax Reform Could Have an Impact on Us
U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018, and a participation exemption system which generally eliminates U.S. federal income tax on dividends received from foreign subsidiaries. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform.”
The overall effect of U.S. Tax Reform may be positive for MetLife. However, U.S. Tax Reform also includes particular changes that may not be positive for MetLife, including changes to the amortization periods for deferred acquisition costs, the computation of insurance tax reserves, deductibility of certain corporate expenses, two new international revenue-raising provisions, and rules relating to the dividends received deduction. In addition, U.S. Tax Reform contains provisions whose meaning is subject to differing interpretations, and future guidance may differ adversely from our current interpretation.

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Litigation and Regulatory Investigations Are Increasingly Common in Our Businesses and May Result in Significant Financial Losses and/or Harm to Our Reputation
We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In connection with our insurance or pension operations, plaintiffs’ lawyers may bring or are bringing class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, claims payments and procedures, product design, disclosure, administration, investments, denial or delay of benefits and breaches of fiduciary or other duties to customers. Plaintiffs in class action and other lawsuits against us may seek very large and/or indeterminate amounts, including punitive and treble damages. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. In addition, a court or other governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different or additional risks. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. Material pending litigation and regulatory matters affecting us and risks to our business presented by these proceedings are discussed in Note 20 of the Notes to the Consolidated Financial Statements. Updates are provided in the notes to our interim condensed consolidated financial statements regarding contingencies, commitments and guarantees included in our subsequently filed quarterly reports on Form 10-Q, as well as in Part II, Item 1 (“Legal Proceedings”) of those quarterly reports. See also “— Risks Related to the Material Weaknesses — We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.”
A substantial legal liability or a significant federal, state or other regulatory action against us, as well as regulatory inquiries or investigations, could harm our reputation, result in material fines or penalties, result in significant legal costs and otherwise have a material adverse effect on our business, financial condition and results of operations. Even if we ultimately prevail in the litigation, regulatory action or investigation, our ability to attract new customers, retain our current customers and recruit and retain employees could be materially and adversely impacted. Regulatory inquiries and litigation may also cause volatility in the price of stocks of companies in our industry.
Current claims, litigation, unasserted claims probable of assertion, investigations and other proceedings against us could have a material adverse effect on our business, financial condition or results of operations. It is also possible that related or unrelated claims, litigation, unasserted claims probable of assertion, investigations and proceedings may be commenced in the future, and we could become subject to further investigations and have lawsuits filed or enforcement actions initiated against us. We currently have a market presence in numerous non-U.S. jurisdictions and may be subject to additional investigations and lawsuits in these jurisdictions. Increased regulatory scrutiny and any resulting investigations or proceedings in any of the jurisdictions in which we operate could result in new legal actions and precedents and industry-wide regulations that could adversely affect our business, financial condition and results of operations.
Investments-Related Risks
Should the Need Arise, We May Have Difficulty Selling Certain Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner and Realizing Full Value Given Their Illiquid Nature
There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid. These include privately-placed fixed maturity securities, certain derivative instruments, mortgage loans, policy loans, leveraged leases, other limited partnership interests, and real estate equity, such as real estate joint ventures and funds. In recent years, even some of our very high quality investments experienced reduced liquidity during periods of market volatility or disruption. If we were forced to sell certain of our investments during periods of market volatility or disruption, market prices may be lower than our carrying value in such investments. This could result in realized losses which could have a material adverse effect on our results of operations and financial condition, as well as our financial ratios, which could affect compliance with our credit instruments and rating agency capital adequacy measures.

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Similarly, we loan blocks of our securities to third parties (primarily brokerage firms and commercial banks) through our securities lending program, including fixed maturity (primarily U.S. government and U.S. government-backed securities) and equity securities, short-term investments and cash equivalents. Under this program, we obtain collateral, usually cash, at the inception of a loan and typically purchase securities with the cash collateral. Upon the return to us of these loaned securities, we must return to the third party the cash collateral we received. If the cash collateral has been invested in securities, we need to sell the securities. However, in some cases, the maturity of those securities may exceed the term of the related securities on loan and the estimated fair value of the securities we need to sell may fall below the amount of cash received.
If we are required to return significant amounts of cash collateral under our securities lending program or otherwise need significant amounts of cash on short notice and we are forced to sell securities, we may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. In the event of a forced sale, accounting guidance requires the recognition of a loss for securities in an unrealized loss position and may require the impairment of other securities based on our ability to hold those securities, which would negatively impact our financial condition, as well as our financial ratios, which could affect compliance with our credit instruments and rating agency capital adequacy measures. In addition, under stressful capital market and economic conditions, liquidity broadly deteriorates, which may further restrict our ability to sell securities. Furthermore, if we decrease the amount of our securities lending activities over time, the amount of net investment income generated by these activities will also likely decline. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Liquidity and Capital Uses Securities Lending.”
Our Requirements to Pledge Collateral or Make Payments Related to Declines in Estimated Fair Value of Derivatives Transactions or Specified Assets in Connection with OTC-Cleared and OTC-Bilateral Transactions May Adversely Affect Our Liquidity, Expose Us to Central Clearinghouse and Counterparty Credit Risk, and Increase our Costs of Hedging
Substantially all of our derivatives transactions require us to pledge collateral related to any decline in the net estimated fair value of such derivatives transactions executed through a specific broker at a clearinghouse or entered into with a specific counterparty on a bilateral basis. Certain derivatives financing transactions require us to pledge collateral or make payments related to declines in the estimated fair value of the specified assets under certain circumstances to central clearinghouses or our counterparties. The amount of collateral we may be required to pledge and the payments we may be required to make under our derivatives transactions may increase under certain circumstances and will increase as a result of the requirement to pledge initial margin for OTC-cleared transactions and for OTC-bilateral transactions entered into after the phase-in period, which will likely be applicable to us in September 2020 as a result of the adoption by the Office of the Comptroller of the Currency, the Federal Reserve Board, FDIC, Farm Credit Administration and Federal Housing Finance Agency (collectively, the “Prudential Regulators”) and the CFTC of final margin requirements for non-centrally cleared derivatives. Although the final rules allow us to pledge a broad range of non-cash collateral as initial and variation margin, the Prudential Regulators, CFTC, central clearinghouses and counterparties may restrict or eliminate certain types of eligible collateral or charge us to pledge such non-cash collateral, which would increase our costs and could adversely affect the liquidity of our investments and the composition of our investment portfolio. See “Business Regulation U.S. Regulation Regulation of Over-the-Counter Derivatives,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Liquidity and Capital Uses Pledged Collateral,” and Note 9 of the Notes to the Consolidated Financial Statements.
Gross Unrealized Losses on Fixed Maturity Securities and Defaults, Downgrades or Other Events May Result in Future Impairments to the Carrying Value of Such Securities, Resulting in a Reduction in Our Net Income
Fixed maturity securities classified as available-for-sale (“AFS”) securities are reported at their estimated fair value. Unrealized gains or losses on AFS securities are recognized as a component of other comprehensive income (loss) (“OCI”) and are, therefore, excluded from net income. In recent periods, as a result of low interest rates, the unrealized gains on our fixed maturity securities have exceeded the unrealized losses. However, if interest rates rise, our unrealized gains would decrease and our unrealized losses would increase, perhaps substantially. The accumulated change in estimated fair value of these AFS securities is recognized in net income when the gain or loss is realized upon the sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and an impairment charge to earnings is taken. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Fixed Maturity and Equity Securities AFS.”

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The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit risk spreads, or other events that adversely affect the issuers or guarantors of securities or the underlying collateral of structured securities could cause the estimated fair value of our fixed maturity securities portfolio and corresponding earnings to decline and cause the default rate of the fixed maturity securities in our investment portfolio to increase. A ratings downgrade affecting issuers or guarantors of particular securities, or similar trends that could worsen the credit quality of issuers, such as the corporate issuers of securities in our investment portfolio, could also have a similar effect. With economic uncertainty, credit quality of issuers or guarantors could be adversely affected. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to support that security to maintain our RBC levels. Levels of writedowns or impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell, fixed maturity securities. Realized losses or impairments on these securities may have a material adverse effect on our net income in a particular quarterly or annual period.
Our Valuation of Securities and Investments and the Determination of the Amount of Allowances and Impairments Taken on Our Investments Are Subjective and Include Methodologies, Estimations and Assumptions Which Are Subject to Differing Interpretations and Market Conditions and, if Changed, Could Materially Adversely Affect Our Results of Operations or Financial Condition
Fixed maturity, equity, and fair value option (“FVO”) securities, as well as short-term investments that are reported at estimated fair value represent the majority of our total cash and investments. We define fair value generally as the price that would be received to sell an asset or paid to transfer a liability. Considerable judgment is often required in interpreting market data to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. During periods of market disruption including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our securities if trading becomes less frequent and/or market data becomes less observable. In addition, in times of financial market disruption, certain asset classes that were in active markets with significant observable data may become illiquid. In those cases, the valuation process includes inputs that are less observable and require more subjectivity and management judgment. Valuations may result in estimated fair values which vary significantly from the amount at which the investments may ultimately be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-period changes in estimated fair value could vary significantly. Decreases in the estimated fair value of securities we hold may have a material adverse effect on our results of operations or financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments” and Notes 1 and 10 of the Notes to the Consolidated Financial Statements.
The determination of the amount of allowances and impairments varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We reflect any changes in allowances and impairments in earnings as such evaluations are revised. However, historical trends may not be indicative of future impairments or allowances. In addition, any such future impairments or allowances could have a materially adverse effect on our earnings and financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Critical Accounting Estimates Investment Impairments” and Note 8 of the Notes to the Consolidated Financial Statements.
Defaults on Our Mortgage Loans and Volatility in Performance May Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally collateralized by commercial, agricultural and residential properties. We establish valuation allowances for estimated impairments, which are based on loan risk characteristics, historical default rates and loss severities, real estate market fundamentals and outlooks, as well as other relevant factors. In addition, substantially all of our commercial and agricultural mortgage loans held-for-investment have balloon payment maturities. An increase in the default rate of our mortgage loan investments or fluctuations in their performance could have a material adverse effect on our business, results of operations and financial condition.
Further, any geographic or property type concentration of our mortgage loans may have adverse effects on our investment portfolio and consequently on our results of operations or financial condition. While we seek to mitigate this risk by having a broadly diversified portfolio, events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated. Moreover, our ability to sell assets relating to such particular groups of related assets may be limited if other market participants are seeking to sell at the same time. In addition, legislative proposals that would allow or require modifications to the terms of mortgage loans could be enacted. We cannot predict whether these proposals will be adopted, or what impact, if any, such proposals or, if enacted, such laws, could have on our business or investments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Investments Mortgage Loans.”

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The Defaults or Deteriorating Credit of Other Financial Institutions Could Adversely Affect Us
We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, central clearinghouses, commercial banks, investment banks, hedge funds and investment funds and other financial institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty. In addition, with respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. We also have exposure to these financial institutions in the form of unsecured debt instruments, non-redeemable and redeemable preferred securities, derivatives, joint venture, hedge fund and equity investments. Further, potential action by governments and regulatory bodies in response to the financial crisis affecting the global banking system and financial markets, such as investment, nationalization, conservatorship, receivership and other intervention, whether under existing legal authority or any new authority that may be created, or lack of action by governments and central banks, as well as deterioration in the banks’ credit standing, could negatively impact these instruments, securities, transactions and investments or limit our ability to trade with them. Any such losses or impairments to the carrying value of these investments or other changes may materially and adversely affect our business and results of operations.

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Risks Related to Our Business
Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability
Our international operations face political, legal, financial, operational and other risks. These operations may be materially adversely affected by the actions and decisions of foreign authorities and regulators, such as through nationalization or expropriation of assets; the imposition of limits on foreign ownership of local companies which may increase our dependence on joint venture counterparties and/or impact how we account for our joint venture ownership interests; changes in laws (including tax laws and regulations), their application or interpretation; political instability (including any resulting economic or trade sanctions); dividend limitations; price controls; changes in applicable currency; currency exchange controls or other restrictions that prevent us from transferring funds from these operations out of the countries in which they operate or converting local currencies we hold into U.S. dollars or other currencies, as well as other adverse actions by foreign governmental authorities and regulators, such as the retroactive application of new requirements on our current and prior activities or operations, the imposition of regulations limiting our ability to distribute our products, and public or political criticism of our products, practices, and other aspects of our business and operations. Such actions may negatively affect our business or reputation in these jurisdictions and could indirectly affect our business or reputation in other jurisdictions as well. Some of our foreign insurance operations are, and are likely to continue to be, in emerging markets where these risks are heightened. For example, proposed reform of the Chilean pension system, if enacted, may have a significant adverse effect on our business in Chile. See “Business — Regulation — International Regulation.”
The United States, Mexico, and Canada are currently renegotiating NAFTA, which had eliminated most trade tariffs between the three countries. While our current business in Mexico is not directly dependent upon any specific trade agreement provision, and is tied to the general economy and the growth of the market, if the current rules on government procurement under NAFTA were modified or eliminated, it could have a material adverse impact on our business in Mexico, given our business model. We cannot predict with certainty what proposals may be made in connection with international trade agreements or what legislation or regulations may be introduced or enacted, or what impact any such legislation or regulations may have on our business, results of operations and financial condition.
Part of our international insurance operations may be subject to assessments, generally based on their proportionate share of business written in the relevant jurisdiction, for certain obligations to policyholders and claimants resulting from the insolvency of insurance companies. We cannot predict the timing and scope of any assessments that may be made in the future, which may materially affect the results of operations of our international insurance operations in particular quarterly or annual periods. See “Business — Regulation — International Regulation” and “Quantitative and Qualitative Disclosures About Market Risk,” as well as “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
We have market presence in numerous jurisdictions and increased exposure to risks posed by local and regional economic conditions. Concerns about the political, security and/or economic conditions in the U.K., Mexico and South Korea have recently contributed to global market volatility. Lack of legal certainty and stability in these regions exposes our operations there to increased risk of disruption and to adverse or unpredictable actions by regulators and may make it more difficult for us to enforce our contracts, which may negatively impact our business in these regions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Financial and Economic Environment.”
On June 23, 2016, the U.K. held a referendum regarding its membership in the EU, resulting in a vote in favor of leaving the EU. The U.K. government triggered the withdrawal process by notifying the EU on March 29, 2017 of the U.K.’s intention to withdraw from the EU. The member withdrawal provisions in the applicable EU treaty provide that the U.K. and the EU will negotiate a withdrawal agreement during a maximum two-year period (unless such period is extended by unanimous vote of the EU member states). In the meantime, the U.K. remains a member of the EU with unchanged rights to access the single EU market in goods and services. Our U.K. business model utilizes certain rights to operate cross-border insurance and investment operations which may be modified or eliminated as a result of the U.K. exiting the EU. Operating expenses within our businesses could increase as a result of uncertainties during the negotiation period and upon the U.K.’s withdrawal.
Economic slowdowns and volatility may impact markets where we have a material presence, including Japan, Latin America and Europe. Unfavorable economic conditions could adversely impact the demand for our products, negatively impact earnings, adversely affect the performance of our investments or result in impairments, all of which could have a material adverse effect on our business, results of operations and financial condition. See “— Economic Environment and Capital Markets-Related Risks — Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment — Selected Country Investments.”

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Furthermore, we rely on local sales forces in these jurisdictions and may encounter labor problems resulting from workers’ associations and trade unions in some jurisdictions. Additionally, if associates fail to adhere to local regulatory requirements or our policies and procedures, we may be subject to penalties, restrictions or other sanctions by local regulators in such jurisdictions, and we may suffer reputational harm. If our business model is not successful in a particular jurisdiction, we may lose all or most of our investment in building and training the sales force in that jurisdiction.
We are continuing to expand our international operations in certain markets where we operate and in selected new markets. This may require considerable management time, as well as start-up expenses for market development before any significant revenues and earnings are generated. The prospects of our business also may be materially and adversely affected if we are not able to manage the growth of such international operations successfully. There can be no assurance that we will be successful in managing such future growth. Further, operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local political, economic and market conditions. Therefore, as we expand internationally, we may not achieve expected operating margins and our results of operations may be negatively impacted.
Fluctuations in Foreign Currency Exchange Rates Could Negatively Affect Our Profitability
We are exposed to risks associated with fluctuations in foreign currency exchange rates against the U.S. dollar resulting from our holdings of non-U.S. dollar denominated investments, investments in foreign subsidiaries, net income from foreign operations and issuance of non-U.S. dollar denominated instruments, including guaranteed interest contracts and funding agreements. In general, the weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value of our non-U.S. dollar denominated investments, our investments in foreign subsidiaries, and our net income from foreign operations. In addition, from time to time, various emerging market countries have experienced severe economic and financial disruptions, including significant devaluations of their currencies. Our exposure to foreign currency exchange rate risk is exacerbated by our investments in these emerging markets. See “Quantitative and Qualitative Disclosures About Market Risk.”
In addition, certain of our life and annuity products are exposed to foreign exchange rate risk. Payments under these contracts, depending on the circumstances, may be required to be made in different currencies and may not be the legal tender in the country whose law governs the particular product. Changes in exchange rate movements and the imposition of capital controls may also directly impact the liability valuation that may not be entirely hedged. If the currency upon which expected future payments are made strengthens, the liability valuation may increase, which may adversely affect our results of operations and financial condition.
We match substantially all of our foreign currency denominated liabilities in our foreign subsidiaries with investments denominated in their respective foreign currency, which limits the effect of currency exchange rate fluctuations on local operating results; however, fluctuations in such rates affect the translation of these results into our U.S. dollar basis consolidated financial statements. Although we take certain actions to address this risk, including entering into foreign currency derivatives, foreign currency exchange rate fluctuations could materially adversely affect our reported results due to unhedged positions, asymmetrical and non-economic accounting resulting from derivative gains (losses) on non-qualifying hedges, or the failure of hedges to effectively offset the impact of the foreign currency exchange rate fluctuation. Our reported results could also be adversely affected if the economy of one or more of our foreign subsidiaries is determined to be “highly inflationary,” generally defined by a cumulative inflation rate of approximately 100% or more over a three-year period.
We face significant exposure to risks associated with fluctuations in the yen/U.S. dollar exchange rate because we have substantial operations in Japan and a large portion of our premiums and investment income in Japan are received in yen. Most claims and expenses associated with our operations in Japan are also paid in yen and we primarily purchase yen-denominated assets to support yen-denominated policy liabilities. These and other yen-denominated financial statement items are, however, translated into U.S. dollars for financial reporting purposes. Accordingly, fluctuations in the yen/U.S. dollar exchange rate can have a significant effect on our reported financial position and results of operations. Our Japan operation does assume some currency exposure by backing a portion of surplus and yen-denominated liabilities with U.S. dollar assets. Although this represents risk to our Japan operation, most of these U.S. dollar assets are hedged to yen with currency derivatives. Additionally, our Japan operation sells U.S. dollar and Australian dollar life and annuity products to Japanese customers. We may experience elevated levels of early policy terminations when the Japanese yen weakens against these currencies. While the cost of early policy terminations is offset by surrender charges, foreign exchange rate fluctuations will impact both our sales volumes and the amount of business we have in-force.
Due to our significant international operations, during periods when any foreign currency from which we derive our revenues weakens (strengthens), translating amounts expressed in that currency into U.S. dollars causes fewer (more) U.S. dollars to be reported. Any unrealized foreign currency translation adjustments (“FCTA”) are reported in accumulated other comprehensive income (loss) (“AOCI”). The weakening of a foreign currency relative to the U.S. dollar will generally adversely affect the value of investments in U.S. dollar terms and reduce the level of reserves denominated in that currency.

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An Inability to Access Our Credit Facility Could Result in a Reduction in Our Liquidity and Lead to Downgrades in Our Credit and Financial Strength Ratings
We rely on our $3.0 billion unsecured credit facility maintained by MetLife, Inc. and MetLife Funding, Inc. (“MetLife Funding”), an indirect wholly-owned subsidiary of MetLife, Inc. (the “Credit Facility”), as a potential source of liquidity. The availability of the Credit Facility could be critical to our credit and financial strength ratings and our ability to meet our obligations as they come due in a market when alternative sources of credit are tight. The Credit Facility contains certain administrative, reporting, legal and financial covenants, including a requirement to maintain a specified minimum consolidated net worth. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Liquidity and Capital Sources Global Funding Sources Credit and Committed Facilities” and Note 12 of the Notes to the Consolidated Financial Statements.
Our right to borrow funds under the Credit Facility is subject to the fulfillment of certain important conditions, including our compliance with all covenants, and our ability to borrow under the Credit Facility is also subject to the continued willingness and ability of the lenders that are parties to the Credit Facility to provide funds. Our failure to comply with the covenants in the Credit Facility or fulfill the conditions to borrowings, or the failure of lenders to fund their lending commitments (whether due to insolvency, illiquidity or other reasons) in the amounts provided for under the terms of the Credit Facility, would restrict our ability to access the Credit Facility when needed and, consequently, could have a material adverse effect on our financial condition and results of operations.
We May Need to Fund Deficiencies in Our Closed Block; Assets Allocated to the Closed Block Benefit Only the Holders of Closed Block Policies
MLIC’s plan of reorganization, as amended, established in connection with its demutualization, required that we establish and operate an accounting mechanism, known as a closed block, to ensure that the reasonable dividend expectations of policyholders who own individual participating whole life insurance policies of MLIC in force at the time of the demutualization are met. We allocated assets to the closed block in an amount that will produce cash flows which, together with anticipated revenue from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and tax, and to provide for the continuation of the policyholder dividend scales in effect for 1999, if the experience underlying such scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenue from the policies included in the closed block may not be sufficient to provide for the benefits guaranteed under these policies. If they are not, we must fund the shortfall. Even if they are sufficient, we may choose, for competitive reasons, to support policyholder dividend payments with our general account funds.
The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. In addition, to the extent that these amounts are greater than the amounts estimated at the time the closed block was funded, dividends payable in respect of the policies included in the closed block may be greater than they would be in the absence of a closed block. Any excess earnings will be available for distribution over time only to closed block policyholders. See Note 7 of the Notes to the Consolidated Financial Statements.
A Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings Could Result in a Loss of Business and Materially Adversely Affect Our Financial Condition and Results of Operations
Financial strength ratings are published by various Nationally Recognized Statistical Rating Organizations (“NRSROs”) and similar entities not formally recognized as NRSROs. They indicate the NRSROs’ opinion regarding an insurance company’s ability to meet contractholder and policyholder obligations, and are important to maintaining public confidence in our products and our competitive position. See “Business Company Ratings” for additional information regarding our financial strength ratings.

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Downgrades in our financial strength or credit ratings or changes to our ratings outlooks could have a material adverse effect on our financial condition and results of operations in many ways, including:
reducing new sales of insurance products, annuities and other investment products;
impacting the cost and availability of financing for MetLife, Inc. and its subsidiaries;
adversely affecting our relationships with our sales force and independent sales intermediaries;
materially increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders;
requiring us to post additional collateral under certain of our financing and derivative transactions;
requiring us to reduce prices for many of our products and services to remain competitive;
providing termination rights for the benefit of our derivative instrument counterparties;
adversely affecting our ability to obtain reinsurance at reasonable prices or at all;
limiting our access to the capital markets;
increasing the cost of debt;
requiring us to post collateral; and
subjecting us to increased regulatory scrutiny.
In addition to the financial strength ratings of our insurance subsidiaries, various NRSROs also publish credit ratings for MetLife, Inc. and several of its subsidiaries. Credit ratings indicate the NRSROs’ opinion regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner and are important factors in our overall funding profile and ability to access certain types of liquidity. See Note 9 of the Notes to the Consolidated Financial Statements for information regarding the impact of a one-notch downgrade with respect to derivative transactions with financial strength or credit rating downgrade triggers and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Liquidity and Capital Uses Pledged Collateral” for further information on the impact of a one-notch downgrade. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company Capital Rating Agencies.”
In view of the difficulties experienced by many financial institutions as a result of the financial crisis and ensuing global recession, including our competitors in the insurance industry, we believe it is possible that the NRSROs will continue to heighten the level of scrutiny that they apply to insurance companies, will continue to increase the frequency and scope of their credit reviews, will continue to request additional information from the companies that they rate, and may adjust upward the capital and other requirements employed in the models for maintenance of certain ratings levels. In addition, the material weaknesses in our internal control over financial reporting could result in downgrades in our financial strength or credit ratings. See “Controls and Procedures” and “— Risks Related to the Material Weaknesses — We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.” Our ratings could be downgraded at any time and without notice by any NRSRO.
Reinsurance May Not Be Available, Affordable or Adequate to Protect Us Against Losses
As part of our overall risk management strategy, we purchase reinsurance for certain risks underwritten by our various business segments. While reinsurance agreements generally bind the reinsurer for the life of the business reinsured at generally fixed pricing, market conditions beyond our control determine the availability and cost of the reinsurance protection for new business. In certain circumstances, the price of reinsurance for business already reinsured may also increase. For example, for some of our group businesses under which the policies and related reinsurance are subject to periodic (typically annual) renewal, prices may increase at any renewal. Also, for most of our traditional life reinsurance agreements, it is common for the reinsurer to have a right to increase reinsurance rates on in-force business if there is a systematic deterioration of mortality in the market as a whole. Any decrease in the amount of reinsurance will increase our risk of loss and any increase in the cost of reinsurance will, absent a decrease in the amount of reinsurance, reduce our earnings. Accordingly, we may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect our ability to write future business or result in the assumption of more risk with respect to those policies we issue. See “Business Reinsurance Activity” and “ If the Counterparties to Our Reinsurance or Indemnification Arrangements or to the Derivatives We Use to Hedge Our Business Risks Default or Fail to Perform, We May Be Exposed to Risks We Had Sought to Mitigate, Which Could Materially Adversely Affect Our Financial Condition and Results of Operations.”

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If the Counterparties to Our Reinsurance or Indemnification Arrangements or to the Derivatives We Use to Hedge Our Business Risks Default or Fail to Perform, We May Be Exposed to Risks We Had Sought to Mitigate, Which Could Materially Adversely Affect Our Financial Condition and Results of Operations
We use reinsurance, indemnification and derivatives to mitigate our risks in various circumstances. In general, reinsurance, indemnification and derivatives do not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to us. Accordingly, we bear credit risk with respect to our reinsurers, indemnitors, counterparties and central clearinghouses. A reinsurer’s, indemnitor’s, counterparty’s or central clearinghouse’s insolvency, inability or unwillingness to make payments under the terms of reinsurance agreements, indemnity agreements or derivatives agreements with us or inability or unwillingness to return collateral could have a material adverse effect on our financial condition and results of operations, including our liquidity. See “Business Reinsurance Activity.”
In addition, we use derivatives to hedge various business risks. We enter into a variety of derivatives, including options, forwards, interest rate, credit default and currency swaps with a number of counterparties on a bilateral basis for uncleared OTC derivatives and with clearing brokers and central clearinghouses for OTC-cleared derivatives. We also enter into futures and exchange-traded options with clearing brokers and central clearinghouses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Derivatives.” If our counterparties, clearing brokers or central clearinghouses fail or refuse to honor their obligations under these derivatives, our hedges of the related risk will be ineffective. This risk is more pronounced in light of the stresses suffered by financial institutions over the past few years. Such failure could have a material adverse effect on our financial condition and results of operations.
Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our Financial Results
Our earnings significantly depend upon the extent to which our actual claims experience is consistent with the assumptions we use in setting prices for our products and establishing liabilities for future policy benefits and claims. Such amounts are established based on estimates by actuaries of how much we will need to pay for future benefits and claims. To the extent that actual claims experience is less favorable than the underlying assumptions we used in establishing such liabilities, we could be required to reduce DAC and/or VOBA, increase our liabilities and/or incur higher costs.
Due to the nature of the underlying risks and the uncertainty associated with the determination of liabilities for future policy benefits and claims, we cannot determine precisely the amounts which we will ultimately pay to settle our liabilities. Such amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. We evaluate our liabilities periodically based on accounting requirements, which change from time to time, the assumptions used to establish the liabilities, as well as our actual experience. Reserve estimates in some instances are affected by our operating practices and procedures that are used, among other things, to support our assumptions with respect to the Company’s obligations to its policyholders and contractholders. These practices and procedures include our use of technology, such as database analysis and electronic communications. To the extent that these practices and procedures do not accurately produce the data to support our assumptions or cause us to change our assumptions, or to the extent that enhanced technological tools become available to us, such assumptions and procedures, as well as our reserves, may require adjustment. Furthermore, to the extent that any of our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such errors may negatively impact our business, reputation, results of operations, and financial condition. If the liabilities originally established for future benefit payments prove inadequate, we must increase them and/or reduce associated DAC and/or VOBA. Such adjustments could affect earnings negatively and have a material adverse effect on our business, results of operations and financial condition. See “Business — Policyholder Liabilities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities.” See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Deferred Policy Acquisition Costs and Value of Business Acquired,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Derivatives,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated Results — Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016 — Actuarial Assumption Review” for further information regarding the manner in which policyholder behavior and other events may differ from our assumptions and, thereby affect our financial results.

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Catastrophes May Adversely Impact Liabilities for Policyholder Claims and Reinsurance Availability
Our insurance operations are exposed to the risk of catastrophic events. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, tsunamis and man-made catastrophes may produce significant damage or loss of life or property damage in larger areas, especially those that are heavily populated. Claims resulting from catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition. In addition, catastrophic events could harm the financial condition of issuers of obligations we hold in our investment portfolio, resulting in impairments to these obligations, and could also harm the financial condition of our reinsurers, thereby increasing the probability of default on reinsurance recoveries. Large-scale catastrophes may also reduce the overall level of economic activity in affected countries, which could hurt our business and the value of our investments or our ability to write new business. It is possible that increases in the value of property, caused by inflation or other factors, and geographic concentration of insured lives or property, could increase the severity of claims we receive from future catastrophic events.
Our life insurance operations are exposed to the risk of catastrophic mortality, such as a pandemic or other event that causes a large number of deaths. Significant influenza pandemics have occurred three times in the last century; however, the likelihood, timing, and severity of a future pandemic cannot be predicted. A significant pandemic could have a major impact on the global economy or the economies of particular countries or regions, including travel, trade, tourism, the health system, food supply, consumption, overall economic output, as well as on the financial markets. In addition, a pandemic that affected our employees or the employees of our distributors or of other companies with which we do business could disrupt our business operations. The effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and severity of such a pandemic could have a material impact on the losses we experience. In our group insurance operations, a localized event that affects the workplace of one or more of our group insurance customers could cause a significant loss due to mortality or morbidity claims. These events could cause a material adverse effect on our results of operations in any period and, depending on their severity, could also materially and adversely affect our financial condition.
Our property & casualty businesses have experienced, and will likely in the future experience, catastrophe losses that may have a material adverse impact on their business, results of operations and financial condition. Although we make every effort to limit our exposure to catastrophic risks through volatility management and reinsurance programs, these efforts do not eliminate all risk. Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hail, tornadoes, explosions, severe winter weather (including snow, freezing water, ice storms and blizzards), fires and man-made events such as terrorist attacks. Historically, most of our property & casualty catastrophe-related claims have related to homeowners coverages. However, catastrophes may also affect other property & casualty coverages. Due to their nature, we cannot predict the incidence, timing and severity of catastrophes. In addition, changing climate conditions, primarily rising global temperatures, may increase the frequency and severity of natural catastrophes such as hurricanes, tornadoes and floods.
We have hurricane exposure in coastal sections of the northeastern U.S. (including lower New York, New Jersey, Connecticut, Rhode Island and Massachusetts), the south Atlantic states (including Virginia, North Carolina, South Carolina, Georgia and Florida) and the Gulf Coast (including Alabama, Mississippi, Louisiana and Texas). We also have some earthquake exposure, primarily along the New Madrid fault line in the central U.S. and in the Pacific Northwest.
Consistent with industry practice and accounting standards, we establish liabilities for claims arising from a catastrophe only after assessing the probable losses arising from the event. We cannot be certain that the liabilities we have established will be adequate to cover actual claim liabilities. From time to time, states have passed legislation that has the effect of limiting the ability of insurers to manage risk, such as legislation restricting an insurer’s ability to withdraw from catastrophe-prone areas. While we attempt to limit our exposure to acceptable levels, subject to restrictions imposed by insurance regulatory authorities, a catastrophic event or multiple catastrophic events could have a material adverse effect on our business, results of operations and financial condition.

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Most of the jurisdictions in which our U.S. insurance subsidiaries are admitted to transact business require life, health, and property & casualty insurers doing business within the jurisdiction to participate in guaranty associations. These associations are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. Among other reasons, these insurers may become impaired, insolvent or fail following the occurrence of one or more catastrophic events. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. In addition, certain states have government owned or controlled organizations providing life, health, and property & casualty insurance to their citizens. The activities of such organizations could also place additional stress on the adequacy of guaranty fund assessments. Many of these organizations also have the power to levy assessments similar to those of the guaranty associations described above. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. See “Business Regulation U.S. Regulation Insurance Regulation Guaranty Associations and Similar Arrangements” and “Business Regulation International Regulation.”
While in the past five years, the aggregate assessments levied against MetLife have not been material, it is possible that a large catastrophic event could render such guaranty funds inadequate and we may be called upon to contribute additional amounts, which may have a material impact on our financial condition or results of operations in a particular period. We have established liabilities for guaranty fund assessments that we consider adequate, but additional liabilities may be necessary. See Note 20 of the Notes to the Consolidated Financial Statements.
Our ability to manage this risk and the profitability of our property & casualty, health and life insurance businesses depends in part on our ability to obtain catastrophe reinsurance, which may not be available at commercially acceptable rates in the future. See “ Reinsurance May Not Be Available, Affordable or Adequate to Protect Us Against Losses.”
Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases and New Financings May Be Subject to Limited Market Capacity
We currently utilize capital markets solutions to finance a portion of our statutory reserve requirements for several products, including, but not limited to, our level premium term life subject to the NAIC Model Regulation Valuation of Life Insurance Policies (commonly referred to as XXX), and ULSG subject to NAIC Actuarial Guideline 38 (commonly referred to as AXXX), as well as MLIC’s closed block. While we have financing facilities in place for certain previously written business, certain of these facilities are subject to cost increases upon the occurrence of specified ratings downgrades of MetLife or are subject to periodic re-pricing. Any resulting cost increases could negatively impact our financial results.
Future capacity for these statutory reserve funding structures in the marketplace is not guaranteed. In 2014, the NAIC approved a new regulatory framework applicable to the use of captive insurers in connection with Regulation XXX and Guideline AXXX transactions. Among other things, the framework called for more disclosure of an insurer’s use of captives in its statutory financial statements, and narrows the types of assets permitted to back statutory reserves that are required to support the insurer’s future obligations. In 2014, the NAIC implemented the framework through AG 48, which requires the actuary of the ceding insurer that opines on the insurer’s reserves to issue a qualified opinion if the framework is not followed. The requirements of AG 48 became effective as of January 1, 2015 in all states without any further action necessary by state legislatures or insurance regulators to implement them, and apply prospectively to new policies issued and new reinsurance transactions entered into on or after January 1, 2015. The NAIC has adopted an update to AG 48 and a model regulation that contains the same substantive requirements as the updated AG 48. The states have started to adopt the model regulation. To the extent the types of assets permitted under AG 48 and the recent updates are not available in the future to back statutory reserves, we would not be able to take some or all statutory reserve credit for such transactions and this could materially affect the statutory capitalization of certain of our insurance subsidiaries.

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Competitive Factors May Adversely Affect Our Market Share and Profitability
We believe competition amongst insurance companies is based on a number of factors, including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition. We compete globally with a large number of other insurance companies, as well as non-insurance financial services companies, such as banks, broker-dealers and asset managers, for individual consumers, employers and other group customers and agents and other distributors of insurance and investment products. Some of these companies offer a broader array of products, have more competitive pricing or, with respect to other insurance companies, have higher claims paying ability ratings. Some may also have greater financial resources with which to compete. In some circumstances, national banks that sell annuity products of life insurers may also have pre-existing customer bases for financial services products. Additionally, many of our group insurance products are underwritten annually. There is a risk that group purchasers may be able to obtain more favorable terms from competitors than they could by renewing coverage with us. These competitive pressures may adversely affect the persistency of these and other products, as well as our ability to sell our products in the future. Furthermore, the investment management and securities brokerage businesses have relatively low barriers to entry and continually attract new entrants. In addition, the material weaknesses in our internal control over financial reporting could harm our reputation or financial condition, which in turn could negatively affect our competitive position. See “Business Competition,” “Controls and Procedures” and “ Risks Related to the Material Weaknesses We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.”
The insurance industry distributes many of its individual products through other financial institutions such as banks and broker-dealers. An increase in bank and broker-dealer consolidation activity may negatively impact the industry’s sales, and such consolidation could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market insurance products to our current customer base or to expand our customer base. Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to us.
In addition, since numerous aspects of our business are subject to regulation, legislative and other changes affecting the regulatory environment for our business may have, over time, the effect of supporting or burdening some aspects of or actors in the financial services industry more than others. This can adversely affect our competitive position within the life insurance industry and within the broader financial services industry. See “Business Regulation,” “ Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” and “ Regulatory and Legal Risks Changes in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our Profitability.”
If Our Business Does Not Perform Well, We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against the Deferred Income Tax Asset, Which Could Adversely Affect Our Results of Operations or Financial Condition
We perform our goodwill impairment testing using the fair value approach, which requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment or a business one level below the operating segment under certain circumstances.
The estimated fair value of the reporting unit is impacted by the performance of the business, which may be adversely impacted by prolonged market declines. If it is determined that the goodwill has been impaired, we must write down the goodwill by the amount of the impairment, with a corresponding charge to net income. Such writedowns could have an adverse effect on our results of operations or financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Critical Accounting Estimates Goodwill” and Notes 1 and 11 of the Notes to the Consolidated Financial Statements.
Long-lived assets, including but not limited to assets such as real estate, also require impairment testing. This testing is done to determine whether changes in circumstances indicate that we will be unable to recover the carrying amount of the asset group. Such writedowns could have a material adverse effect on our results of operations or financial position.

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Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred tax assets are assessed periodically by management to determine if they are realizable. Factors in management’s determination include the performance of the business including the ability to generate future taxable income. If, based on available information, it is more likely than not that the deferred income tax asset will not be realized then a valuation allowance must be established with a corresponding charge to net income. Such charges could have a material adverse effect on our results of operations or financial position. In addition, changes in the corporate tax rates could affect the value of our deferred tax assets and may require a write-off of some of those assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Critical Accounting Estimates Income Taxes.” See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform.”
If Our Business Does Not Perform Well or if Actual Experience Versus Estimates Used in Valuing and Amortizing DAC, Deferred Sales Inducements (“DSI”) and VOBA Vary Significantly, We May Be Required to Accelerate the Amortization and/or Impair the DAC, DSI and VOBA Which Could Adversely Affect Our Results of Operations or Financial Condition
We incur significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition of new and renewal insurance business are deferred and referred to as DAC. Bonus amounts credited to certain policyholders, either immediately upon receiving a deposit or as excess interest credits for a period of time, are deferred and referred to as DSI. 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. The estimated fair value of the acquired liabilities is based on actuarially determined projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. DAC, DSI and VOBA related to fixed and variable universal life and deferred annuity contracts are amortized in proportion to actual and expected future gross profits and for most participating contracts in proportion to actual and expected future gross margins. The amount of future gross profit or margin is dependent principally on investment returns in excess of the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. Of these factors, we anticipate that investment returns are most likely to impact the rate of amortization of DAC for the aforementioned contracts.
If actual gross profits or margins are less than originally expected, then the amortization of such costs would be accelerated in the period the actual experience is known and would result in a charge to net income. Significant or sustained equity market declines could result in an acceleration of amortization of DAC, DSI and VOBA related to variable annuity and variable universal life contracts, resulting in a charge to net income. Such adjustments could have a material adverse effect on our results of operations or financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Industry Trends Impact of a Sustained Low Interest Rate Environment” for a discussion of how significantly lower spreads may cause us to accelerate amortization, thereby reducing net income in the affected reporting period.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Critical Accounting Estimates Deferred Policy Acquisition Costs and Value of Business Acquired” and Note 1 of the Notes to the Consolidated Financial Statements for further consideration of DAC and VOBA.
Guarantees Within Certain of Our Products May Decrease Our Earnings, Increase the Volatility of Our Results, Result in Higher Risk Management Costs and Expose Us to Increased Counterparty Risk
Certain of our variable annuity products, variable universal life products, assumed reinsurance contracts and other products contain guaranteed benefits, including guaranteed minimum death benefits (“GMDBs”) (including but not limited to no-lapse guarantee benefits), guaranteed minimum withdrawal benefits (“GMWBs”), guaranteed minimum accumulation benefits (“GMABs”) and guaranteed minimum income benefits (“GMIBs”). Certain of our interest rate sensitive products include a minimum crediting rate feature which could be guaranteed for a period of time or life time of the policies. These guarantees are designed to protect policyholders against significant downturns in equity markets and interest rates. Any such periods of significant and sustained downturns in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation of our liabilities associated with those products. An increase in these liabilities would result in a decrease in our net income.
We use derivatives and other risk management strategies to hedge the economic exposure inherent in these liabilities. These economically effective hedges do not generally qualify for hedge accounting treatment, and, as result, such non-qualifying derivatives may introduce volatility in the results of our operations, including net income, to the extent the financial measurement of the hedged liability does not fully reflect the sensitivity to the underlying economic exposure.

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We also use derivatives and other risk management strategies to directly mitigate the volatility in net income associated with certain of these liabilities that are measured at fair value. These strategies involve the use of reinsurance and derivatives, which may not be completely effective. For example, in the event that reinsurers, derivative counterparties or central clearinghouses are unable or unwilling to pay, we remain liable for the guaranteed benefits. See “ If the Counterparties to Our Reinsurance or Indemnification Arrangements or to the Derivatives We Use to Hedge Our Business Risks Default or Fail to Perform, We May Be Exposed to Risks We Had Sought to Mitigate, Which Could Materially Adversely Affect Our Financial Condition and Results of Operations.”
In addition, hedging instruments may not effectively offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Furthermore, we are subject to the risk that changes in policyholder behavior or mortality, combined with adverse market events, produce economic losses not addressed by the risk management techniques employed. These, individually or collectively, may have a material adverse effect on our results of operations, including net income, capitalization, financial condition or liquidity, including our ability to receive dividends from our operating insurance companies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Policyholder Liabilities Variable Annuity Guarantees” and Note 1 of the Notes to the Consolidated Financial Statements for further consideration of the risks associated with guaranteed benefits.
Risks Related to Acquisitions, Dispositions or Other Structural Changes
We Could Face Difficulties, Unforeseen Liabilities, Asset Impairments or Rating Actions Arising from Business Acquisitions or Integrating and Managing Growth of Such Businesses, Dispositions of Businesses, or Legal Entity Reorganizations
We have engaged in dispositions and acquisitions of businesses in the past, and expect to continue to do so in the future. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Separation and the U.S. Retail Advisor Force Divestiture. Such activity exposes us to a number of risks arising from (i) potential difficulties achieving projected financial results, including the costs and benefits of integration or deconsolidation; (ii) unforeseen liabilities or asset impairments; (iii) the scope and duration of rights to indemnification for losses; (iv) the use of capital which could be used for other purposes; (v) rating agency reactions; (vi) regulatory requirements that could impact our operations or capital requirements; (vii) changes in statutory or U.S. GAAP accounting principles, practices or policies; and (viii) certain other risks specifically arising from activities relating to an initial public offering, spin-off, joint venture or legal entity reorganization, including in connection with the Separation.
The valuation and structure for any transaction reflect our financial projections and other qualitative and quantitative factors. Every transaction exposes us to the risk that actual results may materially differ from what we have projected. Factors that can cause our ultimate experience to vary materially from financial projections made at the time we enter into a transaction include, but are not limited to, macroeconomic, business growth, demographic, policyholder behavior and other actuarial assumptions, regulatory and political conditions.
Risks Relating to Acquisitions
Our ability to achieve certain financial benefits we anticipate from any acquisitions of businesses will depend in part upon our ability to successfully integrate such businesses in an efficient and effective manner. We may not be able to integrate such businesses smoothly or successfully, and the process may take longer than expected. The integration of operations and differences in organizational culture may require the dedication of significant management resources, which may distract management’s attention from day-to-day business. If we are unable to successfully integrate the operations of such acquired businesses, we may be unable to realize the benefits we expect to achieve as a result of such acquisitions and our business and results of operations may be less than expected.

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The success with which we are able to integrate acquired operations will depend on our ability to manage a variety of issues, including the following:
Loss of key personnel or higher than expected employee attrition rates could adversely affect the performance of the acquired business and our ability to integrate it successfully.
Customers of the acquired business may reduce, delay or defer decisions concerning their use of its products and services as a result of the acquisition or uncertainty related to the consummation of the acquisition, including, for example, potential unfamiliarity with the MetLife brand in regions where we did not have a market presence prior to the acquisition.
If the acquired business relies upon independent distributors to distribute its products, these distributors may not continue to generate the same volume of business for us after the acquisition. Independent distributors may reexamine the scope of their relationship with the acquired business or us as a result of the acquisition and decide to curtail or eliminate distribution of our products.
If the acquired business relies on continued distribution access with another party, we are also exposed to the risk of loss of exclusivity or change in access due to regulatory changes.
Integrating acquired operations with our existing operations may require us to coordinate geographically separated organizations, address possible differences in corporate culture and management philosophies, merge financial processes and risk and compliance procedures, combine separate information technology platforms and integrate operations that were previously closely tied to the former parent of the acquired business or other service providers.
In cases where we or an acquired business operates in certain markets through joint ventures, the acquisition may affect the continued success and prospects of the joint venture.
We may incur significant costs in connection with any acquisition and the related integration. The costs and liabilities actually incurred in connection with an acquisition and subsequent integration process may exceed those anticipated.
There could also be unforeseen liabilities or asset impairments, including goodwill impairments, which arise in connection with the businesses that we may sell or the businesses that we may acquire in the future.
In addition, there may be liabilities or asset impairments that we fail, or are unable, to discover in the course of performing acquisition-related due diligence investigations. Furthermore, even for obligations and liabilities that we do discover during the due diligence process, neither the valuation adjustment nor the contractual protections we negotiate may be sufficient to fully protect us from losses. Although we generally have rights to indemnification for certain losses, our rights may be limited by survival periods for bringing claims and limitations on the nature and amount of losses we may recover, and we cannot be certain that indemnification will be, among other things, collectible or sufficient in amount, scope or duration to fully offset any loss we may suffer. The use of our own funds as consideration in any acquisition would consume capital resources, which could affect our capital plan and render those funds unavailable for other corporate purposes. We also may not be able to raise sufficient funds to consummate an acquisition if, for example, we are unable to sell our securities or close related bridge credit facilities.

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Risks Relating to Dispositions
We may from time to time dispose of business or blocks of in-force business through an outright sale, reinsurance transaction or by alternate means such as a public offering of shares in a publicly traded company or a spin-off, which would also result in a separate, publicly traded company. See Note 3 of the Notes to the Consolidated Financial Statements for information on the Separation and the U.S. Retail Advisor Force Divestiture. When we dispose of subsidiaries or operations, we may remain liable to the acquirer or to third parties for certain losses or costs arising from the divested business or on other bases. We may also not realize the anticipated profit on a disposition or incur a loss on the disposition. In anticipation of any disposition, we may need to restructure our operations, which could disrupt such operations and affect our ability to recruit key personnel needed to operate and grow such business pending the completion of such transaction. In addition, the actions of key employees of the business to be divested could adversely affect the success of such disposition as they may be more focused on obtaining employment, or the terms of their employment, than on maximizing the value of the business to be divested. Furthermore, transitional services or tax arrangements related to any such separation, including the Separation, could further disrupt our operations and may impose restrictions, liabilities, losses or indemnification obligations on us. Depending on its particulars, a separation could increase our exposure to certain risks, such as by decreasing the diversification of our sources of revenue or by changing the percentage of our revenue being derived from non-U.S. sources. See “— Risks Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.” Any such separation could also affect the dividends available to be paid to MetLife, Inc. by the subsidiaries that are part of such separation. Furthermore, we may be unable to timely dissolve all contractual relationships with the divested business in the course of the proposed transaction, which may materially adversely affect our ability to realize value from the disposition. Such restructuring could also adversely affect our internal controls and procedures and impair our relationships with key customers, distributors and suppliers. An interruption or significant change in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. After any such disposition, shares of our common stock will represent an investment in a company different in size and characteristics from the present. These changes may cause some existing shareholders to sell their shares of our common stock, which could, if excessive, cause the market price of our common stock to decrease.
Risks Relating to Joint Ventures
We participate in joint ventures, which may also include exclusive or semi-exclusive distribution relationships, in several countries, including China and India. We may enter into joint ventures with other companies or government sponsored enterprises in various other international markets, including joint ventures where we may have a lesser degree of control over the business operations, which may expose us to additional operational, financial, legal or compliance risks. We may be dependent on a joint venture counterparty for capital, product distribution, local market knowledge, or other resources. Limits on our ownership levels under local laws or regulations may increase our dependence on joint venture counterparties and subsequent changes to such laws or regulations may impact how we account for our joint venture ownership interests or manage the joint venture. Regulations regarding the level of foreign ownership or operations of such entities or limitation on distribution exclusivity may affect the value of a joint venture. See “ Risks Related to Our Business Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.”
A joint venture may require an investment of considerable management, financial and operational resources to establish sufficient infrastructure such as underwriting, actuarial, risk management, compliance or other processes. If we are unable to effectively cooperate with joint venture counterparties, or any joint venture counterparty fails to meet its obligations under the joint venture arrangement, encounters financial difficulty, or elects to alter, modify or terminate the relationship, we may be unable to exercise management control or influence over these joint venture operations and our ability to achieve our objectives and our results of operations may be negatively impacted thereby impairing our investment. Additionally, any event having a negative financial, operational or reputational impact on any of our joint venture counterparties may also negatively affect our results of operations in the joint venture investment.

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Risks Relating to Legal Entity Reorganizations
In addition, we may reorganize or consolidate the legal entities through which we conduct business. The implementation of legal entity reorganizations is a complex undertaking and involves a number of risks similar to those outlined above that are present in the case of an acquisition, including additional costs and expenses, information technology-related delays and problems, loss of key personnel and distraction of management. For example, over the past several years, we have pursued three significant reorganizations. In 2015 and 2016, we substantially completed a reorganization of many of our foreign entities under a single holding company, in 2017, we effected the Separation, and in 2018, we announced plans to merge our subsidiary General American Life Insurance Company with and into another subsidiary, Metropolitan Tower Life Insurance Company. Many aspects of these types of transactions are subject to regulatory approvals from a number of different jurisdictions. We may not obtain needed regulatory approvals in the timeframe anticipated or at all, which could reduce or prevent us from realizing the anticipated benefits of these transactions. These transactions or the related regulatory approvals may entail modifications of certain aspects of our operations, the composition of certain of our investment portfolios, and/or the cost of our derivatives hedging activities, which could result in additional costs or reduce net investment income. These transactions are often effected to achieve certain operational, capital or tax benefits and to the extent not realized could affect the ongoing value and financial results of such entities. Any of these risks, if realized, could result in a material adverse effect on our business, results of operations or financial condition.
We May Not Achieve Expected Benefits of the Separation and Will Have Equity Market Exposure to Brighthouse
We believe that the Separation allows us and Brighthouse to pursue distinct strategies appropriate to our respective markets. However, there can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits of the Separation. A failure to realize expected benefits of the Separation could result in a material adverse effect on our business, results of operations and financial condition. Additionally, we continue to have a significant equity ownership position in Brighthouse, and changes in the market price of Brighthouse common stock may have a material impact on us.
We May be Subject to Claims by Plaintiffs in the Event that Brighthouse is Not Successful as a Standalone Entity
We cannot guarantee that Brighthouse will be successful as a standalone entity. In the event that Brighthouse is not successful, it is possible that plaintiffs could assert a variety of claims against us. Depending on their nature and number, such claims could have a material adverse effect on our business, financial condition or results of operations.
We Could be Exposed to Claims from Brighthouse or Third Parties Under Our Agreements with Brighthouse or Otherwise
We have entered into agreements with Brighthouse and its subsidiaries, including among others a master separation agreement, registration rights agreement, transition services agreement, investment management agreements, investment finance services agreements, tax receivables agreement, tax separation agreement and intellectual property license agreement. Our agreements with Brighthouse or its subsidiaries may not reflect terms that would have resulted from negotiations between unaffiliated parties and, in certain instances, may relate to the continuation of certain business arrangements among us and Brighthouse in existence prior to the Separation. Such agreements include, among other things, the parties’ respective indemnification rights and obligations with respect to certain losses relating to specified liabilities as well as certain losses relating to specified information included in certain securities filings, the allocations of assets and liabilities, payment obligations and other obligations between us and Brighthouse. There can be no assurance that any remedies available under these arrangements will be sufficient to compensate us in the event of a dispute or non-performance. In addition, there can be no assurance that the attention we must pay, and resources we must devote, to our obligations under one or more of these agreements, or the results of any failure to perform those obligations, or successful claim by Brighthouse that we have failed to perform those obligations or have an indemnification obligation under these agreements, will not have a material impact on our own business performance, results of operations or financial condition.
Under the master separation agreement, Brighthouse has agreed to indemnify us for certain liabilities. However, in certain instances, the indemnity from Brighthouse may be insufficient to fully protect us from such liabilities, and third parties may also seek to hold us responsible for liabilities not intended to be covered by the indemnity from Brighthouse. Additionally, under the tax separation agreement, Brighthouse could be required, under certain circumstances, to indemnify us against certain tax-related liabilities to the extent those liabilities result from an action or breach of the tax separation agreement by Brighthouse. Brighthouse may be unable to satisfy or have an adverse interpretation of or object to its indemnification obligations to us under one or more of these agreements and the underlying liabilities could have a material adverse effect on our financial condition and results of operations.

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The transition services agreement provides for the performance of certain services by each of MetLife and Brighthouse, or their respective subsidiaries, for the benefit of the other. The investment management agreements and investment finance services agreements provide for the performance by us of certain services for Brighthouse. Further, under the tax receivables agreement, Brighthouse is expected to pay us certain tax benefits it realizes as a result of certain transactions involved in the Separation. We will rely on Brighthouse to satisfy its performance and payment obligations under these and all other agreements entered into in connection with the Separation. If Brighthouse fails to satisfy such obligations it could have a material adverse effect on our financial condition and results of operations.
If the Spin-off Distribution Were to Fail to Qualify for Non-recognition Treatment for U.S. Federal Income Tax Purposes, Then We and Our Shareholders Could be Subject to Significant Tax Liabilities
Prior to the spin-off distribution, we received a private letter ruling from the IRS regarding certain significant issues under the Code, as well as an opinion from tax counsel that the distribution qualified for non-recognition of gain or loss to us and our shareholders pursuant to Sections 355 and 361 of the Code, except to the extent of cash received in lieu of fractional shares, each subject to the accuracy of and compliance with certain representations, assumptions and covenants therein.
Notwithstanding the receipt of the private letter ruling and the tax opinion, the IRS could determine that the distribution should be treated as a taxable transaction, for example, if it determines that any of the representations, assumptions or covenants on which the private letter ruling is based are untrue or have been violated. Similarly, the IRS could determine that our disposal of (and MetLife, Inc. shareholders’ receipt of) Brighthouse common stock in the potential exchange offer should be treated as a taxable transaction to both MetLife, Inc. and the exchanging shareholders. Furthermore, as part of the IRS’s policy, the IRS did not determine whether the distribution or potential exchange offer satisfies certain conditions that are necessary to qualify for non-recognition treatment. Rather, the private letter ruling is based on representations by us and Brighthouse that these conditions have been satisfied. The tax opinion addressed the satisfaction of these conditions. If we do not divest our retained Brighthouse common stock in a timely manner, through an exchange offer for MetLife, Inc. common stock or otherwise, the ultimate disposition of these shares would likely be a taxable transaction for MetLife, Inc.
The tax opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. In addition, the tax counsel relied on certain representations and covenants delivered by us and Brighthouse.
If the IRS ultimately determines that the distribution is taxable, the distribution could be treated as a taxable dividend or capital gain to MetLife shareholders who received shares of Brighthouse stock in the distribution for U.S. federal income tax purposes, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, if the IRS ultimately determines that the distribution is taxable, we and Brighthouse could incur significant U.S. federal income tax liabilities, and either we or Brighthouse could have an indemnification obligation to the other, depending on the circumstances. Similarly, a potential exchange offer could be treated as a taxable transaction for both us and the exchanging shareholders.
We Have Agreed to Certain Restrictions to Preserve the Non-recognition Tax Treatment of the Transactions, Which May Reduce Our Strategic and Operating Flexibility
Even if the spin-off distribution otherwise qualifies for non-recognition of gain or loss under Section 355 of the Code, it may be taxable to us, but not our shareholders, under Section 355(e) of the Code if 50% or more (by vote or value) of our common stock or Brighthouse’s common stock is acquired as part of a plan or series of related transactions that include the distribution. For this purpose, any acquisitions of our or Brighthouse’ s common stock within two years before or after the distribution are presumed to be part of such a plan, although we or Brighthouse may be able to rebut that presumption based on either applicable facts and circumstances or a “safe harbor” described in the tax regulations. Therefore, under the tax separation agreement with Brighthouse, we are restricted from certain activities and have indemnity obligations which may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that our shareholders may consider favorable. Any payments required under these indemnity obligations could be significant and could materially adversely affect our business, results of operations and financial condition. 

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Capital-Related Risks
Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish
The declaration and payment of dividends is subject to the discretion of our Board of Directors, and will depend on our financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board. There is no requirement or assurance that we will declare and pay any dividends. See “ Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
In addition, our ability to pay dividends on our common stock and repurchase our common stock is subject to restrictions under the terms of our preferred stock, junior subordinated debentures and trust securities. These instruments have so called “dividend stopper” provisions for situations where we may be experiencing financial stress. “Junior subordinated debentures” include MetLife’s Fixed-to-Floating Exchangeable Surplus Trust Securities, which are exchangeable for junior subordinated debentures, and which contain terms with the same substantive effects for these purposes as do the terms of MetLife, Inc.’s junior subordinated debentures. In addition, our ability to pay dividends on our preferred stock and interest on our junior subordinated debentures is also restricted by the terms of those securities.
We may also be restricted from time to time in our ability to repurchase shares or to enter into share repurchase programs under Rule 10b5-1 of the Exchange Act. That rule requires, among other things, that we establish any share repurchase program in good faith at a time when we are not aware of any material non-public information in order for us to have an affirmative defense against accusations of insider trading. Therefore, we may be unable to repurchase shares or to enter into share repurchase programs during various periods of time, including periods of significant corporate reorganization such as a spin-off or a sale of a substantial portion of the Company.
Regulatory Restrictions
MetLife, Inc. may not be able to pay dividends if it does not receive sufficient funds from its operating subsidiaries, which are themselves subject to separate regulatory restrictions on their ability to pay dividends. See “ As A Holding Company, MetLife, Inc. Depends on the Ability of Its Subsidiaries to Pay Dividends, a Major Component of Holding Company Free Cash Flow.” See also “ Regulatory and Legal Risks Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” and “Business Regulation U.S. Regulation Insurance Regulation — Holding Company Regulation.”
“Dividend Stopper” Provisions in Our Preferred Stock and Junior Subordinated Debentures
Certain terms of our preferred stock and our junior subordinated debentures may prevent us from repurchasing our common stock or paying dividends on our common stock in certain circumstances. MetLife, Inc. also has entered into certain replacement capital covenants. These covenants limit our ability to eliminate these restrictions through the repayment, redemption or purchase of preferred stock or junior subordinated debentures by requiring MetLife, 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 14 of the Notes to the Consolidated Financial Statements for a description of such covenants in effect with respect to junior subordinated debentures.
If we have not paid the full dividends on our preferred stock for the latest completed dividend period, we may not repurchase or pay dividends on our common stock during a dividend period. Under our junior subordinated debentures, if we have not paid in full the accrued interest through the most recent interest payment date on our junior subordinated debentures, we may not repurchase or pay dividends on our common stock or other capital stock (including the preferred stock), subject to certain exceptions.
Trigger Events for the Restrictions on the Payment of Dividends on Our Preferred Stock and Restrictions on the Payment of Interest on Our Junior Subordinated Debentures
In addition, the preferred stock and the junior subordinated debentures contain provisions that would automatically suspend the payment of preferred stock dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain tests (“Trigger Events”). In such cases, and subject to the terms of the instruments, MetLife, Inc. could make payments up to the amount of net proceeds from sales of (i) common stock during the 90 days preceding the dividend declaration date or (ii) common stock or certain kinds of warrants to purchase common stock generally during the 180 days prior to the interest payment date (the “New Equity Proceeds”). If the New Equity Proceeds were insufficient to make such payments, the “dividend stopper” provisions would come into effect and we would be unable to repurchase or pay dividends on our common stock.

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A “Trigger Event” would occur if:
the RBC ratio of MetLife’s largest U.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 (A) its level 10 quarters before the Final Quarter End Test Date (the “Benchmark Quarter End Test Date”), for Benchmark Quarter End Test Dates after August 4, 2017 (the date of the Separation), or (B) $49,282,000,000, the consolidated GAAP stockholders’ equity, minus AOCI as of June 30, 2017 as reported on a pro forma basis reflecting the Separation in MetLife’s Form 8-K filed with the SEC on August 9, 2017, for Benchmark Quarter End Test Dates prior to August 4, 2017.
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 New Equity Proceeds) 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 until MetLife satisfies these conditions for each of the Trigger Events.
Dividends on Our Preferred Stock Are Subject to Declaration by Our Board of Directors
In addition, dividends on our preferred stock are subject to declaration each quarter by our Board of Directors. If our Board of Directors does not declare dividends on the preferred stock for any quarterly dividend period, the “dividend stopper” provisions in our preferred stock would prevent us from repurchasing or paying dividends on our common stock for that period.
Optional Deferral of Interest on the Junior Subordinated Debentures
The junior subordinated debentures provide that we may, at our option and provided that certain conditions are met, defer payment of interest without giving rise to an event of default for periods of up to 10 years. In that case, after five years MetLife, Inc. would be obligated to use commercially reasonable efforts to sell equity securities to raise proceeds to pay the interest. We would not be subject to limitations on the number of deferral periods that we could begin, so long as all accrued and unpaid interest is paid with respect to prior deferral periods. If we were to defer payments of interest, the “dividend stopper” provisions in the junior subordinated debentures would thus prevent us from repurchasing or paying dividends on our common stock or other capital stock (including the preferred stock) during the period of deferral, subject to exceptions.
See Note 14 of the Notes to the Consolidated Financial Statements for additional information about these restrictions.
As a Holding Company, MetLife, Inc. Depends on the Ability of Its Subsidiaries to Pay Dividends, a Major Component of Holding Company Free Cash Flow
MetLife, Inc. is a holding company for its insurance and financial subsidiaries and does not have any significant operations of its own. Dividends from its subsidiaries and permitted payments to it under its tax sharing agreement with its subsidiaries are its principal sources of cash to meet its obligations and to pay preferred and common stock dividends. If the cash MetLife, Inc. receives from its subsidiaries is insufficient for it to fund its debt service and other holding company obligations, MetLife, Inc. may be required to raise cash through the incurrence of debt, the issuance of additional equity or the sale of assets.
The payment of dividends and other distributions to MetLife, Inc. by its U.S. insurance subsidiaries is regulated by insurance laws and regulations. In general, dividends in excess of prescribed limits require insurance regulatory approval. In addition, insurance regulators may prohibit the payment of dividends or other payments by its insurance subsidiaries to MetLife, Inc. if they determine that the payment could be adverse to our policyholders or contractholders. The payment of dividends and other distributions by insurance companies is also influenced by business conditions and rating agency considerations. See “Business — Regulation — U.S. Regulation — Insurance Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries.” See also “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”

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Any payment of interest, dividends, distributions, loans or advances by our foreign subsidiaries and branches to MetLife, Inc. could be subject to taxation, insurance regulatory or other restrictions on dividends or repatriation of earnings under applicable law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdiction in which such foreign subsidiaries operate. See “Business — Regulation — International Regulation” and “— Risks Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.”
From time to time, MetLife, Inc. or its subsidiaries may establish net worth maintenance or other support agreements with other subsidiaries. Those commitments may limit such supported subsidiary’s ability to pay MetLife, Inc. dividends, or require MetLife, Inc. or another subsidiary to transfer capital to such supported subsidiary, in either case limiting capital that is available for other purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquidity and Capital Uses — Support Agreements.”
Dividends from operating subsidiaries are a major component of holding company free cash flow. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures.” If MetLife, Inc.’s operating subsidiaries were unable to make expected dividend payments to MetLife, Inc., we may be unable to meet our free cash flow goals and our ability to distribute cash to shareholders could be adversely affected.
Operational Risks
Our Risk Management Policies and Procedures or Our Models May Leave Us Exposed to Unidentified or Unanticipated Risk, Which Could Negatively Affect Our Business
Our enterprise risk management program is designed to mitigate material risks and loss to the Company. We have developed and continue to develop our risk management policies and procedures to reflect the ongoing review of our risks and expect to continue to do so in the future. Nonetheless, our policies and procedures may not be comprehensive and may not identify every risk to which we are exposed. Many of our methods for managing risk and exposures are based upon the use of observed historical market behavior to model or project potential future exposure.
Models used by our business are based on assumptions, projections and data which may be inaccurate. Business or other decisions, including determination of reserves, based on incorrect or misused model output and reports could have a material adverse impact on our results of operations. Model risk may be the result of a model being misspecified for its intended purpose, being misused or producing incorrect or inappropriate results. Models used by our business may not operate properly and could contain errors related to model inputs, data, assumptions, calculations, or output. We perform model reviews that could give rise to adjustments to models that may adversely impact our results of operations. Additionally, our model review process may not adequately identify or remediate errors in or related to our models. As a result, our models may not fully predict future exposures or correctly reflect past experience, which may have a material impact on our business, reputation, results of operations or financial condition.
Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that are publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. Furthermore, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will follow our risk management policies and procedures, nor can there be any assurance that our risk management policies and procedures will enable us to accurately identify all risks and limit our exposures based on our assessments. In addition, we may have to implement more extensive and perhaps different risk management policies and procedures under pending regulations. See “Business Regulation U.S. Regulation,” “Business Regulation International Regulation Global Systemically Important Insurers” and “Quantitative and Qualitative Disclosures About Market Risk.”
We are highly dependent on our ability to process a large number of complex transactions across our businesses. The large number of transactions we process makes it possible that errors will occasionally occur, and the controls and procedures we have in place to prevent such errors may not be entirely effective. The occurrence of mistakes, particularly significant ones, can subject us to claims from our customers and may have a material adverse effect on our reputation, business, results of operations, or financial condition.
We are dependent on our group product customers or their employees for certain information to accurately review and pay claims on many of our products. If we are unable to obtain necessary and accurate information from our customers, we may be unable provide coverage and to pay claims, or we may pay claims without accurate or complete documentation, which may have a material adverse effect on our reputation, business, results of operations, or financial condition.

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From time to time, we rely on vendors or other service providers for services related to the administration of our products, investment management, or other business operations. To the extent our efforts to ensure such vendors’ controls meet our standards are inadequate, our vendors fail to perform their services accurately or timely, the exchange of information between us and our vendors is imperfect, or our vendors suffer financial or reputational distress, any errors or misconduct that result could have a material adverse effect on our business, reputation, results of operations, or financial condition.
The Continued Threat of Terrorism and Ongoing Military Actions May Adversely Affect the Value of Our Investment Portfolio and the Level of Claim Losses We Incur
The continued threat of terrorism, both within the U.S. and abroad, ongoing military and other actions and heightened security measures in response to these types of threats may cause significant volatility in global financial markets and result in loss of life, property damage, additional disruptions to commerce and reduced economic activity. The value of assets in our investment portfolio may be adversely affected by declines in the credit and equity markets and reduced economic activity caused by the continued threat of terrorism. Companies in which we maintain investments may suffer losses as a result of financial, commercial or economic disruptions and such disruptions might affect the ability of those companies to pay interest or principal on their securities or mortgage loans. Terrorist actions also could disrupt our operations centers in the U.S. or abroad and result in higher than anticipated claims under our insurance policies. See “ Economic Environment and Capital Markets-Related Risks Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations.”
The Failure in Cyber- or Other Information Security Systems, as well as the Occurrence of Events Unanticipated in Our Disaster Recovery Systems and Management Continuity Planning, Could Result in a Loss or Disclosure of Confidential Information, Damage to Our Reputation and Impairment of Our Ability to Conduct Business Effectively
Our business is highly dependent upon the effective operation of our computer systems. We rely on these systems throughout our business for a variety of functions, including processing claims, transactions and applications, providing information to customers and distributors, performing actuarial analyses and maintaining financial records. We also retain confidential and proprietary information on our computer systems and we rely on sophisticated technologies to maintain the security of that information. Our computer systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized or fraudulent access, cyberattacks or other computer-related penetrations. Publicly reported cyber-security threats and incidents have increased over recent periods. The administrative and technical controls and other preventive actions we take to reduce the risk of cyber-incidents and protect our information technology may be insufficient to prevent physical and electronic break-ins, cyber-attacks, compromised credentials, fraud, other security breaches or other unauthorized access to our computer systems. In some cases, such physical and electronic break-ins, cyber-attacks, compromised credentials, fraud, other security breaches or other unauthorized access may not be immediately detected. This may impede or interrupt our business operations and could adversely affect our business, financial condition and results of operations. In addition, the availability and cost of insurance for operational and other risks relating to our business and systems may change and any such change may affect our results of operations.
In the event of a disaster such as a natural catastrophe, epidemic, industrial accident, blackout, computer virus, terrorist attack, cyberattack or war, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business and on our results of operations and financial position, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, in the event that a significant number of our managers, or employees generally, were unavailable following a disaster, our ability to effectively conduct business could be severely compromised. These interruptions also may interfere with our suppliers’ ability to provide goods and services and our employees’ ability to perform their job responsibilities.

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The failure of our computer systems and/or our disaster recovery plans for any reason could cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such a failure could harm our reputation, subject us to regulatory investigations and sanctions, expose us to legal claims, lead to a loss of customers and revenues and otherwise adversely affect our business and financial results. Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to confirm compliance with MetLife’s information security standards, the failure of such third parties’ computer systems and/or their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such a failure could harm our reputation, subject us to regulatory sanctions and legal claims, lead to a loss of customers and revenues and otherwise adversely affect our business and financial results. While we maintain cyber liability insurance that provides both third-party liability and first-party liability coverages, our insurance may not be sufficient to protect us against all losses. MetLife, Inc. and its subsidiaries maintain a primary cybersecurity and privacy liability insurance policy with a limit of $15 million, and have additional coverage for cybersecurity and privacy liability available under blended professional liability excess coverage policies with a total limit of $210 million. There can be no assurance that our information security policies and systems in place can prevent unauthorized access use or disclosure of confidential information, including nonpublic personal information, nor can we be certain that we will be able to reliably access all of the documents and records in the information storage systems we use, whether electronic or physical. In some circumstances, we may fail to obtain or maintain all of the records we need to accurately and timely administer, and establish appropriate reserves for benefits and claims with respect to, our products, which failure could adversely affect our business, reputation, results of operations or our financial condition.
We are continuously evaluating and enhancing systems and creating new systems and processes as our business depends on our ability to maintain and improve our technology systems. Due to the complexity and interconnectedness of our systems and processes, these changes, as well as changes designed to update and enhance our protective measures to address new threats, increase the risk of a system or process failure or the creation of a gap in our security measures. Any such failure or gap could adversely affect our business, reputation, results of operations or financial condition.
Any Failure to Protect the Confidentiality of Client Information Could Adversely Affect Our Reputation and Have a Material Adverse Effect on Our Business, Financial Condition and Results of Operations
Pursuant to U.S. federal and state laws, and laws of other jurisdictions in which we operate, various government agencies have established rules protecting the privacy and security of personal information. In addition, most U.S. states and a number of jurisdictions outside the United States have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information. The area of cybersecurity has also come under increased scrutiny by insurance regulators. On March 1, 2017, New York’s cybersecurity regulation for financial services institutions, including banking and insurance entities, became effective, and on October 24, 2017, the NAIC adopted the Insurance Data Security Model Law, which, if adopted as state legislation, would establish standards for data security and for the investigation of and notification of insurance commissioners of cybersecurity events. See “Business — Regulation — U.S. Regulation — Insurance Regulation — Cybersecurity Regulation.” Many of the associates who conduct our business have access to, and routinely process, personal information of clients through a variety of media, including information technology systems. We rely on various internal processes and controls to protect the confidentiality of client information that is accessible to, or in the possession of, our company and our associates. It is possible that an associate could, intentionally or unintentionally, disclose or misappropriate confidential client information or our data could be the subject of a cybersecurity attack. If we fail to maintain adequate internal controls or if our associates fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of client information could occur. Such internal control inadequacies or non-compliance could materially damage our reputation or lead to regulatory, civil or criminal investigations and penalties, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. In addition, we analyze customer data to better manage our business. There has been increased scrutiny, including from U.S. state and federal regulators, regarding the use of “big data” techniques such as price optimization. We cannot predict what, if any, actions may be taken with regard to “big data,” but any inquiries could cause reputational harm and any limitations could have a material impact on our business, financial condition and results of operations.

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Our Associates May Take Excessive Risks Which Could Negatively Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of accepting certain risks. The associates who conduct our business, including executive officers and other members of management, sales managers, investment professionals, product managers, sales agents, wholesalers, underwriters, and other associates, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining what assets to purchase for investment and when to sell them, which business opportunities to pursue, and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our associates incentives to take excessive risks; however, associates may take such risks regardless of the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor associates’ business decisions and prevent us from taking excessive risks, and to prevent employee misconduct, these controls and procedures may not be effective. If our associates take excessive risks, the impact of those risks could harm our reputation and have a material adverse effect on our financial condition and business operations.
Technological Changes May Present New and Increased Challenges to Our Business
Recent and future changes in technology may present us with new challenges and may intensify many of the challenges that we already face. For example, as a result of the availability of new technological tools for data collection and analysis, we have access to an increasing amount of data, from an increasing variety of sources, regarding deaths of our policyholders and annuitants. We may be unable to accurately or completely process this increased volume of information within the time periods required by applicable standards. Furthermore, the additional information that we obtain as a result of technological improvements may require us to modify our assumptions, models, or reserves. Changes in technology related to collection and analysis of data regarding customers could, in these ways or others, expose us to regulatory or legal actions and may have a material adverse effect on our business, reputation, results of operations, and financial condition. See “— Risks Related to Our Business — Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our Financial Results.”
Technological changes may also impact the ways in which we interact with our customers. As technology evolves, customers may expect increased choices in the ways in which they interact with us. We may also be required to redesign certain of our products to meet changing customer preferences. Our distribution channels may become more automated in order to provide customers with increased flexibility to access our services and products at times and places of their choosing. Such changes may require significant costs to implement. If we are unsuccessful in implementing such changes, our competitive position may be harmed and our relationships with our distribution partners may suffer. See “— Risks Related to Our Business — Competitive Factors May Adversely Affect Our Market Share and Profitability” and “— General Risks — We May Experience Difficulty in Marketing and Distributing Products Through Our Distribution Channels.”
Technological advances may also impact the composition and results of our investment portfolio. For example, changes in energy technology may impact the relative attractiveness of investments in a variety of energy sources, and increasing consumer preferences for e-commerce may negatively impact the profitability of retail and commercial real estate. If we are unable to adjust our investments in reaction to such changes, our results of operations and financial condition may be materially and adversely affected.
Advances in medical technology may also adversely affect us. Improvements in medical technologies that extend lives may require us to modify our assumptions, models, or reserves. Additionally, increases in the prevalence and accuracy of genetic testing, or legislation or regulation regarding the use by insurers of information produced by such testing, may exacerbate adverse selection risks. Such changes in medical technologies may thus have a material adverse effect on our business, results of operations, and financial condition.

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General Risks
MetLife, Inc.’s Board of Directors May Influence the Outcome of Stockholder Votes on Many Matters Due to the Voting Provisions of the MetLife Policyholder Trust
Under the plan of reorganization, we established the MetLife Policyholder Trust to hold the shares of MetLife, Inc. common stock allocated to eligible policyholders not receiving cash or policy credits under the plan. As of February 16, 2018, the Trust held 154,420,615 shares, or 14.9%, of the outstanding shares of MetLife, Inc. common stock. Because of voting provisions of the Trust and the number of shares held by it, the Trust may affect the outcome of matters brought to a stockholder vote. Except on votes regarding certain fundamental corporate actions described below, the trustee will vote all of the shares of common stock held in the Trust in accordance with the recommendations given by MetLife, Inc.’s Board of Directors to its stockholders or, if the Board gives no such recommendations, as directed by the Board. As a result of the voting provisions of the Trust, the Board of Directors may be able to influence the outcome of votes on matters submitted to a vote of stockholders, excluding certain fundamental corporate actions, so long as the Trust holds a substantial number of shares of common stock.
If the vote relates to fundamental corporate actions specified in the Trust, the trustee will solicit instructions from the Trust beneficiaries and vote all shares held in the Trust in proportion to the instructions it receives. These actions include:
an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition to a nominee or nominees of MetLife, Inc.’s Board of Directors or a vote on a stockholder’s proposal to oppose a Board nominee for director, remove a director for cause or fill a vacancy caused by the removal of a director by stockholders, subject to certain conditions;
a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or dissolution, of MetLife, Inc., in each case requiring a vote of stockholders under applicable Delaware law;
any transaction that would result in an exchange or conversion of shares of common stock held by the Trust for cash, securities or other property; and
any proposal requiring MetLife, Inc.’s Board of Directors to amend or redeem the rights under MetLife, Inc.’s stockholder rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel to the effect that the proposal is not a proper subject for stockholder action under Delaware law. MetLife, Inc. does not currently have a stockholder rights plan.
If a vote concerns any of these fundamental corporate actions, the trustee will vote all of the shares of common stock held by the Trust in proportion to the instructions it received, which will give disproportionate weight to the instructions actually given by Trust beneficiaries.
The MetLife Policyholder Trust Agreement provides that we may terminate the Trust once the percentage of outstanding shares held in the Trust falls to 25%. The winding up of the Trust must commence 90 days after we provide the trustee with notice that the percentage of outstanding shares held in the Trust is 10% or less. In connection with any termination of the Trust, all of the shares of common stock then held in the Trust will need to be distributed to the respective Trust beneficiaries, unless we offer to purchase all or a portion of such Trust shares. In connection with the termination of the Trust and such a distribution, we may incur costs related to regulatory filings, mailings to Trust beneficiaries or others, and costs related to an increase in the number of shareholders, which may include increased mailing and proxy solicitation expenses. After such a distribution, the addition of the respective Trust beneficiaries to our shareholder base with full voting rights may have a significant impact on matters brought to a stockholder vote and other aspects of our corporate governance.
Changes in Accounting Standards Issued by the Financial Accounting Standards Board or Other Standard-Setting Bodies May Adversely Affect Our Financial Statements
Our financial statements are subject to the application of GAAP, which is periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board (the “FASB”). The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our reports filed with the SEC. See Note 1 of the Notes to the Consolidated Financial Statements. An assessment of proposed standards is not provided as such proposals are subject to change through the exposure process and official positions of the FASB are determined only after extensive due process and deliberations. Therefore, the effects on our financial statements cannot be meaningfully assessed. The required adoption of future accounting standards could have a material adverse effect on our financial condition and results of operations.

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Changes in Our Assumptions Regarding the Discount Rate, Expected Rate of Return, Mortality Rates and Expected Increase in Compensation Used for Our Pension and Other Postretirement Benefit Plans May Result in Increased Expenses and Reduce Our Profitability
We determine our pension and other postretirement benefit plan costs based on our best estimates of future plan experience. These assumptions are reviewed regularly and include discount rates, expected rates of return on plan assets, mortality rates, expected increases in compensation levels and expected medical inflation. Changes in these assumptions may result in increased expenses and reduce our profitability. See Note 17 of the Notes to the Consolidated Financial Statements for details on how changes in these assumptions would affect plan costs.
We May Not be Able to Protect Our Intellectual Property and May be Subject to Infringement Claims
We rely on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we endeavor to protect our rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant and our efforts may not prove successful. The inability to secure or protect our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete with other insurers and financial institutions.
In addition, we may be subject to claims by third parties for (i) patent, trademark or copyright infringement, (ii) breach of patent, trademark or copyright license usage rights, or (iii) misappropriation of trade secrets. Any such claims or resulting litigation could result in significant expense and liability for damages. If we were found to have infringed or misappropriated a third-party patent or other intellectual property right, we could in some circumstances be enjoined from providing certain products or services to our customers or from utilizing and benefiting from certain patents, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly alternative. Any of these scenarios could harm our reputation and have a material adverse effect on our business and results of operations.
We May Experience Difficulty in Marketing and Distributing Products Through Our Distribution Channels
Since the completion of the U.S. Retail Advisor Force Divestiture in July 2016, we primarily distribute our products through a variety of third-party distribution channels. We may periodically negotiate the terms of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third parties. An interruption in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. Distributors may elect to suspend, alter, reduce or terminate their distribution relationships with us for various reasons, including changes in our distribution strategy, adverse developments in our business, adverse rating agency actions or concerns about market-related risks. We are also at risk that key distribution partners may merge, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to us.
When our products are distributed through unaffiliated firms, we may not be able to monitor or control the manner of their distribution despite our training and compliance programs. If our products are distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, we may suffer reputational and other harm to our business.
State Laws, Federal Laws, Our Certificate of Incorporation and Our By-Laws May Delay, Deter or Prevent Takeovers and Business Combinations that Stockholders Might Consider in Their Best Interests
State laws, federal laws and our certificate of incorporation and by-laws may delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. For instance, such restrictions may prevent stockholders from receiving the benefit from any premium over the market price of MetLife, Inc.’s common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of MetLife, Inc.’s common stock if they are viewed as discouraging takeover attempts in the future.

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Any person seeking to acquire a controlling interest in us would face various regulatory obstacles, including:
applicable state insurance laws and regulations may delay or impede a business combination involving us by prohibiting an entity from acquiring control (generally presumed to exist at direct or indirect ownership of 10% or more of voting stock) of an insurance company domiciled in the United States without the prior approval of the domestic insurance regulator. Many foreign jurisdictions in which we operate have similar regulatory approval requirements.
if the acquiring entity is a bank or non-bank SIFI, Dodd-Frank provisions that restrict or impede consolidations, mergers and acquisitions by systemically significant firms.
Provisions of the Investment Company Act that require approval by the contract owners of our variable contracts in order to effectuate a change of control of any affiliated investment adviser to a mutual fund underlying our variable contracts.
FINRA approval requirements for a change of control of any FINRA registered broker-dealer that is a direct or indirect subsidiary of MetLife, Inc.
Provisions of the Delaware General Corporation Law may affect the ability of an “interested stockholder” (the owner of 15% or more of the outstanding voting stock of a corporation) to engage in certain business combinations for a period of three years following the time that the stockholder becomes an “interested stockholder.”
In addition, MetLife, Inc.’s certificate of incorporation and by-laws also contain provisions that may delay, deter or prevent a takeover attempt that stockholders might consider in their best interests or may otherwise adversely affect prevailing market prices for MetLife, Inc.’s common stock. These provisions include: a prohibition on the calling of special meetings or action by written consent by stockholders; and advance notice procedures for the nomination of candidates to the Board of Directors and stockholder proposals to be considered at stockholder meetings.
A majority of the combined voting power of the outstanding shares entitled to vote generally in the election of Directors may amend MetLife, Inc.’s certificate of incorporation or by-laws. This may allow shareholders to change the Company’s corporate governance and, therefore, make it more difficult for the Board of Directors to protect shareholders’ interests, e.g., if they are presented with an acquisition proposal that undervalues the Company.
Item 1B. Unresolved Staff Comments
MetLife has no unresolved comments from the SEC staff regarding its periodic or current reports under the Exchange Act.
Item 2. Properties
As of December 31, 2017, we leased our headquarters building located at 200 Park Avenue, New York, New York. Including our headquarters, throughout the U.S. we own eight buildings and have approximately 115 leases used in support of all segments, as well as Corporate & Other.
Also, as of December 31, 2017, we owned three properties and have approximately 180 leases in Japan, which are used primarily by our Asia segment. Excluding the U.S. and Japan, we own approximately 100 properties and have approximately 990 leases in various countries used primarily in support of our Asia, Latin America, and EMEA segments, as well as Corporate & Other.
We believe our properties are adequate and suitable for our business as currently conducted, and are adequately maintained. The above properties do not include properties we own for investment-only purposes.
Item 3. Legal Proceedings
See Note 20 of the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.

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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Issuer Common Equity
MetLife, Inc.’s common stock, par value $0.01 per share, began trading on the New York Stock Exchange (“NYSE”) under the symbol “MET” on April 5, 2000.
The following table presents high and low closing prices for our common stock on the NYSE for the periods indicated:
 
2017
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Common Stock Price
 
 
 
 
 
 
 
High
$
50.04

 
$
49.07

 
$
51.95

 
$
55.73

Low
$
45.80

 
$
44.39

 
$
46.68

 
$
50.56

 
2016
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Common Stock Price
 
 
 
 
 
 
 
High
$
42.17

 
$
41.80

 
$
39.84

 
$
51.15

Low
$
31.38

 
$
32.56

 
$
33.73

 
$
39.55

At February 16, 2018, there were 77,054 stockholders of record of our common stock.
The following table presents common stock dividend declaration, record and payment dates, as well as per share and aggregate dividend amounts, for the years ended December 31, 2017 and 2016:
 
 
 
 
 
 
Dividend
Declaration Date
 
Record Date
 
Payment Date
 
Per Share
 
Aggregate
 
 
 
 
 
 

 
(In millions)
October 24, 2017
 
November 6, 2017
 
December 13, 2017
 
$
0.400

 
$
422

July 7, 2017
 
August 7, 2017
 
September 13, 2017
 
$
0.400

 
427

April 25, 2017
 
May 8, 2017
 
June 13, 2017
 
$
0.400

 
431

January 6, 2017
 
February 6, 2017
 
March 13, 2017
 
$
0.400

 
437

 
 
 
 
 
 
 
 
$
1,717

 
 
 
 
 
 
 
 
 
October 25, 2016
 
November 7, 2016
 
December 13, 2016
 
$
0.400

 
$
441

July 7, 2016
 
August 8, 2016
 
September 13, 2016
 
$
0.400

 
441

April 26, 2016
 
May 9, 2016
 
June 13, 2016
 
$
0.400

 
441

January 6, 2016
 
February 5, 2016
 
March 14, 2016
 
$
0.375

 
413

 
 
 
 
 
 
 
 
$
1,736

The declaration and payment of common stock dividends is subject to the discretion of our Board of Directors, and will depend on MetLife, Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board. The payment of dividends is also subject to restrictions under the terms of our preferred stock and junior subordinated debentures in situations where we may be experiencing financial stress. See “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Dividends” and Note 22 of the Notes to the Consolidated Financial Statements for further information regarding preferred and common stock dividends.

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See Item 12 for information about our equity compensation plans.
Issuer Purchases of Equity Securities
Purchases of MetLife, Inc. common stock made by or on behalf of MetLife, Inc. or its affiliates during the quarter ended December 31, 2017 are set forth below:
Period
 
(a) Total Number of Shares Purchased (1)
 
(b) Average Price Paid per Share
 
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1 - October 31, 2017
 
2,466,869

 
$52.73
 
2,466,869

 
$253,120,134
November 1 - November 30, 2017
 
1,664,085

 
$52.16
 
1,664,085

 
$2,166,319,397
December 1 - December 31, 2017
 
7,730,961

 
$52.31
 
7,730,961

 
$1,761,926,649
__________________
(1)
Except for the foregoing, there were no shares of MetLife, Inc. common stock repurchased by MetLife, Inc.
(2)
On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. At December 31, 2017, MetLife, Inc. had $1.8 billion of common stock repurchases remaining under the authorization. For more information on common stock repurchases, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Common Stock Repurchases,” “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Notes 15 and 22 of the Notes to the Consolidated Financial Statements.
Common Stock Performance Graph
The graph and table below compare the total return on our common shares with the total return on the S&P 500, S&P 500 Insurance, and S&P 500 Financials indices, respectively, for the five year period ended on December 31, 2017. The graph and table show the total return on a hypothetical $100 investment in our common shares and in each index, respectively, on December 31, 2012, including the reinvestment of all dividends. The graph and table below shall not be deemed to be “soliciting material” or to be “filed,” or to be incorporated by reference in future filings with the SEC, or to be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.


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chart-a76a55bb258067dfc3f.jpg

 
 
As of December 31,
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
MetLife, Inc. common stock
 
$
100.00

 
$
167.43

 
$
172.20

 
$
157.96

 
$
182.79

 
$
198.34

S&P 500
 
100.00

 
132.39

 
150.51

 
152.59

 
170.84

 
208.14

S&P 500 Insurance
 
100.00

 
146.71

 
158.86

 
162.56

 
191.15

 
222.09

S&P 500 Financials
 
100.00

 
135.63

 
156.25

 
153.86

 
188.94

 
230.85



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Table of Contents

Item 6. Selected Financial Data
The statement of operations data for the years ended December 31, 2017, 2016 and 2015, and the balance sheet data at December 31, 2017 and 2016 have been derived from the Company’s audited consolidated financial statements included elsewhere herein. See Note 1 of the Notes to the Consolidated Financial Statements for revisions to prior periods. The statement of operations data for the years ended December 31, 2014 and 2013 have been derived from the Company’s consolidated financial statements, without revisions for immaterial errors. The balance sheet data at December 31, 2015, 2014 and 2013 have also been immaterially revised as applicable. The Company’s consolidated financial statements for such periods are not included herein. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes included elsewhere herein.
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(In millions)
Statement of Operations Data
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
38,992

 
$
37,202

 
$
36,403

 
$
36,970

 
$
36,222

Universal life and investment-type product policy fees
 
5,510

 
5,483

 
5,570

 
5,824

 
5,381

Net investment income
 
17,363

 
16,790

 
16,205

 
18,158

 
18,956

Other revenues
 
1,341

 
1,685

 
1,927

 
1,962

 
1,834

Net investment gains (losses)
 
(308
)
 
317

 
609

 
338

 
198

Net derivative gains (losses)
 
(590
)
 
(690
)
 
629

 
722

 
(1,475
)
Total revenues
 
62,308

 
60,787

 
61,343

 
63,974

 
61,116

 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 

 

Policyholder benefits and claims
 
38,313

 
36,358

 
35,144

 
35,393

 
34,239

Interest credited to policyholder account balances
 
5,607

 
5,176

 
4,415

 
5,726

 
6,881

Policyholder dividends
 
1,231

 
1,223

 
1,356

 
1,353

 
1,236

Other expenses
 
13,621

 
13,749

 
14,777

 
14,619

 
15,074

Total expenses
 
58,772

 
56,506

 
55,692

 
57,091

 
57,430

Income (loss) from continuing operations before provision for income tax
 
3,536

 
4,281

 
5,651

 
6,883

 
3,686

Provision for income tax expense (benefit)
 
(1,470
)
 
693

 
1,590

 
1,936

 
687

Income (loss) from continuing operations, net of income tax
 
5,006

 
3,588

 
4,061

 
4,947

 
2,999

Income (loss) from discontinued operations, net of income tax
 
(986
)
 
(2,734
)
 
1,324

 
1,389

 
394

Net income (loss)
 
4,020

 
854

 
5,385

 
6,336

 
3,393

Less: Net income (loss) attributable to noncontrolling interests
 
10

 
4

 
12

 
27

 
25

Net income (loss) attributable to MetLife, Inc.
 
4,010

 
850

 
5,373

 
6,309

 
3,368

Less: Preferred stock dividends
 
103

 
103

 
116

 
122

 
122

  Preferred stock repurchase premium
 

 

 
42

 

 

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
3,907

 
$
747

 
$
5,215

 
$
6,187

 
$
3,246


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Years Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
EPS Data 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
4.57

 
$
3.16

 
$
3.48

 
$
4.25

 
$
2.58

Diluted
 
$
4.53

 
$
3.13

 
$
3.44

 
$
4.20

 
$
2.55

Income (loss) from discontinued operations, net of income tax, per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.92
)
 
$
(2.48
)
 
$
1.19

 
$
1.23

 
$
0.36

Diluted
 
$
(0.91
)
 
$
(2.46
)
 
$
1.18

 
$
1.22

 
$
0.36

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
3.65

 
$
0.68

 
$
4.67

 
$
5.48

 
$
2.94

Diluted
 
$
3.62

 
$
0.67

 
$
4.62

 
$
5.42

 
$
2.91

Cash dividends declared per common share
 
$
1.600

 
$
1.575

 
$
1.475

 
$
1.325

 
$
1.010

 
 
December 31,
 
 
2017
 
2016
 
2015 (1)
 
2014 (1)
 
2013 (1)
 
 
(In millions)
Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Assets of disposed subsidiary (2)
 
$

 
$
216,983

 
$
216,437

 
$
219,937

 
$
225,223

Separate account assets
 
$
205,001

 
$
195,578

 
$
187,152

 
$
194,072

 
$
192,763

Total assets
 
$
719,892

 
$
898,764

 
$
877,912

 
$
902,322

 
$
886,826

Policyholder liabilities and other policy-related balances (3)
 
$
378,810

 
$
355,151

 
$
342,047

 
$
349,651

 
$
347,078

Short-term debt
 
$
477

 
$
242

 
$
100

 
$
100

 
$
175

Long-term debt
 
$
15,686

 
$
16,441

 
$
17,936

 
$
16,108

 
$
17,153

Collateral financing arrangement
 
$
1,121

 
$
1,274

 
$
1,342

 
$
1,399

 
$
1,399

Junior subordinated debt securities
 
$
3,144

 
$
3,169

 
$
3,194

 
$
3,193

 
$
3,193

Liabilities of disposed subsidiary (2)
 
$

 
$
202,707

 
$
204,314

 
$
208,341

 
$
215,645

Separate account liabilities
 
$
205,001

 
$
195,578

 
$
187,152

 
$
194,072

 
$
192,763

Accumulated other comprehensive income (loss)
 
$
7,427

 
$
5,366

 
$
4,767

 
$
10,714

 
$
5,158

Total MetLife, Inc.’s stockholders’ equity
 
$
58,676

 
$
67,531

 
$
68,098

 
$
72,208

 
$
61,711

Noncontrolling interests
 
$
194

 
$
171

 
$
470

 
$
507

 
$
543

 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Other Data (4)
 
 
 
 
 
 
 
 
 
 
Return on MetLife, Inc.’s common stockholders’ equity
 
6.3
%
 
1.0
%
 
7.7
%
 
9.5
%
 
5.3
%
__________________


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(1)
See Note 1 of the Notes to the Consolidated Financial Statements for information on prior period revisions.
The impact of the revisions is shown in the tables below:
 
 
December 31, 2015
 
December 31, 2014
 
December 31, 2013
 
 
As Previously Reported
 
Revisions
 
As Revised
 
As Previously Reported
 
Revisions
 
As Revised
 
As Previously Reported
 
Revisions
 
As Revised
 
 
(In millions)
Balance Sheet Data
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
Assets of disposed subsidiary
 
216,437

 

 
216,437

 
219,951

 
(14
)
 
219,937

 
225,226

 
(3
)
 
225,223

Total Assets
 
877,933

 
(21
)
 
877,912

 
902,337

 
(15
)
 
902,322

 
886,825

 
1

 
886,826

Policyholder liabilities and other policy-related balances
 
342,279

 
(232
)
 
342,047

 
349,845

 
(194
)
 
349,651

 
347,281

 
(203
)
 
347,078

Liabilities of disposed subsidiary
 
204,374

 
(60
)
 
204,314

 
208,406

 
(65
)
 
208,341

 
215,702

 
(57
)
 
215,645

Accumulated other comprehensive income (loss)
 
4,771

 
(4
)
 
4,767

 
10,649

 
65

 
10,714

 
5,104

 
54

 
5,158

Total MetLife, Inc.’s stockholders’ equity
 
67,949

 
149

 
68,098

 
72,053

 
155

 
72,208

 
61,553

 
158

 
61,711

 
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
 
As Previously Reported
 
Revisions
 
As Revised
 
As Previously Reported
 
Revisions
 
As Revised
 
As Previously Reported
 
Revisions
 
As Revised
 
As Previously Reported
 
Revisions
 
As Revised
Other Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on MetLife, Inc.’s stockholders’ equity
 
1.0
%
 
%
 
1.0
%
 
7.5
%
 
0.2
%
 
7.7
%
 
9.4
%
 
0.1
%
 
9.5
%
 
5.4
%
 
(0.1
%)
 
5.3
%
(2)
See Note 3 of the Notes to the Consolidated Financial Statements.
(3)
Policyholder liabilities and other policy-related balances include future policy benefits, policyholder account balances, other policy-related balances, policyholder dividends payable and the policyholder dividend obligation.
(4)
Return on MetLife, Inc.’s common stockholders’ equity is defined as net income (loss) available to MetLife, Inc.’s common shareholders divided by MetLife, Inc.’s average common stockholders’ equity.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Page

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Forward-Looking Statements and Other Financial Information
For purposes of this discussion, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated. This discussion should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Risk Factors,” “Selected Financial Data,” “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. 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,” “will be,” “will not,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future 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. Actual results could differ materially from those expressed or implied in the forward-looking statements. See “Note 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. These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings 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. Forward-looking guidance provided on a non-GAAP basis cannot be reconciled to the most directly comparable GAAP measures on a forward-looking basis because net income may fluctuate significantly if net investment gains and losses and net derivative gains and losses move outside of estimated ranges. See “— Non-GAAP and Other Financial Disclosures” for definitions and a discussion of these measures, and “— Results of Operations” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.

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Executive Summary
Overview
MetLife 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; and MetLife 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. Management continues to evaluate the Company’s segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability.
Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions
On December 15, 2017, the Company announced that it was undertaking a review of practices and procedures used to estimate its reserves related to certain RIS group annuitants who have been unresponsive or missing over time. As a result of this process, the Company increased reserves by $510 million, before income tax, to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. Of the increase of $510 million ($331 million, net of income tax), $138 million ($90 million, net of income tax) was incurred in 2017 and $372 million ($241 million, net of income tax) was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017. Approximately 25 years ago, companies that are or have been MetLife, Inc. subsidiaries established a practice of releasing the full insurance liability after two attempts at contacting these annuitants, based on the presumption that these annuitants would never respond and had not become entitled to benefits based on certain contractual provisions. The number of impacted annuitants for whom the Company released the full insurance liability was no more than 1,000 in any one year, and over the entire period totaled approximately 13,500 as of December 31, 2017, which is approximately 2% of the total group annuitant population. 
Further, an additional internal review of practices and procedures was completed in early 2018, focusing on the calculation of certain reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint venture in Japan. As a result, the Company reduced these reserves by $896 million ($582 million, net of income tax). Of this amount, $214 million ($139 million, net of income tax) was incurred in 2017 and $682 million ($443 million, net of income tax) was considered an error. Recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017. MetLife uses a valuation model to estimate the fair value of the embedded derivative portion of this reserve. In reviewing the model inputs, the Company determined that customer withdrawals were not properly incorporated into this valuation model, resulting in an overstatement of the reserve.
As a result of these adjustments, amounts previously reported have been immaterially restated. In addition, the Company has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified them. 
Management, in consultation with the Audit Committee of MetLife, Inc.’s Board of Directors, had identified material weaknesses in the Company’s internal control over financial reporting related to certain RIS group annuity reserves and assumed variable annuity guarantee reserves. See “Risk Factors” and “Controls and Procedures” for further information, as well as Note 1 of the Notes to the Consolidated Financial Statements for information regarding prior period revisions related to the Company’s consolidated results.
U.S. Tax Reform
On December 22, 2017, U.S. Tax Reform was signed into law. U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018, a participation exemption system which generally eliminates U.S. federal income tax on dividends received from foreign subsidiaries, and a number of other revenue raisers. 

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The impact of U.S. Tax Reform was a net benefit of $1.3 billion in 2017. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result, in the fourth quarter of 2017 the Company revalued its net U.S. deferred tax liability to the new corporate tax rate of 21%, resulting in a one-time benefit of $1.5 billion. Additionally, the Company also recorded a one-time charge of $170 million related to the deemed repatriation of untaxed accumulated foreign earnings. Given the complexities of U.S. Tax Reform, amounts recorded may change, possibly materially, due to, among other things, changes in interpretations and assumptions made by the Company, additional guidance that may be issued and actions that the Company may take. See Note 18 of the Notes to the Consolidated Financial Statements for a further discussion of U.S. Tax Reform and the impact to the Company in the fourth quarter of 2017. See also “Consolidated Company Outlook” for a discussion of U.S. Tax Reform’s projected near-term impacts to the Company.
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the Separation. MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding. The Separation resulted in the elimination of the Brighthouse Financial segment. The results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations and, therefore, are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income (loss) from discontinued operations on the consolidated statements of operations. The reporting of discontinued operations had no impact on total consolidated assets or liabilities or on total consolidated net income (loss) for any of the years presented. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
Current Year Highlights
During the year ended December 31, 2017, overall sales increased compared to the year ended December 31, 2016, reflecting improved sales in our RIS and Group Benefits businesses, as well as in the majority of our segments abroad, largely offset by declines in sales of our U.S. life and annuity products due to the discontinued marketing of these products in connection with the Separation. U.S. Tax Reform positively impacted net income in 2017. In addition, while positive net flows drove an increase in our investment portfolio, investment yields were down despite improved equity market performance. Results improved due to the impact in both 2017 and 2016 of our annual actuarial assumption review. An unfavorable change in net investment gains (losses) was primarily the result of losses recognized in connection with the Separation. Despite the 2017 loss on Separation, income (loss) from discontinued operations increased due to significant net derivative losses in 2016.
The following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended December 31, 2017:
segmentadjustedearnings.jpg
_______________
(1) Excludes Corporate & Other adjusted loss available to common shareholders of $1.1 billion.
(2) Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. See “— Non-GAAP and Other Financial Disclosures.”

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Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
a2017vs2016v4.jpg
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.’s common shareholders up $3.2 billion:
 
 
Lower losses from discontinued operations, net of income tax, of $1.7 billion
 
 
Net tax-related benefit of $1.3 billion due to U.S. Tax Reform
 
 
Unfavorable change in divested businesses of $861 million ($618 million, net of income tax)
 
 
Unfavorable change in net investment gains (losses) of $625 million ($406 million, net of income tax)
 
 
Adjusted earnings available to common shareholders up $202 million
 
 
(1) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and definitions of non-GAAP financial measures.
Consolidated Results - Adjusted Earnings
Adjusted earnings available to common shareholders up $202 million:
 
Results of operations positively impacted by annuities reinsurance activity with Brighthouse, the impact of 2017 and 2016 refinements made to DAC and certain insurance-related liabilities and the impact in both 2017 and 2016 of our annual actuarial assumption review, partially offset by the unfavorable impact of U.S. Tax Reform and other tax items
Our results for 2017 included the following:
 
a tax charge of $298 million related to U.S. Tax Reform
 
net tax charges of $139 million consisting of (i) a $180 million net tax charge related to the repatriation of approximately $3.0 billion of cash following the post-Separation review of our capital needs, partially offset by a tax benefit associated with dividends from our non-U.S. operations, and (ii) a $41 million tax benefit from the finalization of certain tax audits
 
a $102 million, net of income tax, increase in expenses associated with our previously announced unit cost initiative
 
a $73 million, net of income tax, charge for expenses incurred related to a guaranty fund assessment for Penn Treaty Network America Insurance Company (“Penn Treaty”) and increases in asbestos and litigation reserves
 
a $90 million, net of income tax, charge to increase certain RIS policy reserves
 
a favorable reserve adjustment of $55 million, net of income tax, resulting from modeling improvements in the reserving process for our life business
 
a charge of $36 million, net of income tax, for lease impairments
 
a benefit of $12 million, net of income tax, related to a refinement to prior period reinsurance receivables in Australia
Our results for 2016 included the following:
 
unfavorable reserve adjustments of $65 million, net of income tax, resulting from modeling improvements in the reserving process
 
a $44 million, net of income tax, charge related to an adjustment to reinsurance receivables in Australia
 
tax benefit of $25 million related to a change in tax rate in Japan, which includes a benefit of $20 million that pertains to prior periods
 
a $23 million, net of income tax, charge for an increase in litigation reserves
 
tax charge in Chile of $12 million as a result of tax reform legislation, which includes a charge of $10 million that pertains to prior periods

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For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and “— Results of Operations — Consolidated Results — Adjusted Earnings.”
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
a2016vs2015v2.jpg
Consolidated Results – Highlights
Net income (loss) available to MetLife, Inc.’s common shareholders down $4.5 billion:
 
 
Income (loss) from discontinued operations, net of income tax, down $4.0 billion
 
 
Unfavorable change in net derivative gains (losses) of $1.3 billion ($857 million, net of income tax) primarily driven by the impact of our variable annuity hedging program

 
 
Unfavorable change in net investment gains (losses) of $292 million ($190 million, net of income tax)
 
 
Adjusted earnings available to common shareholders up $119 million
 
 
Results for 2016 include the financial impact of converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change to prior years
 
 
(1) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and definitions of non-GAAP financial measures.
Consolidated Results - Adjusted Earnings
Adjusted earnings available to common shareholders up $119 million:
Results of operations impacted by: (i) higher net investment income from portfolio growth; (ii) lower tax and related interest expense; (iii) lower investment yields; (iv) refinements made to DAC and certain insurance-related liabilities; (v) unfavorable underwriting; (vi) the impact of affiliated reinsurance activity; and (vii) the impact of our annual actuarial assumption review.

Our 2016 results included the following:
 
unfavorable reserve adjustments of $65 million, net of income tax, resulting from modeling improvements in the reserving process
 
a $44 million, net of income tax, charge related to an adjustment to reinsurance receivables in Australia
 
tax benefit of $25 million related to a change in tax rate in Japan, which includes a benefit of $20 million that pertains to prior periods
 
a $23 million, net of income tax, charge for an increase in litigation reserves
 
tax charge in Chile of $12 million as a result of tax reform legislation, which includes a charge of $10 million that pertains to prior periods
Our 2015 results included the following:
 
a $557 million tax charge and a $362 million ($235 million, net of income tax) charge for interest on uncertain tax positions that were recorded under accounting guidance for the recognition of tax uncertainties related to the U.S. tax treatment of taxes paid by a wholly-owned U.K. investment subsidiary of MLIC
 
$183 million of tax benefits related to (i) restructuring in Chile; (ii) a change in tax rate in Japan; (iii) the repatriation of earnings from Japan; and (iv) the devaluation of the peso in Argentina

For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and “— Results of Operations — Consolidated Results — Adjusted Earnings.”

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Consolidated Company Outlook
Our strategy is founded on the principle of One MetLife, where digital and simplified are the key enablers of our four strategic cornerstones: (i) optimizing value and risk by focusing on our businesses with higher internal rates of return, lower capital intensity, and maximum cash generation, (ii) driving operational excellence, by transforming into a high-performance operating company with a competitive cost structure, (iii) enabling our distribution channels to drive efficiency and productivity through digitalization and improved customer persistency, and (iv) undertaking a targeted approach to find the right solutions for the right customers through differentiated customer value propositions. This enterprise strategy will enhance our ability to focus on the right markets, build clear differentiators, and continue to make the right investments to deliver shareholder value.
We expect our results to be less sensitive to interest rates as we continue to position ourselves into less volatile and fee-based businesses. Assuming interest rates follow the observable forward yield curves as of the year ended December 31, 2017, we expect the average ratio of free cash flow to adjusted earnings over the two-year period of 2018 and 2019 to be at the lower end of the 65% to 75% range due to timing of tax cash flows in 2018 and dependent upon a 10-year U.S. Treasury rate between 1.5% and 4.0%. We believe that free cash flow is a key determinant of common share dividends and common share repurchases.
We anticipate U.S. Tax Reform will reduce our 2018 effective tax rate from an estimated 25% to a range of 18% to 20%. Based on this change over time, we target an adjusted return on equity, excluding AOCI other than FCTA, of 800 to 900 basis points above the risk-free rate as measured by the 10-year U.S. Treasury rate. Over the longer-term, we believe this can rise to 1,000 basis points as the impact of business growth compounds and our expense initiative takes hold. These targets reflect our unit cost improvement program and the related initiative to invest $1.0 billion by 2020 to generate $800 million pre-tax run rate annual savings, net of stranded overhead. Book value per share, excluding AOCI other than FCTA, was $42.92 as of December 31, 2017. As of January 1, 2018, we expect this amount to decrease by approximately 2% reflecting the adoption of certain new accounting pronouncements, primarily relating to the impact of U.S. Tax Reform. See “— Overview — U.S. Tax Reform” for further information.
A key element of our enterprise strategy is to return excess capital to common shareholders through dividends and share repurchases. In 2018, we expect to complete repurchases under the current $2.0 billion MetLife, Inc. common stock repurchase authorization, approved by the Board of Directors in November 2017. As previously announced, we intend to divest our retained Brighthouse common stock through an exchange offer for MetLife, Inc. common stock during 2018, subject to market conditions and regulatory approval. In 2018, our baseline capital management plan would result in a return of approximately $5.0 billion to common shareholders through common stock dividends, common share repurchases, and the anticipated Brighthouse common stock exchange offer. Any shares of MetLife, Inc. common stock that MetLife, Inc. receives in the Brighthouse common stock exchange offer would be in addition to other share repurchase authorizations. Common stock repurchases and exchange offers are dependent upon several factors, which could include the necessary approval of our Board of Directors, our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of the related common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.
We anticipate the net impact to holding company cash from liability management transactions to be between $1.0 billion to $2.0 billion in 2018. This is in addition to the impact to net cash due to the repayment of $1.0 billion debt maturity in December 2017. Further, we plan to maintain a liquidity buffer of $3.0 to $4.0 billion of liquid assets at the holding companies.
When making these and other projections, we must rely on the accuracy of our assumptions about future economic and business conditions, which can be affected by known and unknown risks and other uncertainties. For example, given the significant complexities and uncertainties of U.S. Tax Reform, additional guidance from the U.S. Treasury, Securities and Exchange Commission or the Financial Accounting Standards Board may require the Company to revise these estimates in future periods. See “Risk Factors — Regulatory and Legal Risks — U.S. Tax Reform Could Have an Impact on Us.” In addition, the group annuity reserve increase within RIS was substantially based on actuarial, legal, statistical, and other assumptions. If actual facts and factors differ from those we have assumed, the reserve established could be adversely or positively affected. For further information on this matter, see “— Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions.”

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Other Key Information
Basis of Presentation
Consolidation
Prior to January 1, 2016, certain international subsidiaries had a fiscal year cutoff of November 30th. The Company’s consolidated financial statements reflect the operating results of such subsidiaries for the year ended November 30, 2015. Effective January 1, 2016, the Company converted its Japan operations to calendar year-end reporting. The Company reported the cumulative effect of the change in accounting principle in net income for the year ended December 31, 2016 and did not retrospectively apply the effects of this change to prior periods. See Notes 1 and 2 of the Notes to the Consolidated Financial Statements.
Discontinued Operations
As previously discussed, the results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations. See “— Overview — Separation of Brighthouse” and Note 3 of the Notes to the Consolidated Financial Statements for information on discontinued operations and transactions with Brighthouse.
Revisions
See “— Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions” and Note 1 of the Notes to the Consolidated Financial Statements for information regarding prior period revisions related to the Company’s consolidated results.
Non-Bank SIFI
On January 23, 2018, the U.S. Court of Appeals for the District of Columbia Circuit dismissed the FSOC’s appeal of the district court’s decision rescinding MetLife, Inc.’s designation as a non-bank SIFI. As a result, MetLife, Inc.’s non-bank SIFI designation remains rescinded and MetLife, Inc. is not subject to regulation by the Federal Reserve and the FDIC, or to enhanced supervision and prudential standards. However, the FSOC could again seek to designate MetLife, Inc. as a non-bank SIFI as part of its ongoing review of non-bank financial companies.
Hurricanes
In the third quarter of 2017, Hurricanes Irma and Harvey made landfall in Florida and Texas, respectively, causing loss of life and extensive property damage. MetLife’s property & casualty business’ gross losses from Hurricanes Irma and Harvey were approximately $65 million, before income tax. As of December 31, 2017, we recognized total net losses related to these hurricanes of $42 million, net of income tax, which impacted the U.S. segment. Additional storm-related losses may be recorded in future periods as claims are received from insureds.
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 capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors. See “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period” and “Risk Factors — Economic Environment and Capital Markets-Related Risks — Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations.”

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We have market presence in numerous countries and, therefore, our business operations are exposed to risks posed by local and regional economic conditions. See “Risk Factors — Risks Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.” We are closely monitoring political and/or economic conditions in the U.K., Mexico, and South Korea that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives. For example, events following the U.K.’s referendum on June 23, 2016 and the uncertainties, including foreign currency exchange risks, associated with its pending withdrawal from the EU, have contributed to market volatility, both in the U.S. and beyond. These factors could contribute to weakening GDP growth, primarily in the U.K. and, to a lesser degree, continental Europe. The magnitude and longevity of the potential negative economic impacts would depend on the detailed agreements reached by the U.K. and the EU as a result of the negotiations regarding future trade and other arrangements. See “— Investments — Current Environment — Selected Country Investments.”
Central banks around the world are using monetary policy to address regional economic conditions. For example, in the United States, citing a strengthening economy, the Federal Reserve Board has begun its balance sheet tapering and the Federal Reserve Board’s Federal Open Market Committee has continued to increase the federal funds rate, most recently in December 2017. While the European Central Bank has continued to implement support measures, it is doing so at a slower place. In Japan, however, the Japanese government and the Bank of Japan are maintaining stimulus measures in order to boost inflation expectations and achieve sustainable economic growth in Japan. Such measures include the imposition of a negative rate on commercial bank deposits, continued government bond purchases and tax reform, including the lowering of the Japanese corporate tax rate and the delay until 2019 of an increase in the consumption tax to 10%. Going forward, Japan’s structural and demographic challenges may continue to limit its potential growth unless reforms that boost productivity are put into place. Japan’s high public sector debt levels are mitigated by low refinancing risks. Further actions by central banks in the future may affect interest rates and risk markets in the U.S., Europe, Japan and other developed and emerging economies, and may ultimately result in market volatility. We cannot predict with certainty the effect of these actions or the impact on our business operations, investment portfolio or derivatives. See “— Investments — Current Environment.”
Impact of a Sustained Low Interest Rate Environment
During periods of declining interest rates, we may have to invest insurance cash flows and reinvest the cash flows we received as interest or return of principal on our investments in lower yielding instruments. Moreover, borrowers may prepay or redeem the fixed income securities, mortgage loans and mortgage-backed securities in our investment portfolio with greater frequency in order to borrow at lower market rates. Therefore, some of our products expose us to the risk that a reduction in interest rates will reduce the difference between the amounts that we are required to credit on contracts in our general account and the rate of return we are able to earn on investments intended to support obligations under these contracts. This difference between interest earned and interest credited, or margin, is a key metric for the management of, and reporting for, many of our businesses.
Our expectations regarding future margins are an important component impacting the amortization of certain intangible assets such as DAC and VOBA. Significantly lower margins may cause us to accelerate the amortization, thereby reducing net income in the affected reporting period. Additionally, lower margins may also impact the recoverability of intangible assets such as goodwill, require the establishment of additional liabilities or trigger loss recognition events on certain policyholder liabilities. We review this long-term margin assumption, along with other assumptions, as part of our annual actuarial assumption review.
Some of our separate account products, including variable annuities, have certain minimum guarantee benefits. Declining interest rates increase the reserves we need to set up to protect the guarantee benefits, thereby reducing net income in the affected reporting period.

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Mitigating Actions
The Company continues to be proactive in its investment and interest crediting rate strategies, as well as its product design and product mix. To mitigate the risk of unfavorable consequences from the low interest rate environment in the U.S., the Company applies disciplined asset/liability management (“ALM”) strategies, including the use of interest rate derivatives. In some cases, the Company has entered into offsetting positions as part of its overall ALM strategy and to reduce volatility in net income. Lowering interest crediting rates on some products, or adjusting the dividend scale on traditional products, can help offset decreases in investment margins on some products. Our ability to lower interest crediting rates could be limited by competition, requirements to obtain regulatory approval, or contractual guarantees of minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our margins could decrease or potentially become negative. We are able to limit or close certain products to new sales in order to manage exposures. Business actions, such as shifting the sales focus to less interest rate sensitive products, can also mitigate this risk. In addition, the Company is well diversified across product, distribution, and geography. Certain of our non-U.S. businesses, reported within our Latin America, EMEA, and Asia (exclusive of our Japan business) segments, which accounted for approximately 26% of our adjusted earnings in 2017, are not significantly interest rate or market sensitive; in particular, they do not have any direct sensitivity to U.S. interest rates. The Company’s primary exposure within these segments is insurance risk. We expect our non-U.S. businesses to grow faster than our U.S. businesses and, over time, to become a larger percentage of our total business. As a result of the foregoing, the Company expects to be able to substantially mitigate the negative impact of a sustained low interest rate environment in the U.S. on the Company’s profitability. Based on a near to intermediate term analysis of a sustained lower interest rate environment in the U.S., the Company anticipates adjusted earnings will continue to increase, although at a slower growth rate.
Low Interest Rate Scenario
In formulating economic assumptions for its insurance contract assumptions, the Company uses projections that it makes regarding interest rates. Included in these assumptions is the projection that the 10-year Treasury rate will rise from 2.41% at December 31, 2017 to 4.25% in 10 years, by 2027 and that 10-year yields will reach 2.61%, 2.72% and 2.80% by December 31, 2018, 2019 and 2020, respectively. Also included is the projection that the three-month LIBOR rate will move from 1.69% at December 31, 2017 to 2.19%, 2.31% and 2.35% by December 31, 2018, 2019 and 2020, respectively. The low interest rate scenario reflects an assumed constant 10-year Treasury rate of 1.50% and a constant three-month LIBOR rate of 0.65%, with the corresponding consensus of interest rate views and credit spreads (the “Low Interest Rate Scenario”).
The following summarizes the impact of the Low Interest Rate Scenario on our U.S. dollar and non-U.S. dollar denominated positions. In addition, we have included disclosure on the potential impact on 2018, 2019 and 2020 net income using the same Low Interest Rate Scenario on the mark-to-market of derivative positions that do not qualify as accounting hedges.
Below is a summary of the rates we used for the Low Interest Rate Scenario versus our business plan through 2020. These rates represent the most relevant short-term and long-term rates for our business plan.
 
Years Ended December 31,
 
2017
 
2018
 
2019
 
2020
 
Low Interest Rate Scenario
 
 Business Plan
 
Low Interest Rate Scenario
 
 Business Plan
 
Low Interest Rate Scenario
 
 Business Plan
 
Low Interest Rate Scenario
 
 Business Plan
Three-month LIBOR
0.65%
 
1.69%
 
0.65%
 
2.19%
 
0.65%
 
2.31%
 
0.65%
 
2.35%
10-year U.S. Treasury
1.50%
 
2.41%
 
1.50%
 
2.61%
 
1.50%
 
2.72%
 
1.50%
 
2.80%
The Low Interest Rate Scenario assumes three-month LIBOR to be 0.65% and the 10-year U.S. Treasury rate to be 1.50% at December 31, 2017 and remain constant at those levels until December 31, 2020. We make similar assumptions for interest rates at other maturities, and hold this interest rate curve constant through December 31, 2020. In addition, in the Low Interest Rate Scenario, we assume credit spreads remain constant from December 2017 through the end of 2020 as compared to our business plan which assumes rising credit spreads through 2018 and thereafter remaining constant through the end of 2020. Further, we also include the impact of low interest rates on our pension and postretirement plan expenses. We allocate this impact across our segments and it is included in the segment discussion below. The discount rate used to value these plans is tied to high quality corporate bond yields. Accordingly, an extended low interest rate environment will result in increased pension and other postretirement benefit liabilities. However, these liabilities are offset by corresponding returns on the fixed income portfolio of pension and other postretirement benefit plan assets resulting in an overall decrease in expense.

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Hypothetical Impact to Adjusted Earnings
Based on the above assumptions, we estimate an unfavorable combined long-term and short-term interest rate impact on our consolidated adjusted earnings from the Low Interest Rate Scenario of approximately $55 million in 2018, $50 million in 2019 and $260 million in 2020. Under the Low Interest Rate Scenario, our long-term businesses are negatively impacted by the larger gap between new money yields and the yield on assets rolling off the portfolio. However, there are positive offsets under the Low Interest Rate Scenario as short-term rates are much lower than the business plan rates and the yield curve is steeper than that of the business plan. For example, our securities lending business performs better than our business plan because it is driven by the slope of the yield curve rather than by the level of interest rates. In addition, derivative income is higher primarily due to our receiver swaps where we receive a fixed rate and pay a floating rate. Further, the favorable derivative impact under the flat rate scenario is lower in 2020 than in 2018 and 2019. This is driven by higher rates on forward derivative positions protection that begin in 2020.
Hypothetical Impact to Our Mark-to-Market Derivative Positions
In addition to its impact on adjusted earnings, we estimated the effect of the Low Interest Rate Scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges. We applied the Low Interest Rate Scenario to these derivatives and compared the impact to that from interest rates in our business plan. We hold a significant position in long-duration receive-fixed interest rate swaps to hedge reinvestment risk. These swaps are most sensitive to the 30-year and 10-year swap rates and we recognize gains as rates drop and recognize losses as rates rise. This estimated impact on the derivative mark-to-market does not include that of our VA program derivatives as the impact of low interest rates in the freestanding derivatives would be largely offset by the mark-to-market in net derivative gains (losses) for the related embedded derivative.
Based on these additional assumptions, we estimate the combined long-term and short-term interest rate impact of the Low Interest Rate Scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges to be a decrease in net income of $74 million in 2018, $151 million in 2019 and $34 million in 2020. See “— Results of Operations — Consolidated Results” for information regarding our actual gains and losses on the Company’s non-VA program derivatives due to interest rate changes which are included in net income.
Segments and Corporate & Other
The following discussion summarizes the impact of the above Low Interest Rate Scenario on the adjusted earnings of our segments, as well as Corporate & Other. See also “— Policyholder Liabilities — Policyholder Account Balances” for information regarding the account values subject to minimum guaranteed crediting rates.
U.S.
Group Benefits
In general, most of our group life insurance products in the U.S. segment are renewable term insurance and, therefore, have significant repricing flexibility. Interest rate risk arises mainly from minimum interest rate guarantees on retained asset accounts. These accounts have minimum interest crediting rate guarantees which range from 0.5% to 3.0%. All of these account balances are currently at their respective minimum interest crediting rates and we would expect to experience margin compression as we reinvest at lower interest rates. We have used interest rate derivatives to partially mitigate the risks of a sustained U.S. low interest rate environment. We also have exposure to interest rate risk in this business arising from our disability policy claim reserves. For these products, lower reinvestment rates cannot be offset by a reduction in liability crediting rates for established claim reserves. Group disability policies are generally renewable term policies. Rates may be adjusted on in-force policies at renewal based on the retrospective experience rating and current interest rate assumptions.
We estimate a favorable combined long-term and short-term interest rate impact on the adjusted earnings of our Group Benefits business from the Low Interest Rate Scenario of $35 million, $50 million and $20 million in 2018, 2019 and 2020, respectively.

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Retirement and Income Solutions
Retirement and Income Solutions contains both short and long-duration products consisting of capital market products, pension risk transfers, structured settlements, and other benefit funding products. The majority of short- duration products are managed on a floating rate basis, which mitigates the impact of the low interest rate environment in the U.S. The long-duration products have very predictable cash flows and we have matched these cash flows through our ALM strategies. We also use interest rate swaps to help protect income in this segment against a low interest rate environment in the U.S. Based on the cash flow estimates, only a small component is subject to reinvestment risk. Reinvestment risk is defined for this purpose as the amount of reinvestment in 2018, 2019 and 2020 that would impact adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario.
We estimate the following combined long-term and short-term interest rate impact on adjusted earnings on our Retirement and Income Solutions business from the Low Interest Rate Scenario: (i) an unfavorable impact of $15 million in 2018, (ii) a favorable impact of $10 million in 2019 and (iii) an unfavorable impact of $55 million in 2020.
Property & Casualty
The product portfolio within Property & Casualty is primarily made up of six-month and annual term renewable policies, which allow for significant re-pricing flexibility with no policyholder benefits tied to interest rates. As a result, the interest rate risk for the Property & Casualty business is minimal, tied only to our portfolio reinvestment rates and our ability to offset the change of those rates through re-pricing efforts.
We estimate an unfavorable combined long-term and short-term interest rate impact on adjusted earnings on our Property & Casualty business from the Low Interest Rate Scenario of $5 million, $5 million and $10 million in 2018, 2019 and 2020, respectively.
Asia
Our Japan business offers traditional life insurance and accident & health products. To the extent the Japan life insurance portfolio is U.S. interest rate and LIBOR sensitive and we are unable to lower crediting rates to the customer, adjusted earnings will decline. We manage interest rate risk on our life products through a combination of product design features and ALM strategies.
We sell annuities in Japan which are predominantly single premium products with crediting rates set at the time of issue. This allows us to tightly manage product ALM, cash flows and net spreads, thus maintaining profitability.
We estimate an unfavorable combined long-term and short-term interest rate impact on the adjusted earnings of our Asia segment from the Low Interest Rate Scenario of $25 million, $45 million and $70 million in 2018, 2019 and 2020, respectively.
MetLife Holdings
Our interest rate sensitive life products include traditional and universal life products. Because the majority of our traditional life insurance business is participating, we can largely offset lower investment returns on assets backing our traditional life products through adjustments to the applicable dividend scale. In 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 derivative hedges. While we have the ability to lower crediting rates on certain in-force universal life policies to mitigate margin compression, such actions would be partially offset by increases in our liabilities related to policies with secondary guarantees.
In annuities, the impact on adjusted earnings from margin compression is concentrated in our deferred annuities where there are minimum interest rate guarantees. Under the Low Interest Rate Scenario, we assume that a larger percentage of customers will maintain their funds with us to take advantage of the attractive minimum guaranteed crediting rates and we expect to experience margin compression as we reinvest cash flows at lower interest rates. Partially offsetting this margin compression, we assume we will lower crediting rates on contractual reset dates for the portion of business that is not currently at minimum crediting rates. Additionally, we have various interest rate derivative positions to partially mitigate this risk.

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Long-term care and retained assets accounts are interest rate sensitive. Long-term care reserves have exposure to lower reinvestment rates that cannot be offset by a reduction in liability 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. Our long-term care block is closed to new business. We review the discount rate assumptions and other assumptions associated with our long-term disability claim reserves no less frequently than annually and, with respect to interest rates, we set the discount rate on these reserves based on the prevailing interest rate environment at the time. Our retained asset accounts have minimum interest crediting rate guarantees which range from 0.5% to 4.0%, all of which are currently at their respective minimum interest crediting rates. While we expect to experience margin compression as we reinvest at lower rates, the interest rate derivatives held in this portfolio should partially mitigate this risk.
Reinvestment risk is defined for this purpose as the amount of reinvestment in 2018, 2019 and 2020 that would impact adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario. For the life business, $2.4 billion, $2.7 billion and $4.4 billion in 2018, 2019 and 2020, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $60.8 billion, $60.6 billion and $60.4 billion in 2018, 2019 and 2020, respectively. For our deferred annuities business, $1.1 billion, $1.4 billion, and $1.4 billion in 2018, 2019, and 2020, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $17.7 billion, $17.5 billion and $17.3 billion in 2018, 2019 and 2020, respectively. For our long-term care portfolio, $0.4 billion, $0.5 billion and $0.4 billion of the asset base in 2018, 2019 and 2020, respectively, will be subject to reinvestment risk on an average asset base of $12.1 billion, $12.7 billion and $13.4 billion in 2018, 2019 and 2020, respectively.
We estimate the following combined long-term and short-term interest rate impact on the adjusted earnings of our MetLife Holdings segment from the Low Interest Rate Scenario: (i) a favorable impact of $5 million in 2018 and (ii) unfavorable impacts of $30 million and $110 million in 2019 and 2020, respectively.
Corporate & Other
Corporate & Other contains the surplus portfolios for the enterprise, the portfolios used to fund the capital needs of the Company and various reinsurance agreements. The surplus portfolios are subject to reinvestment risk; however, lower net investment income is significantly offset by lower interest expense on both fixed and variable rate debt. Under a lower interest rate environment, fixed rate debt is assumed to be either paid off when it matures or refinanced at a lower interest rate resulting in lower overall interest expense. Variable rate debt is indexed to the three-month LIBOR, which results in lower interest expense incurred.
We estimate an unfavorable combined long-term and short-term interest rate impact on the adjusted earnings of Corporate & Other from the Low Interest Rate Scenario of $50 million, $30 million and $35 million in 2018, 2019 and 2020, respectively.
Competitive Pressures
The life insurance industry remains highly competitive. Product development is focused on differentiation leading to more intense competition with respect to product features and services. Several 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. 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 capability to engage with the 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. We believe that the continued volatility of the financial markets and its impact on the capital position of many competitors will continue to strain the competitive environment. 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.” We believe that the aforementioned factors have highlighted financial strength, technology efficiency, and organizational agility as the most significant differentiators and, as a result, we believe the Company is well positioned to compete in this environment.

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Regulatory Developments
In the United States, 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. Regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. See “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.” Regulators have also undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products, as well as reviews of the utilization of affiliated captive reinsurers and offshore entities to reinsure insurance risks. See “Business — Regulation,” “Risk Factors — Risks Related to Our Business — Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases and New Financings May Be Subject to Limited Market Capacity,” and “Risk Factors — Regulatory and Legal Risks — Changes in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our Profitability.”
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 DAC and the establishment and amortization of VOBA;
(iii)
estimated fair values of investments in the absence of quoted market values;
(iv)
investment 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 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 using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.

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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, reduced for anticipated salvage and subrogation.
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.
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 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 or more frequently 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 the variable universal life contracts and variable deferred annuity contracts is 7.0%.
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.
At December 31, 2017, 2016 and 2015, DAC and VOBA for the Company was $18.4 billion, $17.6 billion and $17.4 billion, respectively. Amortization of DAC and VOBA associated with the variable and universal life and annuity contracts was significantly impacted by movements in equity markets. 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 ended December 31, 2017, 2016 and 2015. Increases (decreases) in DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
General account investment return
$
(5
)
 
$
5

 
$
(3
)
Separate account investment return
21

 
(3
)
 
(27
)
Net investment gains (losses)/Net derivative gains (losses)
60

 
226

 
(151
)
Guaranteed minimum income benefits
(2
)
 
44

 
11

Expense
12

 
2

 
(96
)
In-force/Persistency
(10
)
 
(63
)
 
106

Policyholder dividends and other
56

 
(189
)
 
(73
)
Total
$
132

 
$
22

 
$
(233
)

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The following represent significant items contributing to the changes to DAC and VOBA amortization in 2017:
Changes in net investment and net derivative gains (losses) resulted in the following changes in DAC and VOBA amortization:
Actual gross profits increased as a result of a decrease in liabilities associated with guarantee obligations on variable annuities, resulting in an increase of DAC and VOBA amortization of approximately $80 million, including the impact from our nonperformance risk and risk margins in the valuation. This is more than offset by the mark-to-market losses and adjustments on the freestanding derivatives hedging such guarantee obligations which resulted in a decrease in DAC and VOBA amortization of approximately $90 million.
The remainder of the impact decreased DAC amortization by approximately $45 million and was attributable to 2017 investment activities.
The change in policyholder dividends and other is primarily driven by a decrease of approximately $60 million of DAC amortization resulting from the annual actuarial assumption update of the closed block, partially offset by an increase of approximately $40 million of DAC amortization from the dividend scale update of the open block. In addition, DAC amortization decreased by approximately $55 million due to an adjustment related to certain participating whole life business assumed from Brighthouse.
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2016:
Changes in net investment and net derivative gains (losses) resulted in the following changes in DAC and VOBA amortization:
Actual gross profits increased as a result of a decrease in liabilities associated with guarantee obligations on variable annuities, resulting in an increase of DAC and VOBA amortization of approximately $60 million, excluding the impact from our nonperformance risk and risk margins, which are described below. Mark-to-market losses on the freestanding derivatives hedging such guarantee obligations resulted in a decrease in DAC and VOBA amortization of approximately $180 million.
The Company’s nonperformance risk adjustment decreased the valuation of guaranteed liabilities, increased actual gross profits and increased DAC and VOBA amortization by approximately $40 million. This is more than offset by higher risk margins, which increased the guarantee liability valuations, decreased actual gross profits and decreased DAC and VOBA amortization by approximately $120 million.
The remainder of the impact decreased DAC and VOBA amortization by approximately $30 million and was attributable to 2016 investment activities and assumption updates.
The change in policyholder dividends and other is primarily driven by:
An increase of approximately $110 million of DAC and VOBA amortization resulting from the annual actuarial assumption update of the closed block.
An increase of approximately $70 million of DAC and VOBA amortization resulting from the dividend scale update.
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2015:
Changes in net investment and net derivative gains (losses) resulted in the following changes in DAC and VOBA amortization:
Actual gross profits decreased as a result of an increase in liabilities associated with guarantee obligations on variable annuities, resulting in a decrease of DAC and VOBA amortization of approximately $90 million. Mark-to-market changes on the freestanding derivatives hedging such guarantee obligations resulted in an increase in DAC and VOBA amortization of approximately $70 million.
The remainder of the impact increased DAC and VOBA amortization by approximately $170 million and was attributable to 2015 investment activities.
Better than expected persistency and updates in persistency assumptions caused an increase in actual and expected future gross profits resulting in a decrease in DAC and VOBA amortization of approximately $110 million.
The change in expense resulted in an increase to DAC and VOBA amortization of approximately $100 million primarily attributable to the annual actuarial assumption update.

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The change in policyholder dividends and other is primarily driven by an increase of approximately $70 million of DAC and VOBA amortization resulting from the actuarial assumption update, primarily related to closed block, and other model refinements.
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 increase in unrealized investment gains (losses) decreased the DAC and VOBA balance by $529 million and $163 million in 2017 and 2016, respectively, while the change in unrealized investment gains increased the DAC and VOBA balance by $448 million in 2015. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment 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 quoted prices are not available, 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 management judgment are used to determine the estimated fair value of investments.
The methodologies, assumptions and inputs utilized are described 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 Impairments
One of the significant estimates related to AFS securities is our impairment evaluation. The assessment of whether an other-than-temporary impairment (“OTTI”) occurred is based on our case-by-case evaluation of the underlying reasons for the decline in estimated fair value on a security-by-security basis. Our review of each fixed maturity and equity security for OTTI includes an analysis of gross unrealized losses by three categories of severity and/or age of gross unrealized loss. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments. Accordingly, such an unrealized loss position may not impact our evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, greater weight and consideration are given to a decline in estimated fair value and the likelihood such estimated fair value decline will recover.
Additionally, 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. Inherent in our evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Factors we consider in the OTTI evaluation process are described in Note 8 of the Notes to the Consolidated Financial Statements.
The determination of the amount of allowances and impairments on the remaining invested asset classes is highly subjective and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of the amount of allowances and impairments.
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 for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
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 such as those experienced during the 2008-2009 financial crisis, 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 significantly 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, 2017
 
Policyholder Account Balances
 
DAC and VOBA
 
(In millions)
100% increase in our credit spread
$
230

 
$
19

As reported
$
323

 
$
27

50% decrease in our credit spread
$
386

 
$
35

The accounting for derivatives is complex and interpretations of accounting standards continue to evolve in practice. If it is determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Assessments of hedge effectiveness and measurements of ineffectiveness of hedging relationships are also subject to interpretations and estimations and different interpretations or estimates may have a material effect on the amount reported in net income.
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.

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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.
Goodwill
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, the implied fair value of the reporting unit goodwill is compared to the carrying value of that goodwill to measure the amount of impairment loss, if any. In such instances, the implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business acquisition. 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, the level of interest rates, credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit.
In the third quarter of 2017, the Company tested the MetLife Holdings life reporting unit for impairment using the actuarial‑based embedded value fair valuation approach. The estimated fair value of the reporting unit exceeded the carrying value by approximately 19% and, therefore, the reporting unit was not impaired. If we had assumed that the discount rate was 100 basis points higher than the discount rate used, the estimated fair value of the MetLife Holdings life reporting unit would have been higher than the carrying value by approximately 1%. The MetLife Holdings life reporting unit consists of operations relating to products and businesses no longer actively marketed by the Company. As of December 31, 2017, the amount of goodwill allocated to the MetLife Holdings life reporting unit was $887 million.
The Company also performed its annual goodwill impairment tests of all other reporting units during the third quarter of 2017 using a qualitative assessment and/or quantitative assessments under the market multiple and discounted cash flow valuation approaches based on best available data as of June 30, 2017 and concluded that the estimated fair values of all such reporting units were in excess of their carrying values and, therefore, goodwill was not impaired.
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 will, in all likelihood, differ in some respects from actual future results. 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.
See Note 11 of the Notes to the Consolidated Financial Statements for additional information on our goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various plans that provide defined benefit pension and other postretirement benefits covering eligible employees . 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.

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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 of December 31, 2016, 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 would have been a decrease of $101 million and an increase of $101 million, respectively, in 2017. This 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 of December 31, 2016, 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 a decrease of $97 million and an increase of $111 million, respectively, in 2017. This considers 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 17 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
We provide for federal, state and foreign income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. 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, both domestic and foreign.
In establishing a liability for unrecognized tax benefits, assumptions may be made in determining whether, and to what extent, a tax position may be sustained. Once established, unrecognized tax benefits are adjusted when there is more information available or when events occur requiring a change.
Valuation allowances are established against deferred tax assets when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. See Note 1 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of such valuation allowances.
We may be required to change our provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported on the financial statements in the year these changes occur.
On December 22, 2017, U.S. Tax Reform was signed into law. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result, the Company recognized the tax effects of U.S. Tax Reform for the year ended December 31, 2017. See “ Executive Summary Overview U.S. Tax Reform” for additional information.
See also Notes 1 and 18 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.

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Litigation Contingencies
We are a party to a number of legal actions and are involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on our financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of available data and uncertainty regarding numerous variables that can affect liability estimates. The data and variables that impact the assumptions used to estimate our asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the law in the jurisdictions in which claims are filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims against us when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts. 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 20 of the Notes to the Consolidated Financial Statements for additional information regarding our assessment of litigation contingencies.
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 is 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. Economic capital-based risk estimation is an evolving science and industry best practices have emerged and continue to evolve. Areas of evolving industry best practices include stochastic liability valuation techniques, alternative methodologies for the calculation of diversification benefits, and the quantification of appropriate shock levels. 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.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact our consolidated net investment income, income (loss) from continuing operations, net of income tax, or adjusted earnings.
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.
Acquisitions and Dispositions
2017 Acquisition
On September 15, 2017, the Company completed the acquisition of Logan Circle Partners, L.P. (“Logan Circle Partners”), from Fortress Investment Group LLC, for approximately $250 million in cash. Logan Circle Partners is a fundamental research-based investment manager providing institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies, with more than 100 institutional clients and more than $37 billion in assets under management as of August 31, 2017.
2017 Pending Disposition
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company’s disposition of MetLife Afore, its pension fund management business in Mexico.

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2017 Disposition
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the Separation. See Note 3 of the Notes to the Consolidated Financial Statements.
2016 Disposition
In July 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance Company (“MassMutual”) of its U.S. retail advisor force and certain assets associated with the MetLife Premier Client Group, including all of the issued and outstanding shares of MetLife’s affiliated broker-dealer, MSI, a wholly-owned subsidiary of MetLife, Inc. (collectively, the “U.S. Retail Advisor Force Divestiture”) for $291 million. MassMutual assumed all of the liabilities related to such assets that arise or occur at or after the closing of the sale. As part of the transactions, MetLife, Inc. and MassMutual entered into a product development agreement under which the part of MetLife’s former U.S. retail business now in Brighthouse will be the exclusive developer of certain annuity products to be issued by MassMutual. In the MassMutual purchase agreement, MetLife, Inc. agreed to indemnify MassMutual for certain claims, liabilities and breaches of representations and warranties up to limits described in the purchase agreement. See Note 3 of the Notes to the Consolidated Financial Statements for further information.

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Results of Operations
Consolidated Results
Business Overview. Overall sales for the year ended December 31, 2017 increased over 2016 levels reflecting an increase in sales in the majority of our businesses. An overall increase in sales from our U.S. segment was primarily driven by improved sales in our RIS business, as well as strong sales from core and voluntary products in our Group Benefits business. The improvement in RIS was the result of higher sales of pension risk transfers, specialized life insurance, stable value and structured settlement products. Sales in our Asia segment increased primarily driven by a successful sales campaign in Korea, agency growth and the continued success of our whole life critical illness product in China, as well as a large group case in Australia. Sales in EMEA also improved as a result of growth in Turkey, Egypt and several European markets, partially offset by a decrease in sales due to the closing of the wealth management product to new business in the U.K. and the loss of a credit life contract in Poland. In our MetLife Holdings segment, sales declined, as we have discontinued the marketing of life and annuity products in connection with the U.S. Retail Advisor Force Divestiture and the Separation. In our Latin America segment, sales declined as higher group accident & health and credit life product sales in Mexico were more than offset by a large group medical sale in Mexico in 2016.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Revenues
 
 
 
 
 
Premiums
$
38,992

 
$
37,202

 
$
36,403

Universal life and investment-type product policy fees
5,510

 
5,483

 
5,570

Net investment income
17,363

 
16,790

 
16,205

Other revenues
1,341

 
1,685

 
1,927

Net investment gains (losses)
(308
)
 
317

 
609

Net derivative gains (losses)
(590
)
 
(690
)
 
629

Total revenues
62,308

 
60,787

 
61,343

Expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
39,544

 
37,581

 
36,500

Interest credited to policyholder account balances
5,607

 
5,176

 
4,415

Capitalization of DAC
(3,002
)
 
(3,152
)
 
(3,319
)
Amortization of DAC and VOBA
2,681

 
2,718

 
3,184

Amortization of negative VOBA
(140
)
 
(269
)
 
(361
)
Interest expense on debt
1,129

 
1,157

 
1,168

Other expenses
12,953

 
13,295

 
14,105

Total expenses
58,772

 
56,506

 
55,692

Income (loss) from continuing operations before provision for income tax
3,536

 
4,281

 
5,651

Provision for income tax expense (benefit)
(1,470
)
 
693

 
1,590

Income (loss) from continuing operations, net of income tax
5,006

 
3,588

 
4,061

Income (loss) from discontinued operations, net of income tax
(986
)
 
(2,734
)
 
1,324

Net income (loss)
4,020

 
854

 
5,385

Less: Net income (loss) attributable to noncontrolling interests
10

 
4

 
12

Net income (loss) attributable to MetLife, Inc.
4,010

 
850

 
5,373

Less: Preferred stock dividends
103

 
103

 
116

Preferred stock repurchase premium

 

 
42

Net income (loss) available to MetLife, Inc.’s common shareholders
$
3,907

 
$
747

 
$
5,215


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Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
During the year ended December 31, 2017, net income (loss) increased $3.2 billion from 2016 primarily driven by favorable changes in discontinued operations and adjusted earnings, as well as the favorable impact of U.S. Tax Reform, partially offset by an unfavorable change in net investment gains (losses).
Management of Investment Portfolio and Hedging Market Risks with Derivatives. 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 net investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with over 80% of our portfolio invested in fixed maturity securities 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. In addition, our general account investment portfolio includes, within FVO securities, contractholder-directed unit-linked investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate account assets. The returns on these contractholder-directed unit-linked investments, which can vary significantly from period to period, include changes in estimated fair value subsequent to purchase, inure to contractholders and are offset in earnings by a corresponding change in policyholder account balances through interest credited to policyholder account balances.
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 both impairments and realized gains and losses on investments sold.
We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A small 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. During 2017, we restructured certain derivative hedges to decrease volatility from nonqualified interest rate derivatives and to help meet prospective dividend and free cash flow objectives under varying interest rate scenarios. As part of this restructuring, we replaced certain nonqualified derivatives with derivatives that qualify for hedge accounting treatment. In addition, we also entered into replication transactions using interest rate swaps, which are accounted for at amortized cost under statutory guidelines and are nonqualified derivatives under GAAP. 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. Ongoing refinement of the strategy may be required to adapt to changing NAIC rules, which may become effective as early as January 1, 2019. The restructured hedge strategy will be classified as a macro hedge program to protect our overall statutory capital from significant adverse economic conditions. 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.

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Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
 
Years Ended December 31,
 
2017
 
2016
 
(In millions)
Non-VA program derivatives
 
 
 
Interest rate
$
(39
)
 
$
(449
)
Foreign currency exchange rate
(379
)
 
352

Credit
198

 
108

Equity
6

 
12

Non-VA embedded derivatives
(131
)
 
26

Total non-VA program derivatives
(345
)
 
49

VA program derivatives
 
 
 
Market risks in embedded derivatives
1,052

 
364

Nonperformance risk adjustment on embedded derivatives
(190
)
 
156

Other risks in embedded derivatives
68

 
(727
)
Total embedded derivatives
930

 
(207
)
Freestanding derivatives hedging embedded derivatives
(1,175
)
 
(532
)
Total VA program derivatives
(245
)
 
(739
)
Net derivative gains (losses)
$
(590
)
 
$
(690
)
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $394 million ($256 million, net of income tax). This was primarily due to the U.S. dollar, relative to other key currencies, weakening in 2017 versus mostly strengthening in 2016, unfavorably impacting foreign currency swaps that primarily hedge foreign currency-denominated bonds. Additionally, there was a change in the value of the underlying assets unfavorably impacting non-VA embedded derivatives related to funds withheld on a certain reinsurance agreement. These decreases were partially offset by long-term interest rates mostly decreasing in 2017 and mostly increasing in 2016, favorably impacting receive-fixed interest rate swaps and total rate of return swaps hedging long-duration liability portfolios. 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 item being hedged.
The favorable change in net derivative gains (losses) on VA program derivatives was $494 million ($321 million, net of income tax). This was due to a favorable change of $795 million ($517 million, net of income tax) in other risks in embedded derivatives and a favorable change of $45 million ($29 million, net of income tax) in market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks, partially offset by an unfavorable change of $346 million, ($225 million, net of income tax) in the nonperformance risk adjustment on embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.
The foregoing $45 million ($29 million, net of income tax) favorable change reflects a $688 million ($447 million, net of income tax) favorable change in market risks in embedded derivatives, partially offset by a $643 million ($418 million, net of income tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives.

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The primary changes in market factors are summarized as follows:
Changes in foreign currency exchange rates contributed to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives related to the assumed variable annuity guarantees from our former operating joint venture in Japan. For example, the Japanese yen weakened against the euro by 10% in 2017 and strengthened by 6% in 2016.
Key equity index levels increased more in 2017 than in 2016, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives. For example, the S&P 500 Index increased 19% in 2017 and increased 10% in 2016.
Long-term interest rates in Japan increased in 2017 and decreased in 2016, contributing to a favorable change in our embedded derivatives and an unfavorable change in our freestanding derivatives related to the assumed variable annuity guarantees from our former operating joint venture in Japan. This was partially offset by long-term U.S. interest rates mostly decreasing in 2017 and mostly increasing in 2016. For example, the 30-year Japan swap rate increased five basis points in 2017 and decreased 41 basis points in 2016, and the 20-year U.S. swap rate decreased three basis points in 2017 and increased three basis points in 2016.
The foregoing $795 million ($517 million, net of income tax) favorable change in other risks in embedded derivatives reflects:
Updates to actuarial policyholder behavior assumptions within the valuation model.
A change in the risk margin adjustment measuring policyholder behavior risks, along with market and interest rate changes, and
The partially offsetting impact of a combination of other factors, which include fees being deducted from accounts and changes in the benefit base, premiums, lapses, withdrawals and mortality rates.
The aforementioned $346 million ($225 million, net of income tax) unfavorable change in the nonperformance risk adjustment on embedded derivatives resulted from an unfavorable change of $209 million, before income tax, as a result of model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, in addition to an unfavorable change of $137 million, before 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 yields 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 yields 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 they move in the opposite direction.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $625 million ($406 million, net of income tax) primarily reflects a 2017 loss recognized in connection with the Separation, while the 2016 results include gains from the U.S. Retail Advisor Force Divestiture and foreign currency transactions. These unfavorable changes were partially offset by higher gains on sales of real estate joint ventures and a lower provision for mortgage loan losses.
Actuarial Assumption Review. Results for 2017 include a $37 million ($25 million, net of income tax) gain associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $21 million ($14 million, net of income tax) gain was recognized in net derivative gains (losses). Of the $37 million gain, a $96 million ($64 million, net of income tax) gain was associated with DAC, and a loss of $59 million ($39 million, net of income tax) was related to reserves. The $21 million gain recognized in net derivative gains (losses) associated with this review of actuarial assumptions was included within the other risks in embedded derivatives caption in the table above.

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As a result of our annual review of actuarial assumptions, changes were made to economic, policyholder behavior, biometric and operational assumptions. These are summarized as follows:
Changes in operational assumptions, most notably related to updates to maintenance expense and closed block projections, resulted in a net gain of $114 million ($74 million net of income tax).
Changes in policyholder behavior assumptions resulted in reserve increases, partially offset by favorable DAC, resulting in a net charge of $47 million ($29 million, net of income tax).
Economic assumption updates resulted in reserve increases and DAC releases, resulting in a charge of $19 million ($13 million net of income tax).
Changes to biometric assumptions resulted in an increase in reserves, partially offset by favorable DAC, resulting in a charge of $11 million ($7 million, net of income tax).
The most significant impacts were in the MetLife Holdings Life and Annuities businesses.
Results for 2016 include a $648 million ($421 million, net of income tax) loss associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $709 million ($461 million, net of income tax) loss was recognized in net derivative gains (losses) and a $103 million ($67 million, net of income tax) loss was recognized in updates to the closed block projection. Of the $648 million loss, a $729 million ($474 million, net of income tax) loss was related to reserves while an $81 million ($53 million, net of income tax) gain was associated with DAC.
Divested Businesses and Lag Elimination. Income (loss) before provision for income tax related to the divested businesses and lag elimination, excluding net investment gains (losses) and net derivative gains (losses), decreased $861 million ($618 million, net of income tax) to a loss of $1.1 billion ($747 million, net of income tax) in 2017 from a loss of $197 million ($129 million, net of income tax) in 2016. Included in this decline was a decrease in total revenues of $272 million, before income tax, and an increase in total expenses of $589 million, before income tax. Divested businesses include activity primarily related to the Separation. In addition, divested businesses for 2016 also include the financial impact of converting our Japan operations to calendar year-end reporting without retrospective application of this change to prior years.
Discontinued Operations. Loss from discontinued operations, net of income tax, decreased $1.7 billion for the year ended December 31, 2017 to a loss of $986 million, net of income tax, from a loss of $2.7 billion, net of income tax, for the year ended December 31, 2016. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial segment. The favorable change in income (loss) from discontinued operations was primarily due to a favorable change in net derivative gains (losses) of $3.1 billion, net of income tax, primarily driven by the impact of the 2016 annual actuarial assumption review on certain variable annuity products that contain embedded derivatives, partially offset by a loss of $1.2 billion, net of income tax, as a result of the Separation in 2017. For further information regarding the Separation, see Note 3 of the Notes to the Consolidated Financial Statements.
Taxes. Income tax benefit for the year ended December 31, 2017 was $1.5 billion, or 42% of income from continuing operations before provision for income tax, compared with income tax expense of $693 million, or 16% of income before provision for income tax, for the year ended December 31, 2016. Our effective tax rates differ from the U.S. statutory rate of 35% due to non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. Our 2017 results include the following tax items: (i) a net benefit of $1.3 billion related to the impact of U.S. Tax Reform, which includes a net benefit of $1.6 billion (comprised of a $1.8 billion tax benefit and a $222 million increase in other divested expenses reflective of a reduction in other receivables due to the revaluation of a tax receivable from Brighthouse) and an adjusted earnings charge of $298 million (comprised of a $254 million tax charge and a $44 million, net of income tax, reduction in net investment income), (ii) a tax-related benefit of $540 million related to the Separation, (iii) a $41 million tax benefit from the finalization of certain tax audits, (iv) a net tax charge of $180 million as a result of the repatriation of approximately $3.0 billion of cash following the post-Separation review of our capital needs, partially offset by a tax benefit associated with dividends from our non-U.S. operations, and (v) a tax benefit of $9 million related to the settlement of an audit in Argentina. Our 2016 results include a tax benefit of $110 million in Japan related to a change in tax rate, a tax charge of $26 million related to the repatriation of earnings from Japan and a tax charge of $19 million in Chile, related to a change in tax rate. In addition, 2016 results include a one-time tax benefit of $46 million for the finalization of certain tax audits.

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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 income (loss) from continuing operations, net of income tax, 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 adjusted earnings available to common shareholders, 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 and adjusted earnings available to common shareholders should not be viewed as substitutes for net income (loss) and net income (loss) available to MetLife, Inc.’s common shareholders, respectively. Adjusted earnings available to common shareholders increased $202 million, net of income tax, to $4.2 billion, net of income tax, for the year ended December 31, 2017 from $4.0 billion, net of income tax, for the year ended December 31, 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
During the year ended December 31, 2016, net income (loss) decreased $4.5 billion from 2015 primarily driven by unfavorable changes in income (loss) from discontinued operations and net derivative gains (losses). In addition, in 2016, net income (loss) includes the financial impact of converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change to prior years.
Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
 
Years Ended December 31,
 
2016
 
2015
 
(In millions)
Non-VA program derivatives
 
 
 
Interest rate
$
(449
)
 
$
61

Foreign currency exchange rate
352

 
393

Credit
108

 
7

Equity
12

 
(1
)
Non-VA embedded derivatives
26

 
66

Total non-VA program derivatives
49

 
526

VA program derivatives
 
 
 
Market risks in embedded derivatives
364

 
246

Nonperformance risk adjustment on embedded derivatives
156

 
52

Other risks in embedded derivatives
(727
)
 
(164
)
Total embedded derivatives
(207
)
 
134

Freestanding derivatives hedging embedded derivatives
(532
)
 
(31
)
Total VA program derivatives
(739
)
 
103

Net derivative gains (losses)
$
(690
)
 
$
629

The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $477 million ($310 million, net of income tax). This was primarily due to long-term interest rates increasing during 2016 and decreasing during 2015, unfavorably impacting receive-fixed interest rate swaps and total rate of return swaps primarily hedging long-duration liability portfolios. 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 item being hedged.

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The unfavorable change in net derivative gains (losses) on VA program derivatives was $842 million ($547 million, net of income tax). This was due to an unfavorable change of $563 million ($366 million, net of income tax) in other risks in embedded derivatives and an unfavorable change of $383 million ($249 million net of income tax) in market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks partially offset by a favorable change of $104 million ($68 million, net of income tax) related to the change in the nonperformance risk adjustment on embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.
The foregoing $383 million ($249 million, net of income tax) unfavorable change reflects a $501 million ($326 million, net of income tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives, partially offset by a favorable change of $118 million ($77 million, net of income tax) in market risks in embedded derivatives.
The primary changes in market factors are summarized as follows:
Long-term interest rates increased in 2016 and decreased in 2015, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives. For example, the 10-year U.S. swap rate increased 15 basis points in 2016 and decreased 10 basis points in 2015.
Key equity index levels mostly increased in 2016 and decreased in 2015, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives. For example, the S&P 500 Index increased 10% in 2016 and decreased 1% in 2015.
The aforementioned $104 million ($68 million, net of income tax) favorable change in the nonperformance risk adjustment on embedded derivatives resulted from a favorable change of $97 million, before income tax, as a result of model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, and a favorable change of $7 million, before income tax, related to changes in our own credit spread.
The foregoing $563 million ($366 million, net of income tax) unfavorable change in other risks in embedded derivatives reflected:
Updates to actuarial policyholder behavior assumptions within the valuation model; and
An increase in the risk margin adjustment, measuring policyholder behavior risks along with market and interest rate changes; partially offset by
The cross effect of capital market changes and the mismatch of fund performance between actual and modeled funds; and
A combination of other factors, including reserve changes influenced by benefit features and actual policyholder behavior, as well as FCTA.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $292 million ($190 million, net of income tax) primarily reflects higher gains on sales of real estate, fixed maturity securities and equity securities in 2015 than in 2016 and an increase in the provision for mortgage loan losses in 2016. These unfavorable changes were partially offset by lower foreign currency transaction losses, as well as a gain in 2016 from the U.S. Retail Advisor Force Divestiture.
Actuarial Assumption Review. Results for 2016 include a $648 million ($421 million, net of income tax) loss associated with the annual review of assumptions related to reserves and DAC, of which a $709 million ($461 million, net of income tax) loss was recognized in net derivative gains (losses) and a loss of $103 million ($67 million, net of income tax) was recognized in updates to the closed block projection. Of the $648 million charge, $729 million ($474 million, net of income tax) was related to reserves and a benefit of $81 million ($53 million, net of income tax) was associated with DAC. The $709 million loss recognized in net derivative gains (losses) associated with this review of assumptions was included within the other risks in embedded derivatives caption in the table above.

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As a result of our annual review of assumptions related to reserves and DAC, changes were made to economic, policyholder behavior, mortality and other assumptions. These are summarized as follows:
Changes in policyholder behavior and mortality assumptions resulted in reserve increases, partially offset by favorable DAC amortization, resulting in a loss of $356 million ($231 million, net of income tax).
Changes in economic assumptions resulted in reserve increases and unfavorable DAC amortization resulting in a loss of $125 million ($81 million, net of income tax).
The remaining updates resulted in reserve increases and unfavorable DAC amortization, resulting in a loss of $167 million ($109 million, net of income tax).
The most significant impacts of this review were in the MetLife Holdings life and annuity blocks of business.
Results for 2015 include a $142 million ($92 million, net of income tax) loss associated with our annual assumption review related to reserves and DAC, of which a $134 million ($87 million, net of income tax) loss was recognized in updates to the closed block projection. Of the $142 million loss, $94 million ($61 million, net of income tax) was related to DAC and $48 million ($31 million, net of income tax) was associated with reserves.
Divested Businesses and Lag Elimination. Income (loss) from continuing operations before provision for income tax related to the divested businesses and lag elimination, excluding net investment gains (losses) and net derivative gains (losses), increased $358 million ($228 million, net of income tax) to a loss of $197 million ($129 million, net of income tax) in 2016 from a loss of $555 million ($357 million, net of income tax) in 2015. Included in this decline was an increase in total revenues of $393 million, before income tax, and an increase in total expenses of $35 million, before income tax. Divested businesses include activity primarily related to the Separation. In addition, divested businesses for 2016 include the financial impact of converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change to prior years.
Discontinued Operations. Income (loss) from discontinued operations, net of income tax, decreased $4.0 billion for the year ended December 31, 2016 to a loss of $2.7 billion, net of income tax, from income of $1.3 billion, net of income tax, for the comparable 2015 period. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial segment, which were lower in 2016, primarily due to an unfavorable change in net derivative gains (losses) of $3.5 billion, net of income tax, primarily driven by the impact of the 2016 annual actuarial assumption review on certain variable annuity products that contain embedded derivatives. The most significant impact from the review was the result of changes in policyholder behavior assumptions, which resulted in reserve increases, partially offset by favorable DAC amortization. The policyholder behavior assumption changes included: (i) lower utilization of the elective annuitization option on the guarantee riders on the contracts; (ii) lower election of the guaranteed principal option in certain of our GMIBs, which, if exercised, returns to the policyholder the original purchase payment amounts; and (iii) adjusting the rate at which policyholders withdrew funds through systematic withdrawals.
The 2016 loss also included (i) a $340 million, net of income tax, charge for a write-off of DAC and increases to insurance related liabilities for its variable and universal life policies; (ii) a $223 million, net of income tax non-cash charge for goodwill impairment; (iii) unfavorable reserve adjustments of $192 million, net of income tax, resulting from modeling improvements in the reserving process; and (iv) unfavorable DAC unlockings of $161 million, net of income tax, related to the annual actuarial assumption review of the variable annuity business. For further information, see Note 3 of the Notes to the Consolidated Financial Statements.
Taxes. Income tax expense for the year ended December 31, 2016 was $693 million, or 16% of income from continuing operations before provision for income tax, compared with $1.6 billion, or 28% of income from continuing operations before provision for income tax, for the year ended December 31, 2015. The Company’s effective tax rates differ from the U.S. statutory rate of 35% typically due to non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. Our 2016 results include the following tax items: (i) a $110 million benefit related to a change in tax rate in Japan, (ii) an $8 million expense due to a deferred tax adjustment related to goodwill, (iii) a $46 million benefit for the finalization of certain tax audits, and (iv) a $22 million benefit related to an investment tax credit, partially offset by a $19 million charge related to a change in tax rate in Chile. Our 2015 results include tax charges of $580 million, of which $557 million was recorded under accounting guidance for the recognition of tax uncertainties, and $23 million was related to foreign exchange-related gains on investments in Argentina. These charges were partially offset by the following tax benefits: (i) $174 million related to a change in tax rate in Japan, (ii) $61 million related to the restructuring of our business in Chile, (iii) $57 million related to the repatriation of earnings from Japan, and (iv) $31 million related to the devaluation of the peso in Argentina.

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Adjusted Earnings. Adjusted earnings available to common shareholders increased $119 million, net of income tax, to $4.0 billion, net of income tax, for the year ended December 31, 2016 from $3.9 billion, net of income tax, for the year ended December 31, 2015.

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Reconciliation of income (loss) from continuing operations, net of income tax, to adjusted earnings available to common shareholders
Year Ended December 31, 2017
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Net income (loss)

$
2,001

 
$
1,298

 
$
613

 
$
301

 
$
914

 
$
(1,107
)
 
$
4,020

Less: Income (loss) from discontinued operations, net of income tax
 


 

 

 

 

 
(986
)
 
(986
)
Income (loss) from continuing operations, net of income tax
$
2,001

 
$
1,298

 
$
613

 
$
301

 
$
914

 
$
(121
)
 
$
5,006

Less: Net investment gains (losses)
180

 
128

 
(47
)
 
(10
)
 
71

 
(630
)
 
(308
)
Less: Net derivative gains (losses)
(21
)
 
31

 
108

 
32

 
(339
)
 
(401
)
 
(590
)
Less: Other adjustments to continuing operations (1)
(197
)
 
(43
)
 
8

 
17

 
(337
)
 
(1,070
)
 
(1,622
)
Less: Provision for income tax (expense) benefit
12

 
(47
)
 
(41
)
 
(35
)
 
337

 
2,962

 
3,188

Adjusted earnings
$
2,027

 
$
1,229

 
$
585

 
$
297

 
$
1,182

 
(982
)
 
4,338

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
103

 
103

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(1,085
)
 
$
4,235

Year Ended December 31, 2016
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Net income (loss)

$
1,756

 
$
1,420

 
$
629

 
$
311

 
$
300

 
$
(3,562
)
 
$
854

Less: Income (loss) from discontinued operations, net of income tax
 


 

 

 

 

 
(2,734
)
 
(2,734
)
Income (loss) from continuing operations, net of income tax
$
1,756

 
$
1,420

 
$
629

 
$
311

 
$
300

 
$
(828
)
 
$
3,588

Less: Net investment gains (losses)
(15
)
 
230

 
93

 
42

 
182

 
(215
)
 
317

Less: Net derivative gains (losses)
53

 
(47
)
 
3

 
24

 
(757
)
 
34

 
(690
)
Less: Other adjustments to continuing operations (1)
(263
)
 
26

 
58

 
33

 
(50
)
 
(285
)
 
(481
)
Less: Provision for income tax (expense) benefit
85

 
(13
)
 
(68
)
 
(61
)
 
219

 
144

 
306

Adjusted earnings
$
1,896

 
$
1,224

 
$
543

 
$
273

 
$
706

 
(506
)
 
4,136

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
103

 
103

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(609
)
 
$
4,033

Year Ended December 31, 2015
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Net income (loss)

$
2,080

 
$
1,813

 
$
503

 
$
288

 
$
1,175

 
$
(474
)
 
$
5,385

Less: Income (loss) from discontinued operations, net of income tax
 


 

 

 

 

 
1,324

 
1,324

Income (loss) from continuing operations, net of income tax
$
2,080

 
$
1,813

 
$
503

 
$
288

 
$
1,175

 
$
(1,798
)
 
$
4,061

Less: Net investment gains (losses)
256

 
459

 
82

 
27

 
(37
)
 
(178
)
 
609

Less: Net derivative gains (losses)
98

 
67

 
(135
)
 
40

 
391

 
168

 
629

Less: Other adjustments to continuing operations (1)
(149
)
 
(120
)
 
(72
)
 
3

 
(455
)
 
(568
)
 
(1,361
)
Less: Provision for income tax (expense) benefit
(72
)
 
19

 
3

 
(22
)
 
36

 
190

 
154

Adjusted earnings
$
1,947

 
$
1,388

 
$
625

 
$
240

 
$
1,240

 
(1,410
)
 
4,030

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
116

 
116

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(1,526
)
 
$
3,914

__________________
(1)
See definitions of adjusted revenues and adjusted expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments and Note 2 of the Notes to the Consolidated Financial Statements for additional details on these adjustments by financial statement line item.

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Reconciliation of revenues to adjusted revenues and expenses to adjusted expenses
Year Ended December 31, 2017
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Total revenues
$
31,810

 
$
11,875

 
$
5,118

 
$
3,729

 
$
11,005

 
$
(1,229
)
 
$
62,308

Less: Net investment gains (losses)
180

 
128

 
(47
)
 
(10
)
 
71

 
(630
)
 
(308
)
Less: Net derivative gains (losses)
(21
)
 
31

 
108

 
32

 
(339
)
 
(401
)
 
(590
)
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
13

 

 
(1
)
 

 

 
12

Less: Other adjustments to revenues (1)
(195
)
 
336

 
69

 
875

 
(83
)
 
(552
)
 
450

Total adjusted revenues
$
31,846

 
$
11,367

 
$
4,988

 
$
2,833

 
$
11,356

 
$
354

 
$
62,744

Total expenses
$
28,797

 
$
9,910

 
$
4,308

 
$
3,334

 
$
9,881

 
$
2,542

 
$
58,772

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
9

 

 
(1
)
 
(70
)
 
2

 
(60
)
Less: Other adjustments to expenses (1)
2

 
383

 
61

 
858

 
324

 
516

 
2,144

Total adjusted expenses
$
28,795

 
$
9,518

 
$
4,247

 
$
2,477

 
$
9,627

 
$
2,024

 
$
56,688

Year Ended December 31, 2016
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Total revenues
$
29,254

 
$
11,973

 
$
4,816

 
$
3,810

 
$
11,710

 
$
(776
)
 
$
60,787

Less: Net investment gains (losses)
(15
)
 
230

 
93

 
42

 
182

 
(215
)
 
317

Less: Net derivative gains (losses)
53

 
(47
)
 
3

 
24

 
(757
)
 
34

 
(690
)
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
31

 

 
(1
)
 

 

 
30

Less: Other adjustments to revenues (1)
(264
)
 
601

 
48

 
936

 
(182
)
 
(925
)
 
214

Total adjusted revenues
$
29,480

 
$
11,158

 
$
4,672

 
$
2,809

 
$
12,467

 
$
330

 
$
60,916

Total expenses
$
26,607

 
$
10,061

 
$
3,961

 
$
3,396

 
$
11,337

 
$
1,144

 
$
56,506

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
42

 

 

 
(268
)
 

 
(226
)
Less: Other adjustments to expenses (1)
(1
)
 
564

 
(10
)
 
902

 
136

 
(640
)
 
951

Total adjusted expenses
$
26,608

 
$
9,455

 
$
3,971

 
$
2,494

 
$
11,469

 
$
1,784

 
$
55,781

Year Ended December 31, 2015
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife Holdings
 
Corporate & Other
 
Total
 
(In millions)
Total revenues
$
28,929

 
$
11,944

 
$
4,736

 
$
2,930

 
$
13,255

 
$
(451
)
 
$
61,343

Less: Net investment gains (losses)
256

 
459

 
82

 
27

 
(37
)
 
(178
)
 
609

Less: Net derivative gains (losses)
98

 
67

 
(135
)
 
40

 
391

 
168

 
629

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
12

 

 
(5
)
 

 

 
7

Less: Other adjustments to revenues (1)
(163
)
 
147

 
12

 
21

 
(245
)
 
(674
)
 
(902
)
Total adjusted revenues
$
28,738

 
$
11,259

 
$
4,777

 
$
2,847

 
$
13,146

 
$
233

 
$
61,000

Total expenses
$
25,768

 
$
9,689

 
$
4,199

 
$
2,599

 
$
11,534

 
$
1,903

 
$
55,692

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
9

 

 
(5
)
 
162

 
(9
)
 
157

Less: Other adjustments to expenses (1)
(14
)
 
270

 
84

 
18

 
48

 
(97
)
 
309

Total adjusted expenses
$
25,782

 
$
9,410

 
$
4,115

 
$
2,586

 
$
11,324

 
$
2,009

 
$
55,226

__________________
(1)
See definitions of adjusted revenues and adjusted expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments and Note 2 of the Notes to the Consolidated Financial Statements for additional details on these adjustments by financial statement line item.

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Consolidated Results — Adjusted Earnings
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were annuities reinsurance activity with Brighthouse, the impact of 2017 and 2016 refinements made to DAC and certain insurance-related liabilities, and the impact in both 2017 and 2016 of our annual actuarial assumption review, partially offset by the negative impact of U.S. Tax Reform and other unfavorable tax items.
Foreign Currency. Changes in foreign currency exchange rates had a $22 million negative impact on adjusted earnings for 2017 compared to 2016. 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. An increase of $70 million in adjusted earnings was attributable to business growth. We benefited from positive net flows from many of our businesses. As a result, growth in the investment portfolios of our U.S., Asia and Latin America segments generated higher net investment income. However, this was partially offset by a corresponding increase in interest credited expense on certain insurance-related liabilities. In our U.S. segment, an increase in average premium per policy in our auto and homeowners business, partially offset by a decrease in exposures, improved adjusted earnings. Growth in our segments abroad also contributed to the increase in adjusted earnings. In our MetLife Holdings segment, negative net flows contributed to a decrease in average separate account balances and, consequently, asset-based fee income. Improved results from our start-up operations increased adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Excluding the impact of changes in foreign currency exchange rates on reported net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields decreased. Investment yields were negatively affected by lower prepayment fees, lower derivative income and lower returns on real estate joint ventures. In addition, earnings on our securities lending program decreased, which primarily resulted from lower margins due to a flatter yield curve, and lower returns on alternative investments (excluding the impact of U.S. Tax Reform). These decreases in net investment income were partially offset by higher returns on other limited partnership interests, driven by improvements in equity market performance. In addition, higher interest credited expenses, primarily driven by our U.S. segment as a result of a higher average interest credited rate, reduced adjusted earnings. These decreases were partially offset by higher asset-based fees in our MetLife Holdings segment as a result of favorable equity market performance in 2017. The changes in market factors discussed above resulted in a $69 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a $13 million decrease in adjusted earnings primarily as a result of unfavorable claims experience, higher catastrophe losses and unfavorable mortality, largely offset by favorable morbidity and favorable development of prior year non-catastrophe losses in our Property & Casualty business. Favorable morbidity in our U.S. segment was partially offset by unfavorable morbidity in our MetLife Holdings segment. Higher lapses and claims in Japan, partially offset by favorable claims experience in other countries, drove unfavorable claims experience in our Asia segment. Unfavorable mortality in our Latin America and U.S. segments was partially offset by favorable mortality in our MetLife Holdings segment. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in a $166 million increase in adjusted earnings, primarily due to favorable DAC unlockings in 2017 compared to unfavorable DAC unlockings in 2016 in our MetLife Holdings segment. Refinements to DAC and certain insurance-related liabilities, which were recorded in both 2017 and 2016 across our segments, resulted in a $191 million increase in adjusted earnings. This includes favorable 2017 refinements of (i) a $36 million DAC adjustment related to certain participating whole life business assumed from Brighthouse; and (ii) a reserve adjustment resulting from modeling improvements in the reserving process of $55 million in our life business, as well as (iii) a 2017 unfavorable charge of $90 million to increase certain RIS policy reserves. This also includes an unfavorable 2016 refinement of $65 million resulting from modeling improvements in the reserving process.
Expenses. A $46 million decrease in expenses was primarily driven by lower costs as a result of the U.S. Retail Advisor Force Divestiture, a decrease in certain corporate expenses, and favorable net adjustments to certain reinsurance assets and liabilities, partially offset by (i) Separation-related costs, (ii) higher employee-related expenses, (iii) higher costs associated with corporate initiatives and projects (including leasehold impairments and costs related to our unit cost initiative), (iv) an increase in asbestos and litigation reserves, and (v) an increase in expenses incurred related to the guaranty fund assessment for Penn Treaty.

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Interest Expense on Debt. Interest expense on debt decreased by $35 million, mainly due to the maturity of $1.25 billion of our senior notes in June 2016.
Taxes. Our effective tax rates differ from the U.S. statutory rate of 35% due to non-taxable investment income, tax credits for investments in low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. This incremental tax benefit was lower in 2017 compared to 2016 which resulted in a $7 million decrease in adjusted earnings. Our results for 2017 include the following tax items: (i) a charge of $298 million related to the impact of U.S. Tax Reform, which includes a $254 million tax charge and a $44 million, net of income tax, reduction in net investment income, (ii) a tax benefit of $41 million related to the finalization of certain tax audits, (iii) tax charges of $180 million related to the repatriation of offshore earnings, and (iv) a tax benefit of $9 million related to the settlement of an audit in Argentina. Our results for 2016 include the following tax items: (i) a tax benefit of $25 million in Japan and a tax charge of $12 million in Chile, both related to changes in tax rates that pertain to periods prior to 2016, (ii) a tax charge of $26 million related to the repatriation of earnings from Japan, and (iii) a tax benefit of $46 million for the finalization of certain tax audits.
Other. In connection with the Separation, annuities reinsurance activity with Brighthouse increased adjusted earnings by $267 million. This favorable impact was primarily due to the recapture in 2016 of certain assumed single-premium deferred annuity reinsurance agreements, and the elimination of interest credited payments on the related reinsurance payable, as well as lower DAC amortization. This increase was partially offset by the net unfavorable impact in 2017 from the recapture and novation of, as well as refinements to, assumed and ceded agreements covering certain variable annuity business.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were higher net investment income from portfolio growth and 2015 charges for taxes and related interest expense, partially offset by lower investment yields, unfavorable underwriting, refinements made to DAC and certain insurance-related liabilities, the impact of affiliated reinsurance activity, and the impact of our annual actuarial assumption review.
Foreign Currency. Changes in foreign currency exchange rates had a $51 million negative impact on adjusted earnings compared to 2015. 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. A $331 million increase in adjusted earnings was attributable to business growth. We benefited from positive net flows from many of our products. As a result, growth in the investment portfolios of our U.S., Asia and Latin America segments generated higher net investment income. However, this was partially offset by a corresponding increase in interest credited expense on certain insurance-related liabilities. In addition, improved results from our start-up operations also increased adjusted earnings.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used to hedge these risks. Excluding the impact of changes in foreign currency exchange rates on reported net investment income in our non-U.S. segments and inflation-indexed investments, investment yields decreased. Investment yields were negatively affected by the adverse impact of the low interest rate environment on fixed maturity securities and mortgage loans, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average. In addition, we experienced a decrease in returns on real estate joint ventures and alternative investments. Lower investment earnings on our securities lending program resulted primarily from lower margins due to the impact of a flatter yield curve. These decreases in net investment income were partially offset by higher income on derivatives. In our MetLife Holdings segment, a decline in our average separate account balances resulted in a decrease in asset-based fee income. The changes in market factors discussed above resulted in a $443 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a $176 million decrease in adjusted earnings primarily as a result of higher non-catastrophe claim costs, less favorable development of prior year non-catastrophe losses and a charge related to an adjustment to reinsurance receivables in our Asia segment. Favorable mortality and morbidity experience in our Latin America and U.S. segments was largely offset by unfavorable experience in our MetLife Holdings segment. The impact of our annual actuarial assumption review, which occurred in both 2016 and 2015, resulted in a $75 million decrease in adjusted earnings. Refinements to DAC and certain insurance-related liabilities, which were recorded in both 2016 and 2015, resulted in a $176 million decrease in adjusted earnings, primarily as a result of a 2016 reserve adjustment of $65 million resulting from modeling improvements in the reserving process.

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Interest Expense on Debt. The maturity of $1.0 billion of senior notes in June 2015 and $1.3 billion of senior notes in June 2016 and the maturity of other long-term debt in 2015 and 2016, partially offset by the issuance of $1.5 billion of senior notes in March 2015 and $1.3 billion of senior notes in November 2015 and higher interest on floating rate debt resulted in a net decrease to interest expense on debt of $29 million.
Expenses and Taxes. Our results for 2015 include the aforementioned $235 million charge for interest on uncertain tax positions. In addition, other expenses declined by $86 million primarily due to expense savings related to the U.S. Retail Advisor Force Divestiture. The Company’s effective tax rates differ from the U.S. statutory rate of 35% typically due to non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. This incremental tax benefit was higher in 2016 compared to 2015 which resulted in a $68 million increase in adjusted earnings. Our results for 2016 include the following tax items: (i) a $46 million benefit for the finalization of certain tax audits, (ii) a $25 million benefit related to a change in the tax rate in Japan, and (iii) a $22 million benefit related to an investment tax credit, partially offset by a $12 million charge related to a change in the tax rate in Chile. The $25 million benefit in Japan includes a benefit of $20 million that pertains to prior years; the $12 million tax charge in Chile includes a charge of $10 million that pertains to prior years. Our results for 2015 include the following tax items: (i) a charge of $557 million recorded under accounting guidance for the recognition of tax uncertainties, (ii) a benefit of $61 million related to a change in the tax rate in Japan, (iii) a benefit of $60 million related to the restructuring of our business in Chile, (iv) a benefit of $31 million related to the repatriation of earnings from Japan, and (v) a $31 million benefit related to devaluation of the peso in Argentina.
Other. Annuities reinsurance activity with Brighthouse decreased adjusted earnings by $160 million. This was primarily due to the recapture of certain assumed single-premium deferred annuity reinsurance agreements that resulted in unfavorable recapture settlements and an increase in the related DAC amortization, partially offset by lower interest credited on the related reinsurance payables. The impact of the lower interest credited was largely offset by the lower net investment income earned on the assets transferred in connection with the recapture.

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Segment Results and Corporate & Other
U.S.
Business Overview. Sales increased compared to 2016, primarily driven by our RIS business, with higher sales of pension risk transfers, specialized life insurance, stable value and structured settlement products. Funding agreement issuances were essentially flat. Changes in premiums for the RIS business were almost entirely offset by the related changes in policyholder benefits and claims. Sales increased 19% compared to 2016 in the Group Benefits business, with strong sales across our core and voluntary products. The resulting increase in premiums, fees and other revenues was partially offset by the loss of a large dental contract in the second quarter of 2017. In our Property & Casualty business, sales increased slightly over 2016. The number of exposures decreased from 2016, reflecting management actions to improve the quality of the business.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
23,632

 
$
21,501

 
$
20,861

Universal life and investment-type product policy fees
1,012

 
989

 
943

Net investment income
6,396

 
6,206

 
6,183

Other revenues
806

 
784

 
751

Total adjusted revenues
31,846

 
29,480

 
28,738

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
23,627

 
21,591

 
20,899

Interest credited to policyholder account balances
1,474

 
1,302

 
1,216

Capitalization of DAC
(458
)
 
(471
)
 
(493
)
Amortization of DAC and VOBA
459

 
471

 
471

Interest expense on debt
11

 
9

 
4

Other expenses
3,682

 
3,706

 
3,685

Total adjusted expenses
28,795

 
26,608

 
25,782

Provision for income tax expense (benefit)
1,024

 
976

 
1,009

Adjusted earnings
$
2,027

 
$
1,896

 
$
1,947

Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of deposits, net flows from funding agreements and increased premiums in 2017 resulted in higher average invested assets, improving net investment income. However, consistent with the growth in average invested assets from increased premiums, interest credited on long-duration contracts increased. An increase in average premium per policy in both our auto and homeowners businesses, partially offset by the decrease in exposures, improved adjusted earnings. The remaining increase in premiums, fees and other revenues, coupled with a decline in direct expenses, was partially offset by higher volume-related expenses. The 2017 abatement of the annual health insurer fee under PPACA was offset by a corresponding decrease in premiums, fees and other revenues. The combined impact of the items discussed above increased adjusted earnings by $198 million.
Market Factors. Market factors, including interest rate levels, variability in equity market returns and foreign currency exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased, primarily due to lower prepayment fees, derivative income and lower returns on real estate and real estate joint ventures. In addition, lower investment earnings on our securities lending program resulted primarily from lower margins, due to a flatter yield curve. These decreases in investment yields were largely offset by higher returns on other limited partnership interests, primarily in private equities, driven by improvements in equity market performance. Higher average interest credited rates drove an increase in interest credited expenses; however, this was partially offset by an increase in adjusted earnings due to a decrease in the crediting rate on certain long-duration insurance contracts. The changes in market factors discussed above resulted in a $74 million decrease in adjusted earnings.

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Underwriting and Other Insurance Adjustments. Favorable prior year reserve development, lower utilization and the positive impact of pricing actions in our dental business, as well as favorable claims experience in our accident & health and group disability businesses were partially offset by slightly less favorable claims experience in our individual disability business, which resulted in a $120 million increase in adjusted earnings. Less favorable mortality in 2017, mainly due to less favorable claim experience in our group life businesses resulted in a $20 million decrease in adjusted earnings. Favorable mortality from our pension risk transfer and structured settlement businesses was mostly offset by less favorable mortality in our specialized life insurance and income annuities businesses. In our Property & Casualty business, catastrophe-related losses increased $24 million in 2017, primarily due to severe storm activity. Non-catastrophe claim costs increased slightly as a result of higher auto-related severities and higher homeowners-related frequencies, mostly offset by lower auto-related frequencies and lower homeowners-related severities. Favorable development of prior year non-catastrophe losses of $12 million increased adjusted earnings. Refinements to certain insurance and other liabilities, which were recorded in both 2017 and 2016, resulted in a $75 million decrease in adjusted earnings, which included a $90 million charge in 2017 to increase certain RIS policy reserves.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of deposits, funding agreement issuances and increased premiums in 2016 resulted in higher average invested assets, improving net investment income. However, consistent with the growth in average invested assets from increased premiums, interest credited on long-duration contracts increased. An increase in average premium per policy in both our auto and homeowners businesses improved adjusted earnings. In addition, an increase in other adjusted expenses, mainly the result of growth across the segment, was more than offset by the remaining increase in premiums, fees and other revenues. The combined impact of the items discussed above increased adjusted earnings by $173 million.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased as a result of the impact of the low interest rate environment on fixed maturity securities and mortgage loans, as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average. In addition, lower returns on other limited partnership interests, lower prepayment fees and lower returns on alternative investments reduced yields.
Lower investment earnings on our securities lending program resulted primarily from lower margins due to the impact of a flatter yield curve. These unfavorable changes were partially offset by higher income on derivatives and real estate. Certain of our funding agreements and guaranteed interest contract liabilities have interest credited rates that are contractually tied to current market rates, specifically the 3-month LIBOR and, as a result, a higher average interest credited rate drove an increase in interest credited expense. However, consistent with the decrease in yields on average invested assets, interest credited on certain long-duration insurance contracts decreased. The changes in market factors discussed above resulted in a $129 million decrease in adjusted earnings.
Underwriting. Favorable claims experience in our individual disability and accident & health businesses were partially offset by unfavorable claims experience in our group disability and dental businesses and resulted in a $12 million increase in adjusted earnings. Favorable mortality in 2016, mainly due to favorable claims experience in our life business, resulted in a $26 million increase in adjusted earnings. Less favorable mortality from our pension risk transfer business and specialized life insurance products resulted in a $9 million decrease in adjusted earnings. In our Property & Casualty business, non-catastrophe claim costs increased by $85 million, resulting from higher frequencies and severities in both our auto and homeowners businesses, as well as an increase in claims adjustment expenses. In addition, less favorable development of prior year non-catastrophe losses reduced adjusted earnings by $43 million. These increases were partially offset by a decrease in catastrophe losses, which improved adjusted earnings by $3 million.

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Asia
Business Overview. Sales increased compared to 2016 primarily driven by a successful sales campaign in Korea, agency growth and the continued success of our whole life critical illness product in China, as well as a large group case in Australia. In Japan, we have completed a successful shift in sales to foreign currency-denominated life products from yen-denominated life products.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
6,755

 
$
6,902

 
$
6,937

Universal life and investment-type product policy fees
1,584

 
1,488

 
1,542

Net investment income
2,985

 
2,707

 
2,675

Other revenues
43

 
61

 
105

Total adjusted revenues
11,367

 
11,158

 
11,259

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
5,075

 
5,211

 
5,266

Interest credited to policyholder account balances
1,351

 
1,298

 
1,309

Capitalization of DAC
(1,710
)
 
(1,668
)
 
(1,720
)
Amortization of DAC and VOBA
1,300

 
1,236

 
1,253

Amortization of negative VOBA
(111
)
 
(208
)
 
(309
)
Other expenses
3,613

 
3,586

 
3,611

Total adjusted expenses
9,518

 
9,455

 
9,410

Provision for income tax expense (benefit)
620

 
479

 
461

Adjusted earnings
$
1,229

 
$
1,224

 
$
1,388

Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $8 million for 2017 compared to 2016 primarily due to the weakening of the Japanese yen, partially offset by the strengthening of the Korean won, against the U.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.
Business Growth. Asia’s premiums and policy fee income increased from 2016 mainly driven by growth in our foreign currency-denominated life and accident & health businesses in Japan, as well as our group insurance business in Australia. Changes in premiums for these businesses were partially offset by related changes in policyholder benefits. Positive net flows in Japan and Korea resulted in higher average invested assets, which improved net investment income. The combined impact of the items discussed above improved adjusted earnings by $61 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 results were favorably impacted by higher returns on other limited partnership interests, driven by improvements in equity market performance, and higher income on real estate investments, which included a lease termination fee. These increases were partially offset by the unfavorable impact of lower interest rates on fixed maturity securities in Japan. The decrease in returns from lower interest rates in Japan was partially offset by the favorable impact of increased sales of foreign currency-denominated fixed annuities in Japan, primarily in its Australian dollar-denominated portfolio, which drove an increase in higher yielding foreign currency-denominated fixed maturity securities. The combined impact of the items discussed above increased adjusted earnings by $45 million.

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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Higher lapses and claims in Japan, partially offset by favorable claims experience in other countries, decreased adjusted earnings by $51 million. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in a slight increase in adjusted earnings. Refinements to certain insurance and other liabilities, which were recorded in both 2017 and 2016, resulted in a $69 million increase in adjusted earnings, which includes a $12 million favorable refinement in 2017 of the $44 million charge in 2016 related to reinsurance receivables in Australia.
Expenses and Taxes. Higher expenses, primarily driven by project costs, reduced adjusted earnings by $11 million. Results for 2017 include a charge of $70 million related to a U.S. tax on dividends from our Japan operations. Results for 2016 include a $25 million tax benefit related to a change in the corporate tax rate in Japan (which includes a benefit of $20 million that pertains to prior periods).
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Following a change in the foreign investment law in India, the Company no longer consolidates its India operating joint venture, effective January 1, 2016. While this change in accounting does affect the comparability of the financial statement line items, it did not have a significant impact on adjusted earnings and, therefore, is not discussed below.
Foreign Currency. The impact of changes in foreign currency exchange rates increased adjusted earnings by $46 million for 2016 compared to 2015 primarily due to the strengthening of the Japanese yen against the U.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.
Business Growth. Positive net flows in Japan and Korea resulted in higher average invested assets and an increase in net investment income. Asia’s premiums and fees decreased from 2015 mainly driven by lower fixed annuity surrenders and the shift from premium-based to fee-based products in 2016. The discontinuation of single premium products in our accident & health business in Japan in the third quarter of 2015 also contributed to the decline in premiums. Changes in premiums for these businesses were partially offset by related changes in policyholder benefits. The combined impact of the items discussed above improved adjusted earnings by $64 million.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment returns were unfavorably impacted by lower interest rates on fixed maturity securities, and the impact of incremental income recognized in 2015 from the recovery of a previously impaired mortgage loan, both in Japan. The decreases in investment returns were partially offset by the favorable impact of increased sales of foreign currency-denominated fixed annuities in Japan, primarily in its Australian currency-denominated portfolio, which drove an increase in higher yielding foreign currency-denominated fixed maturity securities, as well as higher returns on other limited partnership interests. Lower investment yields, partially offset by the impact of credit and foreign currency hedges, decreased adjusted earnings by $113 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Our results for 2016 include a $44 million charge related to an adjustment to reinsurance receivables in Australia. Excluding this charge, lower fixed annuity surrender gains and higher lapses in Japan, partially offset by favorable claims experience in Australia and Korea, decreased adjusted earnings by $15 million. The impact of our annual actuarial assumption review, which occurred in both 2016 and 2015, resulted in a net decrease of $35 million in adjusted earnings. Refinements to certain insurance and other liabilities, which were recorded in 2016, resulted in a $10 million increase in adjusted earnings.
Expenses and Taxes. An increase in expenses, primarily driven by costs associated with growth of our agency channel in Hong Kong, information technology, and marketing, partially offset by lower consumption tax in Japan and a decline in corporate overhead, reduced adjusted earnings by $13 million. Results for 2016 include a $25 million tax benefit related to a change in the corporate tax rate in Japan (which includes a benefit of $20 million that pertains to prior periods). Results for 2015 include tax benefits of $61 million related to a change in tax rates, $12 million for the settlement of an audit and $15 million related to the U.S. taxation of dividends, each related to Japan, as well as a $6 million tax refund in Korea in 2015 related to unclaimed surrender value.

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Latin America
Business Overview. Total sales for Latin America decreased compared to 2016, as higher group accident & health and credit life product sales in Mexico were more than offset by a large group medical sale in Mexico in 2016.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
2,693

 
$
2,529

 
$
2,581

Universal life and investment-type product policy fees
1,044

 
1,025

 
1,117

Net investment income
1,219

 
1,084

 
1,038

Other revenues
32

 
34

 
41

Total adjusted revenues
4,988

 
4,672

 
4,777

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
2,535

 
2,443

 
2,408

Interest credited to policyholder account balances
369

 
328

 
349

Capitalization of DAC
(364
)
 
(321
)
 
(341
)
Amortization of DAC and VOBA
224

 
184

 
271

Amortization of negative VOBA
(1
)
 
(1
)
 
(1
)
Interest expense on debt
5

 
2

 

Other expenses
1,479

 
1,336

 
1,429

Total adjusted expenses
4,247

 
3,971

 
4,115

Provision for income tax expense (benefit)
156

 
158

 
37

Adjusted earnings
$
585

 
$
543

 
$
625

Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates resulted in a slight decrease to adjusted earnings for 2017 as compared to 2016 mainly due to the weakening of the Mexican and Argentinean pesos against the U.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.
Business Growth. Latin America experienced growth across several lines of business within Chile, Mexico and Brazil. This growth resulted in increased premiums and policy fee income which was partially offset by related changes in policyholder benefits. Positive net flows, primarily from Mexico and Chile, resulted in an increase in average invested assets and generated higher net investment income. This was partially offset by an increase in interest credited expense on certain insurance liabilities. Business growth also drove an increase in adjusted expenses and commissions, which were partially offset by higher DAC capitalization. The items discussed above resulted in an $86 million increase in adjusted earnings.
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. Changes in market factors resulted in a $19 million increase in adjusted earnings primarily due to higher investment yields. The increase in investment yields was primarily driven by higher returns from FVO securities in Chile and mortgage loans in Mexico. These increases were largely offset by higher interest credited expenses and lower yields on fixed income securities in Chile and Argentina.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a $37 million decrease to adjusted earnings driven by higher claims experience in Mexico. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in a slight decrease in adjusted earnings. In addition, refinements to certain insurance liabilities, primarily in the ProVida pension business, and other adjustments in both 2017 and 2016 resulted in a $5 million increase to adjusted earnings.

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Expenses and Taxes. Higher expenses, primarily driven by employee-related and marketing costs, decreased adjusted earnings by $48 million as compared to 2016. Our results for 2017 include a $9 million tax benefit related to the settlement of a tax audit and a $4 million tax charge incurred as a result of tax reform legislation, both in Argentina. Our results for 2016 included a tax charge of $12 million as a result of tax reform legislation in Chile (including a charge of $10 million that pertains to periods prior to 2016). Also, our results for 2016 included a tax charge of $11 million related to the 2015 filing of local tax returns in Mexico and Chile. Other tax-related items in both 2017 and 2016 resulted in a $6 million decrease in adjusted earnings, primarily driven by a 2016 tax benefit due to inflation in Argentina.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates decreased adjusted earnings by $81 million for 2016 as compared to 2015 mainly due to the weakening of the Mexican and Argentinean pesos against the U.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.
Business Growth. Latin America experienced business growth across several lines of business within Mexico, Chile and Argentina. This business growth resulted in increased premiums and policy fee income which was partially offset by the related changes in policyholder benefits. Positive net flows, primarily from Chile, Mexico and Argentina, resulted in an increase in average invested assets and generated higher net investment income. This was partially offset by an increase in interest credited expense on certain insurance liabilities. Business growth also drove an increase in adjusted expenses, commissions and DAC amortization, which were partially offset by higher DAC capitalization. The items discussed above resulted in a $59 million increase in adjusted earnings.
Market Factors. Changes in market factors resulted in a $17 million increase to adjusted earnings as higher investment yields were partially offset by higher interest credited expense. An increase in investment yields was primarily driven by a 2016 change in the crediting rate on allocated equity in Mexico, Chile and Argentina, as well as higher yields from fixed maturity securities in Mexico. These increases were partially offset by lower returns on fixed maturity securities, alternative investments and mortgage loans in Chile.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting resulted in a $38 million increase in adjusted earnings driven by lower claims experience in Mexico and Chile. The impact of the annual actuarial assumption review, which occurred in both 2016 and 2015, resulted in a net adjusted earnings increase of $16 million. Refinements to certain insurance liabilities and other adjustments in both 2016 and 2015 resulted in a $26 million decrease to adjusted earnings.
Taxes. Effective September 1, 2015, AFP ProVida was merged into MetLife Chile Acquisition Company resulting in an income tax benefit of $60 million in 2015. In the first quarter of 2016, our Chilean businesses, including ProVida, incurred a tax charge of $12 million as a result of tax reform legislation in Chile (including a charge of $10 million that pertains to prior periods). In addition, other tax-related adjustments in both 2016 and 2015 resulted in a net decrease in adjusted earnings of $20 million. These adjustments were mainly driven by tax charges related to the filing of local tax returns in Mexico and Chile in 2016 and a tax benefit in 2015 due to the devaluation of the peso in Argentina, partially offset by a 2016 tax benefit due to inflation in Argentina.

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EMEA
Business Overview. Sales increased in 2017 due to growth in Turkey, Egypt and several European markets, partially offset by a decrease in sales due to the closing of the wealth management product to new business in the U.K. and the loss of a credit life contract in Poland.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
2,061

 
$
2,027

 
$
2,036

Universal life and investment-type product policy fees
405

 
391

 
424

Net investment income
309

 
318

 
326

Other revenues
58

 
73

 
61

Total adjusted revenues
2,833

 
2,809

 
2,847

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
1,077

 
1,067

 
988

Interest credited to policyholder account balances
100

 
112

 
120

Capitalization of DAC
(414
)
 
(403
)
 
(472
)
Amortization of DAC and VOBA
357

 
408

 
497

Amortization of negative VOBA
(19
)
 
(13
)
 
(16
)
Other expenses
1,376

 
1,323

 
1,469

Total adjusted expenses
2,477

 
2,494

 
2,586

Provision for income tax expense (benefit)
59

 
42

 
21

Adjusted earnings
$
297

 
$
273

 
$
240

Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates reduced adjusted earnings by $12 million for 2017 as compared to 2016, primarily driven by the strengthening of the U.S. dollar against the Egyptian pound and Turkish lira, partially offset by the weakening of the U.S. dollar against the Russian ruble and the Euro. 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 from our accident & health and credit life businesses in Turkey and our employee benefits business in the U.K., as well as growth across several European markets, partially offset by lower premium persistency in our employee benefits business in the Gulf, increased adjusted earnings by $25 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Underwriting experience was essentially unchanged as unfavorable underwriting, primarily in our credit life business in Turkey and across several European markets, was offset by favorable underwriting in our accident & health business in Greece. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in an $8 million increase in net adjusted earnings. Refinements to certain insurance liabilities and other adjustments in both 2017 and 2016 resulted in a $4 million decrease in adjusted earnings.
Expenses. Adjusted earnings increased by $5 million primarily due to expense discipline across the region, as well as enterprise-wide initiatives, notably the closing of the wealth management product to new business in the U.K., partially offset by additional costs related to regulatory and compliance requirements.
Taxes and Other. Our 2017 results include an unfavorable revision to the estimate of the valuation allowance required for a deferred tax asset in our non-life business of $5 million and an incremental tax expense in Russia of $2 million. This was offset by lower effective tax rates, which resulted in a $7 million increase to adjusted earnings. In addition, a 2017 reinsurance profit share of $2 million was offset by a 2016 benefit of $3 million following the cancellation of a distribution agreement with one of our bancassurance partners.

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Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced adjusted earnings by $16 million for 2016 as compared to 2015, primarily driven by the strengthening of the U.S. dollar against the British pound, Turkish lira, Egyptian pound and Polish zloty. 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. Adjusted earnings increased by $35 million as a result of business growth mainly in the employee benefits business in the Middle East and the U.K.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting, primarily in our accident & health business in Greece, was largely offset by unfavorable underwriting, primarily in our employee benefits business and resulted in an adjusted earnings increase of $2 million. The impact of the annual actuarial assumption review, which occurred in both 2016 and 2015, resulted in a net adjusted earnings decrease of $22 million. Refinements to certain insurance liabilities and other adjustments in 2016 resulted in a $4 million increase to adjusted earnings.
Expenses. Adjusted earnings increased by $43 million primarily due to expense discipline across the region and lower allocated corporate overhead expenses.
Taxes and Other. The Company received tax benefits in both 2016 and 2015; however, since the 2015 benefit exceeded the 2016 benefit, adjusted earnings decreased by $19 million. Adjusted earnings for 2015 were positively impacted by the conversion to calendar year reporting for certain of our subsidiaries; however, this was offset by certain one-time items, including re-branding and legal expenses. Our 2016 adjusted earnings benefited from the cancellation of a distribution agreement with one of our bancassurance partners, which improved adjusted earnings by $3 million.

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MetLife Holdings
Business Overview. In connection with the Separation and the U.S. Retail Advisor Force Divestiture, we have discontinued the marketing of life and annuity products in this segment, which has led to lower revenues. This will result in a declining DAC asset over time and we anticipate an average decline in premiums, fees and other revenues of approximately 5% per year from expected business run-off. 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 sales, movements in the market, surrenders, withdrawals, benefit payments, transfers and policy charges. Separate account balances increased due to equity market performance, partially offset by the impact of negative net flows, as benefits, surrenders and withdrawals exceeded sales. 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.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
4,144

 
$
4,506

 
$
4,545

Universal life and investment-type product policy fees
1,361

 
1,436

 
1,482

Net investment income
5,607

 
5,944

 
6,189

Other revenues
244

 
581

 
930

Total adjusted revenues
11,356

 
12,467

 
13,146

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
7,000

 
7,523

 
7,346

Interest credited to policyholder account balances
1,018

 
1,042

 
1,062

Capitalization of DAC
(82
)
 
(281
)
 
(410
)
Amortization of DAC and VOBA
302

 
736

 
577

Interest expense on debt
24

 
57

 
55

Other expenses
1,365

 
2,392

 
2,694

Total adjusted expenses
9,627

 
11,469

 
11,324

Provision for income tax expense (benefit)
547

 
292

 
582

Adjusted earnings
$
1,182

 
$
706

 
$
1,240

Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Lower net investment income, resulting from a reduced invested asset base, decreased adjusted earnings. The reduced asset base is primarily the result of the 2016 recapture of certain assumed single-premium deferred annuity reinsurance agreements with Brighthouse. This decline was partially offset by net asset growth in our long-term care and life businesses. Consistent with this asset growth, interest credited on insurance liabilities increased. In our deferred annuities business, negative net flows contributed to a decrease in average separate account balances, and consequently, asset-based fee income. The discontinuance of a distribution agreement, resulting from the Separation, also contributed to the decline in variable annuity fee income. In our life business, a decrease in universal life sales resulted in lower fee income, net of DAC amortization, decreasing adjusted earnings. The combined impact of the items discussed above resulted in a $314 million decrease in adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased primarily due to declines in prepayment fees and derivative income, as well as lower returns on real estate joint ventures. These reductions in yields were partially offset by higher returns on other limited partnership interests, driven by improvements in equity market performance. In our deferred annuity business, higher equity returns drove an increase in average separate account balances which resulted in higher asset-based fee income. Adjusted earnings increased due to declines in DAC amortization. The changes in market factors discussed above resulted in an $8 million increase in adjusted earnings.

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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable claims experience in our long-term care business, partially offset by favorable mortality in our life business, resulted in a $20 million decrease in adjusted earnings. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in an increase of $156 million in adjusted earnings and was primarily related to favorable DAC unlockings in 2017 compared to unfavorable DAC unlockings in 2016, primarily in our life business. Refinements to DAC and certain insurance-related liabilities that were recorded in 2017 and 2016 resulted in a $196 million increase in adjusted earnings. This includes favorable 2017 refinements of (i) a $36 million DAC adjustment related to certain participating whole life business assumed from Brighthouse; and (ii) a $55 million reserve adjustment resulting from modeling improvements in our life business reserving process. This also includes a 2017 net unfavorable impact from a life reinsurance recapture and an unfavorable 2016 adjustment of $30 million resulting from modeling improvements in the reserving process in our universal life business.
Expenses. Adjusted earnings increased by $181 million as a result of lower expenses, primarily due to lower costs as a result of the U.S. Retail Advisor Force Divestiture, partially offset by Separation-related expenses.
Other. Adjusted earnings increased by $267 million as a result of the Separation and continued annuities reinsurance activity with Brighthouse. This favorable impact was primarily due to the recapture in 2016 of certain assumed single-premium deferred annuity reinsurance agreements, and the elimination of interest credited payments on the related reinsurance payable, as well as lower DAC amortization. This increase was partially offset by the net unfavorable impact in 2017 from the recapture and novation of, as well as refinements to, assumed and ceded agreements covering certain variable annuity business. Favorable results from our reinsurance agreement with our former operating joint venture in Japan due to higher fund returns resulted in a $13 million increase in adjusted earnings.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Net investment income increased slightly resulting from a larger invested asset base. Net asset growth in our life, annuities and long-term care businesses was largely offset by negative net flows as a result of the recapture of two assumed single-premium deferred annuity reinsurance agreements with Brighthouse, which decreased our invested asset base. Consistent with the aforementioned asset growth, interest credited on insurance liabilities also increased. Lower universal life sales resulted in lower fee income. Additionally, adjusted earnings increased since the adjusted loss from broker-dealer operations was included in the U.S. Retail Advisor Force Divestiture; this also resulted in declines in both revenues and expenses. The combined impact of the items discussed above resulted in a $7 million decrease in adjusted earnings.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields decreased on our fixed maturity securities as proceeds from maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average. We also had lower income on derivatives and alternative investments. These decreases in net investment income were partially offset by higher returns on private equities. In our deferred annuity business, lower equity returns in 2015 drove a decline in average separate account balances which resulted in a decrease in asset-based fee income in 2016 relative to 2015. This decrease was partially offset by lower average interest crediting rates and declines in DAC amortization. The changes in market factors discussed above resulted in a $179 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable mortality, primarily in our universal life business, and unfavorable claim experience in our long-term care business resulted in a $58 million decrease in adjusted earnings. The impact of our annual actuarial assumption review, which occurred in both 2016 and 2015, resulted in a net adjusted earnings decrease of $34 million and was primarily related to unfavorable DAC unlockings. Refinements to DAC and certain insurance-related liabilities that were recorded in both 2016 and 2015, including a 2016 reserve adjustment resulting from modeling improvements in the reserving process in our universal life business, resulted in a $165 million decrease in adjusted earnings.
Expenses. Adjusted earnings increased by $78 million as a result of lower expenses, primarily due to lower costs as a result of the U.S. Retail Advisor Force Divestiture.

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Other. Annuities reinsurance activity with Brighthouse decreased adjusted earnings by $160 million. This was primarily due to the aforementioned recapture of certain assumed single-premium deferred annuity reinsurance agreements that resulted in unfavorable recapture settlements and an increase in the related DAC amortization, partially offset by lower interest credited on the related reinsurance payables. The impact of the lower interest credited was largely offset by the lower net investment income earned on the assets transferred in connection with the recapture. Unfavorable results from our reinsurance agreement with our former operating joint venture in Japan resulted in a $14 million decrease in adjusted earnings.
Corporate & Other
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Adjusted revenues
 
 
 
 
 
Premiums
$
54

 
$
40

 
$
(92
)
Universal life and investment-type product policy fees
1

 
2

 
(4
)
Net investment income
28

 
178

 
260

Other revenues
271

 
110

 
69

Total adjusted revenues
354

 
330

 
233

Adjusted expenses
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
26

 
41

 
(114
)
Interest credited to policyholder account balances
1

 
6

 
23

Capitalization of DAC
(8
)
 
(7
)
 
(3
)
Amortization of DAC and VOBA
6

 
8

 
(1
)
Interest expense on debt
1,105

 
1,139

 
1,169

Other expenses
894

 
597

 
935

Total adjusted expenses
2,024

 
1,784

 
2,009

Provision for income tax expense (benefit)
(688
)
 
(948
)
 
(366
)
Adjusted earnings
(982
)
 
(506
)
 
(1,410
)
Less: Preferred stock dividends
103

 
103

 
116

Adjusted earnings available to common shareholders
$
(1,085
)
 
$
(609
)
 
$
(1,526
)
The table below presents adjusted earnings available to common shareholders by source net of income tax:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Other business activities
$
18

 
$
(5
)
 
$
(41
)
Other net investment income
144

 
220

 
291

Interest expense on debt
(779
)
 
(814
)
 
(843
)
Preferred stock dividends
(103
)
 
(103
)
 
(116
)
Corporate initiatives and projects
(179
)
 
(129
)
 
(169
)
Incremental tax benefit (expense) and other tax-related items
61

 
438

 
(256
)
Other
(247
)
 
(216
)
 
(392
)
Adjusted earnings available to common shareholders
$
(1,085
)
 
$
(609
)
 
$
(1,526
)
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Adjusted earnings from other business activities increased $23 million. This was primarily due to growth and improved results from our start-up operations predominantly from our investment management business.

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Other Net Investment Income. Other net investment income decreased by $76 million primarily driven by a lower invested asset base and lower returns on alternative investments (excluding the impact of U.S. Tax Reform) and real estate joint ventures. These decreases were partially offset by a decrease in the amount credited to the segments due to both a reduction in the crediting rate and the amount of economic capital managed by Corporate & Other on their behalf.
Interest Expense on Debt. Interest expense on debt decreased by $35 million, mainly due to the maturity of $1.3 billion of our senior notes in June 2016.
Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects increased by $50 million, primarily due to higher costs associated with enterprise-wide initiatives, primarily related to lease impairments and costs related to our unit cost initiative.
Incremental Tax Benefit and Other Tax-Related Items. Corporate & Other benefits from the impact of certain permanent tax preferenced items, including non-taxable investment income and tax credits for investments in low income housing. As a result, our effective tax rate differs from the U.S. statutory rate of 35%. In 2017, we had a $180 million net tax charge related to the repatriation of approximately $3.0 billion of cash following the post-Separation review of our capital needs, partially offset by a tax benefit associated with dividends from our non-U.S. operations and a $41 million tax benefit from the finalization of certain tax audits. Results for 2016 include a $46 million tax benefit related to the finalization of certain tax audits. In addition, higher utilization of tax preferenced items increased adjusted earnings by $106 million over 2016.
U.S. Tax Reform resulted in a $298 million charge in 2017, which includes a $44 million reduction in net investment income and a $254 million tax charge.
Other. Adjusted earnings decreased from 2016 as a result of a $32 million increase in asbestos and litigation reserves, a $25 million increase in employee-related expenses, $18 million of expenses incurred in 2017 related to the guaranty fund assessment for Penn Treaty, and a $13 million increase in expenses for interest on uncertain tax positions. These decreases in adjusted earnings were partially offset by a $31 million decrease in certain corporate expenses and $26 million of favorable net adjustments to certain reinsurance assets and liabilities in both 2017 and 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Adjusted earnings from other business activities increased $36 million. This was primarily related to improved results from our start-up operations.
Other Net Investment Income. A $71 million decrease in other net investment income was primarily driven by lower returns on fixed maturity securities as a result of the low interest rate environment and a decrease in average total portfolio holdings, primarily driven by a capital contribution to Brighthouse Life Insurance Company (formerly MetLife Insurance Company USA) (“Brighthouse Insurance”). Additionally, lower returns on real estate, real estate joint ventures and private equities decreased other net investment income.
Interest Expense on Debt. The maturity of $1.0 billion of senior notes in June 2015 and $1.3 billion of senior notes in June 2016 and the maturity of other long-term debt in 2015 and 2016, partially offset by the issuance of $1.5 billion of senior notes in March 2015 and $1.3 billion of senior notes in November 2015 and higher interest on floating rate debt resulted in a net decrease to interest expense on debt of $29 million.
Preferred Stock Dividends. Preferred stock dividends decreased by $13 million. In June 2015, MetLife, Inc. repurchased its 6.50% Non-Cumulative Preferred Stock, Series B (the “Series B preferred stock”) on which dividends had been paid quarterly. Also in June 2015, MetLife, Inc. issued 1,500,000 shares of its 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the “Series C preferred stock”) on which dividends are payable semi-annually until June 15, 2020, and are payable quarterly thereafter.
Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects decreased by $40 million, primarily due to lower costs associated with enterprise-wide initiatives taken by the Company.
Incremental Tax Benefit and Other Tax-Related Items. Corporate & Other benefits from the impact of certain permanent tax preferenced items, including non-taxable investment income and tax credits for investments in low income housing. As a result, our effective tax rate differs from the U.S. statutory rate of 35%. In 2016, we had higher utilization of tax preferenced investments, which increased our adjusted earnings by $69 million over 2015. In addition, our results for 2016 include a tax benefit of $46 million for the finalization of certain tax audits and $22 million related to an investment tax credit. Our 2015 results included the aforementioned tax charge of $557 million, which was recorded under accounting guidance for the recognition of tax uncertainties.

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Other. Our 2015 results include the aforementioned $235 million charge for interest on uncertain tax positions. In 2016, adjusted earnings decreased by $23 million due to an increase in litigation reserves and $9 million as a result of net adjustments to certain reinsurance assets and liabilities. In addition, adjusted earnings decreased $27 million due to higher employee-related costs, including those related to the Separation. An impairment charge on a real estate property in 2015, partially offset by higher real estate costs in 2016, increased adjusted earnings by $10 million.
Effects of Inflation
Management believes that inflation has not had a material effect on the Company’s consolidated results of operations, except insofar as inflation may affect interest rates.
An increase in inflation could affect our business in several ways. During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other materials, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Inflation could also lead to increased costs for losses and loss adjustment expenses in certain of our businesses, which could require us to adjust our pricing to reflect our expectations for future inflation. 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.

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Investments
Investment Risks
Our primary investment objective is to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring that assets and liabilities are managed on a cash flow and duration basis. The Investments Department, led by the Chief Investment Officer, manages investment risks using a risk control framework comprised of policies, procedures and limits, as discussed further below. The Investments Risk Committee, chaired by GRM, reviews and monitors investment risk limits and tolerances. We are exposed to the following primary sources of investment risks:
credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest;
interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;
liquidity risk, relating to the diminished ability to sell certain investments, in times of strained market conditions;
market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads and equity market levels. A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment portfolio, will increase losses associated with credit-based non-qualifying derivatives where we assume credit exposure, and, if credit spreads widen significantly or for an extended period of time, will likely result in higher OTTI. Credit spread tightening will reduce net investment income associated with purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;
currency risk, relating to the variability in currency exchange rates for foreign denominated investments. This risk relates to potential decreases in estimated fair value and net investment income resulting from changes in currency exchange rates versus the U.S. dollar. In general, the weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value of our foreign denominated investments; and
real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of borrowers and their tenants and joint venture partners, capital markets volatility and inherent interest rate movements.
We manage investment risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit, market and liquidity risk through industry and issuer diversification and asset allocation. These risk limits, approved annually by a committee of directors that oversees our investment portfolio, 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 and by diversifying by geography, property and product type. We manage interest rate risk as part of our ALM strategies. These strategies include maintaining an investment portfolio with diversified maturities that has a weighted average duration that reflects the duration of our estimated liability cash flow profile, and utilizing product design, such as the use of market value adjustment features and surrender charges, to manage interest rate risk. We also manage interest rate risk through proactive monitoring and management of certain non-guaranteed elements of our products, such as the resetting of credited interest and dividend rates for policies that permit such adjustments. In addition to hedging with foreign currency derivatives, we manage currency risk by matching 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. We also use certain derivatives in the management of credit, interest rate, and market valuation risk.
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. However, we dynamically hedge this risk through the rebalancing and rollover of our credit default swaps at their most liquid tenors. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.

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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 Western European 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 Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association determines that a credit event has occurred.
Current Environment
As a global insurance company, we continue to be impacted by the changing global financial and economic environment, as well as the monetary policy of central banks around the world. See “— Industry Trends — Financial and Economic Environment.” Measures taken by central banks, including with respect to the level of interest rates, may have an impact on the pricing levels of risk-bearing investments and may adversely impact our business operations, investment portfolio and derivatives. The current environment continues to impact our net investment income, net investment gains (losses), net derivative gains (losses), level of unrealized gains (losses) within the various asset classes in our investment portfolio, and our level of investment in lower yielding cash equivalents, short-term investments and government securities. See “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period.”
European Investments
We maintain general account investments in Europe to support our insurance operations and related policyholder liabilities in these countries and certain of our non-European operations invest in Europe for diversification. In Europe, we have proactively mitigated risk in both direct and indirect exposures by investing in a diversified portfolio of high quality investments with a focus on the higher-rated countries, including the U.K., Germany, France, the Netherlands, Poland, Norway and Sweden. The sovereign and agency debt of these countries continues to maintain investment grade credit ratings from all major rating agencies. European sovereign and agency fixed maturity securities, at estimated fair value, were $8.6 billion at December 31, 2017. Our European corporate securities (fixed maturity and perpetual hybrid securities classified as non-redeemable preferred stock) are invested in a diversified portfolio of primarily non-financial services securities, which comprised $19.3 billion, or 66%, of European total corporate securities, at estimated fair value, at December 31, 2017. Of these European fixed maturity securities, 94% were investment grade and, for the 6% that were below investment grade, the majority were non-financial services corporate securities at December 31, 2017. European financial services corporate securities, at estimated fair value, were $9.8 billion (including $6.4 billion within the banking sector) with 99% investment grade, at December 31, 2017. Total European fixed maturity securities, at estimated fair value, were $38.2 billion at December 31, 2017, including $417 million of structured securities.
Selected Country Investments
We have country specific exposure to volatility, as we maintain general account investments in the selected countries as summarized below to support our insurance operations and related policyholder liabilities in these countries and we also have exposure through our global portfolio diversification.
The following table presents a summary of fixed maturity securities in these countries. The information below is presented on a country of risk basis (e.g. the country where the issuer primarily conducts business). Sovereign includes government and agency.
 
Selected Country Fixed Maturity Securities at December 31, 2017
 
Sovereign  
 
Financial
Services
 
Non-Financial
Services
 
Structured
 
Total (1)
 
(Dollars in millions)
United Kingdom
$
27

 
$
3,117

 
$
8,117

 
$
310

 
$
11,571

South Korea
6,458

 
14

 
375

 
103

 
6,950

Mexico
3,520

 
580

 
2,219

 
78

 
6,397

Total
$
10,005

 
$
3,711

 
$
10,711

 
$
491

 
$
24,918

Investment grade %
99
%
 
99
%
 
94
%
 
90
%
 
97
%
__________________

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(1)
The par value and amortized cost were $23.9 billion and $23.7 billion, respectively, at December 31, 2017.
We manage direct and indirect investment exposure in the selected countries through fundamental credit analysis and we continually monitor and adjust our level of investment exposure. We do not expect that our general account investments in these countries will have a material adverse effect on our results of operations or financial condition.
Investment Portfolio Results
The following yield table presents the yield and net investment income, as reported on an adjusted basis, for our investment portfolio for the periods indicated. We calculate yields using reported net investment income, as reported on an adjusted basis. Net investment income, as reported on an adjusted basis, includes the impact of changes in foreign currency exchange rates. This 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.
 
For the Years Ended December 31,
 
2017
 
2016
 
2015
 
Yield% (1)
 
Amount
 
Yield% (1)
 
Amount
 
Yield% (1)
 
Amount
 
 (Dollars in millions)
Fixed maturity securities (2) (3)
4.29

%
$
11,401

 
4.38

%
$
11,665

 
4.62

%
$
11,788

Mortgage loans (3)
4.58

%
3,081

 
4.61

%
2,858

 
4.89

%
2,772

Real estate and real estate joint ventures
3.18

%
297

 
3.73

%
322

 
4.28

%
395

Policy loans
5.39

%
517

 
5.29

%
511

 
5.30

%
525

Equity securities
5.15

%
129

 
4.82

%
120

 
4.79

%
124

Other limited partnership interests
14.93

%
797

 
9.23

%
478

 
9.32

%
535

Cash and short-term investments
1.48

%
132

 
1.17

%
111

 
1.17

%
125

Other invested assets
 
 
655

 
 
 
856

 
 
 
767

Investment income
4.53

%
17,009

 
4.58

%
16,921

 
4.79

%
17,031

Investment fees and expenses
(0.14
)
 
(511
)
 
(0.14
)
 
(507
)
 
(0.15
)
 
(548
)
Net investment income including divested businesses and lag elimination (4)
4.39

%
16,498

 
4.44

%
16,414

 
4.64

%
16,483

Less: net investment income from divested businesses and lag elimination (4)
 
 
(46
)
 
 
 
(23
)
 
 
 
(188
)
Net investment income, as reported on an adjusted basis
 
 
$
16,544

 
 
 
$
16,437

 
 
 
$
16,671

__________________
(1)
Yields are calculated as investment income as a percent of average quarterly asset carrying values. Investment income excludes recognized gains and losses. 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, the effects of consolidating certain variable interest entities (“VIEs”) under GAAP that are treated as consolidated securitization entities (“CSEs”), contractholder-directed unit-linked investments and FVO Brighthouse Common Stock. 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 from fixed maturity securities includes amounts from FVO securities of $68 million, $37 million and $21 million for the years ended December 31, 2017, 2016 and 2015, respectively.
(3)
Investment income from fixed maturity securities and mortgage loans includes prepayment fees.
(4)
See Note 2 of the Notes to the Consolidated Financial Statements for further information, as well as the presentation of net investment income, as reported on an adjusted basis compared to the most directly comparable GAAP financial measure. See “ Non-GAAP and Other Financial Disclosures” for discussion of divested businesses and lag elimination.
See “— Results of Operations — Consolidated Results — Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016” and “— Results of Operations — Consolidated Results —Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015,” for an analysis of the year over year changes in net investment income.

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Fixed Maturity and Equity Securities AFS
The following table presents fixed maturity and equity securities AFS by type (public or private) and information about perpetual and redeemable securities held at:
 
December 31, 2017
 
December 31, 2016
 
 
Estimated Fair
Value
 
% of
Total
 
Estimated Fair
Value
 
% of
Total
 
 
(Dollars in millions)
 
Fixed maturity securities
 
 
 
 
 
 
 
 
  Publicly-traded
$
262,078

 
84.8
%
$
247,229

 
85.4
%
  Privately-placed
46,853

 
15.2
 
42,334

 
14.6
 
    Total fixed maturity securities
$
308,931

 
100.0
%
$
289,563

 
100.0
%
    Percentage of cash and invested assets
67.6
%
 
 
 
66.8
%
 
 
 
Equity securities
 
 
 
 
 
 
 
 
  Publicly-traded
$
1,490

 
59.3
%
$
1,854

 
64.1
%
  Privately-held
1,023

 
40.7
 
1,040

 
35.9
 
    Total equity securities
$
2,513

 
100.0
%
$
2,894

 
100.0
%
    Percentage of cash and invested assets
0.6
%
 
 
 
0.7
%
 
 
 
Perpetual securities included within fixed maturity and equity securities AFS
$
440

 
 
 
$
527

 
 
 
Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS
$
884

 
 
 
$
758

 
 
 
Perpetual securities are included within fixed maturity and equity securities. Upon acquisition, we classify perpetual securities that have attributes of both debt and equity as fixed maturity securities if the securities have an interest rate step-up feature which, when combined with other qualitative factors, indicates that the securities have more debt-like characteristics; while those with more equity-like characteristics are classified as equity securities. Many of such securities, commonly referred to as “perpetual hybrid securities,” have been issued by non-U.S. financial institutions that are accorded the highest two capital treatment categories by their respective regulatory bodies (i.e. core capital, or “Tier 1 capital” and perpetual deferrable securities, or “Upper Tier 2 capital”).
Redeemable preferred stock with a stated maturity is included within fixed maturity securities. These securities, which are commonly referred to as “capital securities,” primarily have cumulative interest deferral features and are primarily issued by U.S. financial institutions.
In connection with our investment management business, we manage a broad array of securities, limited partnership interests and liquid investments on behalf of institutional clients, which are unaffiliated investors. Assets under management, by sector, as of December 31, 2017, at estimated fair value, were as follows: investment grade corporate fixed maturity securities, including privately-placed, infrastructure and state and political subdivision, $66.6 billion; structured finance fixed maturity securities, including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”), $15.8 billion; U.S. government and agency fixed maturity securities, $21.7 billion; foreign government fixed maturity securities, $2.1 billion; below investment grade corporate fixed maturity securities, including emerging market and high yield, $7.7 billion; equity securities, $0.3 billion; other limited partnership interests, $1.7 billion; and cash equivalents and short-term investments, $3.0 billion. Assets under management, by sector, as of December 31, 2016, at estimated fair value, were as follows: investment grade corporate fixed maturity securities, including privately-placed and infrastructure, $7.9 billion; and below investment grade corporate fixed maturity securities, including high yield, $0.4 billion. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in our consolidated financial statements.
In connection with both our general account business and our investment management business as described above, we manage a large portfolio of fixed maturity and equity securities, short-term investments and cash and cash equivalents, which includes privately-placed securities. The estimated fair value of privately-placed and certain public securities managed by our Private Placement Unit for both our general account and our institutional clients was $66.1 billion at December 31, 2017, including $16.5 billion of infrastructure debt. The portion of such securities managed for our general account and included in our consolidated financial statements was $43.9 billion, at estimated fair value at December 31, 2017.

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In connection with our investment management business, we manage index investment portfolios that track the return of industry fixed income and equity market indices such as the Bloomberg Barclays U.S. Aggregate Bond Index and S&P 500® Index. These assets had an estimated fair value of $28.5 billion and $27.2 billion at December 31, 2017 and 2016 respectively. Index investment portfolios included within separate account assets in our consolidated financial statements were $14.9 billion at both December 31, 2017 and 2016. Index investment portfolios managed on behalf of our institutional clients were $13.6 billion at December 31, 2017 and are not included in our consolidated financial statements. Index investment portfolios managed on behalf of our institutional clients, by sector, as of December 31, 2017, at estimated fair value, were as follows: investment grade corporate fixed maturity securities and state and political subdivision securities, $794 million; structured securities, $828 million; U.S. government and agency fixed maturity securities, $1.1 billion; equity securities, $10.4 billion; and cash equivalents and short-term investments, $517 million. Index investment portfolios of $12.3 billion at December 31, 2016 were included within assets of disposed subsidiary on our consolidated financial statements.
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 were valued using non-binding quotations from independent brokers at December 31, 2017.
Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies, including reviewing and approving new transaction types and markets, for ensuring 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. See Note 10 of the Notes to the Consolidated Financial Statements for further information on our valuation controls and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value.
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 information regarding the valuation techniques and inputs by level within the three level fair value hierarchy by major classes of invested assets.

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Fair Value of Fixed Maturity and Equity Securities – AFS 
Fixed maturity and equity securities AFS measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources are as follows:
 
December 31, 2017
 
Fixed Maturity
Securities
 
Equity
Securities
 
(Dollars in millions)
Level 1
 
 
 
 
 
 
 
Quoted prices in active markets for identical assets
$
26,052

 
8.4
%
 
$
1,104

 
44.0
%
Level 2
 
 
 
 
 
 
 
Independent pricing sources
263,815

 
85.4

 
885

 
35.2

Internal matrix pricing or discounted cash flow techniques
2,795

 
0.9

 
96

 
3.8

Significant other observable inputs
266,610

 
86.3

 
981

 
39.0

Level 3
 
 
 
 
 
 
 
Independent pricing sources
11,526

 
3.7

 
299

 
11.9

Internal matrix pricing or discounted cash flow techniques
4,271

 
1.4

 
128

 
5.1

Independent broker quotations
472

 
0.2

 
1

 

Significant unobservable inputs
16,269

 
5.3

 
428

 
17.0

Total estimated fair value
$
308,931

 
100.0
%
 
$
2,513

 
100.0
%
See Note 10 of the Notes to the Consolidated Financial Statements for the fixed maturity securities and equity securities AFS fair value hierarchy.
The composition of fair value pricing sources for and significant changes in Level 3 securities at December 31, 2017 are as follows:
The majority of the Level 3 fixed maturity and equity securities AFS were concentrated in three sectors: U.S. and foreign corporate securities and RMBS.
Level 3 fixed maturity securities are priced principally through market standard valuation methodologies, independent pricing services and, to a much lesser extent, independent non-binding broker quotations using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. Level 3 fixed maturity securities consist of less liquid securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies. Level 3 fixed maturity securities include: sub-prime RMBS; certain below investment grade private securities and less liquid investment grade corporate securities (included in U.S. and foreign corporate securities) and less liquid ABS.
During the year ended December 31, 2017, Level 3 fixed maturity securities decreased by $782 million, or 5%. The decrease was driven by transfers out of Level 3 in excess of transfers into Level 3, partially offset by purchases in excess of sales and an increase in estimated fair value recognized in OCI.
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for fixed maturity securities and equity securities AFS 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 techniques and inputs by level by major classes of invested assets that affect the amounts reported above.
Fixed Maturity Securities AFS
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities and continuous gross unrealized losses.

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Fixed Maturity Securities Credit Quality — Ratings 
The Securities Valuation Office of the NAIC evaluates the fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” If no designation is available from the NAIC, then, as permitted by the NAIC, an internally developed designation is used. The NAIC designations are generally similar to the credit quality ratings of the NRSRO for fixed maturity securities, except for certain Structured Securities as described below. Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s, S&P, Fitch, Dominion Bond Rating Service, A.M. Best, Kroll Bond Rating Agency, Egan Jones Ratings Company and Morningstar Credit Ratings, LLC (“Morningstar”). If no rating is available from a rating agency, then an internally developed rating is used.
The NAIC has adopted revised methodologies for certain Structured Securities comprised of non-agency RMBS, CMBS and ABS. The NAIC’s objective with the revised methodologies for these Structured Securities was to increase the accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such Structured Securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from Structured Securities. We apply the revised NAIC methodologies to Structured Securities held by MetLife, Inc.’s insurance subsidiaries that maintain the NAIC statutory basis of accounting. The NAIC’s present methodology is to evaluate Structured Securities held by insurers using the revised NAIC methodologies on an annual basis. If MetLife, Inc.’s insurance subsidiaries acquire Structured Securities that have not been previously evaluated by the NAIC, but are expected to be evaluated by the NAIC in the upcoming annual review, an internally developed designation is used until a final designation becomes available. NAIC designations may not correspond to NRSRO ratings.
The following table presents total fixed maturity securities by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the revised NAIC methodologies as described above, as well as the percentage, based on estimated fair value that each NAIC designation is comprised of at:
 
 
 
 
December 31,
 
 
 
 
 
2017
 
 
2016
 
NAIC
Designation
 
NRSRO Rating
 
Amortized
Cost
 
Unrealized
Gain (Loss)
 
Estimated
Fair
Value
 
% of
Total
 
 
Amortized
Cost
 
Unrealized
Gain (Loss)
 
Estimated
Fair
Value
 
% of
Total
 
 
 
 
 
 (Dollars in millions)
 
1
 
Aaa/Aa/A
 
$
201,806

 
$
17,024

 
$
218,830

 
70.8
%
 
$
191,867

 
$
14,078

 
$
205,945

 
71.1
%
2
 
Baa
 
67,270

 
5,126

 
72,396

 
23.4
 
 
62,526

 
3,294

 
65,820

 
22.7
 
 
 
Subtotal investment grade
 
269,076

 
22,150

 
291,226

 
94.2
 
 
254,393

 
17,372

 
271,765

 
93.8
 
3
 
Ba
 
11,155

 
556

 
11,711

 
3.8
 
 
11,729

 
427

 
12,156

 
4.2
 
4
 
B
 
5,004

 
151

 
5,155

 
1.7
 
 
4,710

 
78

 
4,788

 
1.7
 
5
 
Caa and lower
 
824

 
9

 
833

 
0.3
 
 
840

 
13

 
853

 
0.3
 
6
 
In or near default
 
10

 
(4
)
 
6

 
 
 
4

 
(3
)
 
1

 
 
 
 
Subtotal below investment grade
 
16,993

 
712

 
17,705

 
5.8
 
 
17,283

 
515

 
17,798

 
6.2
 
 
 
Total fixed maturity securities
 
$
286,069

 
$
22,862

 
$
308,931

 
100.0
%
 
$
271,676

 
$
17,887

 
$
289,563

 
100.0
%

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The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the revised NAIC methodologies as described above:
 
Fixed Maturity Securities — by Sector & Credit Quality Rating
NAIC Designation:
1
 
2
 
3
 
4
 
5
 
6
 
Total
Estimated
Fair Value
NRSRO Rating:
Aaa/Aa/A
 
Baa
 
Ba
 
B
 
Caa and
Lower
 
In or Near
Default
 
 
(Dollars in millions)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
37,305

 
$
35,096

 
$
6,153

 
$
3,387

 
$
717

 
$
3

 
$
82,661

Foreign government
53,027

 
5,135

 
2,376

 
947

 
49

 

 
61,534

Foreign corporate
21,925

 
30,214

 
2,616

 
759

 
55

 

 
55,569

U.S. government and agency
47,067

 
327

 

 

 

 

 
47,394

RMBS
28,209

 
297

 
224

 
61

 
9

 

 
28,800

State and political subdivision
11,921

 
454

 
78

 

 

 
2

 
12,455

ABS
11,311

 
760

 
215

 
1

 
3

 
1

 
12,291

CMBS
8,065

 
113

 
49

 

 

 

 
8,227

Total fixed maturity securities
$
218,830

 
$
72,396

 
$
11,711

 
$
5,155

 
$
833

 
$
6

 
$
308,931

Percentage of total
70.8
%
 
23.4
%
 
3.8
%
 
1.7
%
 
0.3
%
 
%
 
100.0
%
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
34,753

 
$
32,823

 
$
6,949

 
$
3,289

 
$
729

 
$

 
$
78,543

Foreign government
48,371

 
4,578

 
2,144

 
830

 
53

 

 
55,976

Foreign corporate
21,033

 
26,292

 
2,638

 
638

 
62

 

 
50,663

U.S. government and agency
44,118

 
315

 

 

 

 

 
44,433

RMBS
28,252

 
504

 
244

 
30

 
2

 

 
29,032

State and political subdivision
11,670

 
470

 
87

 

 
4

 

 
12,231

ABS
10,433

 
693

 
94

 
1

 
3

 
1

 
11,225

CMBS
7,315

 
145

 

 

 

 

 
7,460

Total fixed maturity securities
$
205,945

 
$
65,820

 
$
12,156

 
$
4,788

 
$
853

 
$
1

 
$
289,563

Percentage of total
71.1
%
 
22.7
%
 
4.2
%
 
1.7
%
 
0.3
%
 
%
 
100.0
%

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Table of Contents

U.S. and Foreign Corporate Fixed Maturity Securities
We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers. This portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top 10 holdings comprised 1% and 2% of total investments at December 31, 2017 and 2016, respectively. The tables below present our U.S. and foreign corporate securities holdings by industry at:
 
December 31,
 
2017
 
2016
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
(Dollars in millions)
Industrial
$
42,273

 
30.6
%
 
$
39,320

 
30.4
%
Consumer
31,419

 
22.7

 
29,783

 
23.1

Finance
29,884

 
21.6

 
27,787

 
21.5

Utility
21,773

 
15.8

 
19,931

 
15.4

Communications
11,072

 
8.0

 
10,635

 
8.2

Other
1,809

 
1.3

 
1,750

 
1.4

Total
$
138,230

 
100.0
%
 
$
129,206

 
100.0
%
Structured Securities
We held $49.3 billion and $47.7 billion of Structured Securities, at estimated fair value, at December 31, 2017 and 2016, respectively, as presented in the RMBS, ABS and CMBS sections below.
RMBS
The table below presents our RMBS holdings at:
 
December 31,
 
2017
 
2016
 
Estimated
Fair
Value
 
% of
Total
 
Net
Unrealized
Gains (Losses)
 
Estimated
Fair
Value
 
% of
Total
 
Net
Unrealized
Gains (Losses)
 
(Dollars in millions)
By security type:
 
 
 
 
 
 
 
 
 
 
 
Collateralized mortgage obligations
$
15,388

 
53.4
%
 
$
913

 
$
16,842

 
58.0
%
 
$
575

Pass-through securities
13,412

 
46.6

 
41

 
12,190

 
42.0

 
64

Total RMBS
$
28,800

 
100.0
%
 
$
954

 
$
29,032

 
100.0
%
 
$
639

By risk profile:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
20,010

 
69.5
%
 
$
274

 
$
18,808

 
64.8
%
 
$
268

Prime
1,209

 
4.2

 
73

 
1,398

 
4.8

 
65

Alt-A
4,182

 
14.5

 
372

 
4,964

 
17.1

 
160

Sub-prime
3,399

 
11.8

 
235

 
3,862

 
13.3

 
146

Total RMBS
$
28,800

 
100.0
%
 
$
954

 
$
29,032

 
100.0
%
 
$
639

Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
20,465

 
71.1
%
 
 
 
$
19,207

 
66.2
%
 
 
Designated NAIC 1
$
28,209

 
97.9
%
 
 
 
$
28,252

 
97.3
%
 
 
Collateralized mortgage obligations are structured by dividing the cash flows of mortgages 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 or collection of mortgages. The monthly mortgage 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.

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The majority of our RMBS holdings were rated Aaa/AAA by Moody’s, S&P or Fitch; and were designated NAIC 1 by the NAIC at December 31, 2017 and 2016. Agency RMBS were guaranteed or otherwise supported by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Government National Mortgage Association. Non-agency RMBS include prime, alternative residential mortgage loans (“Alt-A”) and sub-prime RMBS. Prime residential mortgage lending includes the origination of residential mortgage loans to the most creditworthy borrowers with high quality credit profiles. Alt-A is a classification 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.
Included within prime and Alt-A RMBS are re-securitization of real estate mortgage investment conduit (“Re-REMIC”) securities. Re-REMIC RMBS involve the pooling of previous issues of prime and Alt-A RMBS and restructuring the combined pools to create new senior and subordinated securities. The credit enhancement on the senior tranches is improved through the re-securitization.
Historically, we have managed our exposure to 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 sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $3.1 billion and $3.5 billion at December 31, 2017 and 2016, respectively, with unrealized gains (losses) of $200 million and $123 million at December 31, 2017 and 2016, respectively.
ABS 
Our ABS holdings are diversified both by collateral type and by issuer. The following table presents our ABS holdings at:
 
December 31,
 
2017
 
2016
 
Estimated
Fair
Value
 
% of
Total
 
Net
Unrealized
Gains (Losses)
 
Estimated
Fair
Value
 
% of
Total
 
Net
Unrealized
Gains (Losses)
 
(Dollars in millions)
By collateral type:
 
 
 
 
 
 
 
 
 
 
 
Collateralized debt obligations
$
5,703


46.4
%

$
45


$
5,711


50.9
%

$
(42
)
Credit card loans
1,686


13.7


1


871


7.8


10

Student loans
1,266


10.3


(1
)

984


8.7


(25
)
Automobile loans
1,193


9.7




1,121


10.0


1

Foreign residential loans
965


7.9


20


1,171


10.4


8

Consumer loans
605


4.9


6


509


4.5



Other loans
873


7.1


7


858


7.7


7

Total
$
12,291

 
100.0
%
 
$
78

 
$
11,225

 
100.0
%
 
$
(41
)
Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
7,108

 
57.8
%
 
 
 
$
5,704

 
50.8
%
 
 
Designated NAIC 1
$
11,311

 
92.0
%
 
 
 
$
10,433

 
92.9
%
 
 

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Table of Contents

CMBS
Our CMBS holdings are diversified by vintage year. The following tables present our CMBS holdings by NRSRO rating and by vintage year at:
 
December 31, 2017
 
Aaa
 
Aa
 
A
 
Baa
 
Below
Investment
Grade
 
Total
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
(Dollars in millions)
2003 - 2010
$
116

 
$
124

 
$
4

 
$
5

 
$
22

 
$
23

 
$
15

 
$
15

 
$

 
$

 
$
157

 
$
167

2011
170

 
184

 
34

 
35

 

 

 

 

 

 

 
204

 
219

2012
289

 
302

 
257

 
263

 
230

 
237

 
7

 
7

 

 

 
783

 
809

2013
787

 
835

 
717

 
748

 
285

 
292

 
60

 
45

 

 

 
1,849

 
1,920

2014
537

 
552

 
513

 
522

 
129

 
130

 

 

 

 

 
1,179

 
1,204

2015
1,122

 
1,140

 
191

 
196

 
117

 
120

 

 

 

 

 
1,430

 
1,456

2016
401

 
404

 
69

 
68

 
40

 
40

 
65

 
66

 

 

 
575

 
578

2017
898

 
899

 
685

 
687

 
246

 
246

 
41

 
42

 

 

 
1,870

 
1,874

Total
$
4,320

 
$
4,440

 
$
2,470

 
$
2,524

 
$
1,069

 
$
1,088

 
$
188

 
$
175

 
$

 
$

 
$
8,047

 
$
8,227

Ratings
 Distribution
 
 
54.0
%
 
 
 
30.7
%
 
 
 
13.2
%
 
 
 
2.1
%
 
 
 
%
 
 
 
100.0
%
 
December 31, 2016
 
Aaa
 
Aa
 
A
 
Baa
 
Below
Investment
Grade
 
Total
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
(Dollars in millions)
2003 - 2010
$
246

 
$
258

 
$
46

 
$
46

 
$
102

 
$
104

 
$
24

 
$
24

 
$
26

 
$
28

 
$
444

 
$
460

2011
185

 
207

 
41

 
43

 

 

 

 

 

 

 
226

 
250

2012
292

 
308

 
262

 
271

 
228

 
236

 
6

 
6

 

 

 
788

 
821

2013
844

 
899

 
699

 
743

 
339

 
327

 

 

 

 

 
1,882

 
1,969

2014
655

 
667

 
617

 
626

 
212

 
204

 

 

 

 

 
1,484

 
1,497

2015
1,322

 
1,326

 
222

 
214

 
165

 
164

 
8

 
9

 

 

 
1,717

 
1,713

2016
516

 
514

 
77

 
75

 
30

 
31

 
130

 
130

 

 

 
753

 
750

Total
$
4,060

 
$
4,179

 
$
1,964

 
$
2,018

 
$
1,076

 
$
1,066

 
$
168

 
$
169

 
$
26

 
$
28

 
$
7,294

 
$
7,460

Ratings
 Distribution
 
 
56.0
%
 
 
 
27.1
%
 
 
 
14.3
%
 
 
 
2.2
%
 
 
 
0.4
%
 
 
 
100.0
%
The tables above reflect NRSRO ratings including Moody’s, S&P, Fitch and Morningstar. CMBS designated NAIC 1 were 98.0% and 98.1% of total CMBS at December 31, 2017 and 2016, respectively.
Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities and equity securities AFS for OTTI and evaluation of temporarily impaired AFS securities.
OTTI Losses on Fixed Maturity and Equity Securities AFS Recognized in Earnings
See Note 8 of the Notes to the Consolidated Financial Statements for information about OTTI losses and gross gains and gross losses on AFS securities sold.
Fixed Maturity and Equity Security OTTI Losses Recognized in Earnings
Credit-related impairments of fixed maturity securities were $10 million, $97 million and $59 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Explanations of changes in fixed maturity and equity securities impairments are as follows:

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Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $35 million for the year ended December 31, 2017, as compared to $182 million for the year ended December 31, 2016. The most significant decrease in OTTI losses was in U.S. and foreign corporate securities and common stock, which comprised $28 million for the year ended December 31, 2017, as compared to $162 million for the year ended December 31, 2016. A decrease of $134 million in OTTI losses on U.S. and foreign corporate securities and common stock was concentrated in industrial securities and was the result of lower oil prices impacting the energy sector in 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $182 million for the year ended December 31, 2016, as compared to $96 million for the year ended December 31, 2015. The most significant increase in OTTI losses was in U.S. and foreign corporate securities and common stock, which comprised $162 million for the year ended December 31, 2016, as compared to $73 million for the year ended December 31, 2015. An increase of $89 million in OTTI losses on U.S. and foreign corporate securities and common stock was concentrated in industrial securities and was the result of lower oil prices impacting the energy sector in 2016.
Future Impairments
Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), and changes in credit ratings, collateral valuation, interest rates and credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
FVO Securities
FVO securities were $16.7 billion and $13.9 billion at estimated fair value, or 3.7% and 3.2% of cash and invested assets, at December 31, 2017 and 2016, respectively. FVO securities are primarily comprised of contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify as separate accounts. See Notes 8 and 10 of the Notes to the Consolidated Financial Statements for a description of our FVO securities portfolio, the FVO securities fair value hierarchy and a rollforward of the fair value measurements for FVO securities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. We monitor the estimated fair value of the securities loaned on a daily basis with additional collateral obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security collateral on deposit from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount of the cash received.
See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending” and Note 8 of the Notes to the Consolidated Financial Statements for information regarding our securities lending program.
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these agreements, the Company lends fixed maturity securities and receives cash as collateral in an amount generally equal to 85% to 100% of the estimated fair value of the securities loaned at the inception of the transaction. The associated liability is recorded at the amount of cash received. The Company monitors the estimated fair value of the collateral and the securities loaned throughout the duration of the transaction and additional collateral is obtained as necessary. Securities loaned under such transactions may be sold or re-pledged by the transferee.
See Note 8 of the Notes to the Consolidated Financial Statements for information regarding our repurchase agreement transactions.

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FHLB Boston Advance Agreements
A subsidiary of the Company participates in short-term advance agreements with the Federal Home Loan Bank of Boston (“FHLB Boston”). Under these agreements, such subsidiary pledges fixed maturity securities as collateral and receives cash. The associated liability is recorded at the amount of cash received. FHLB Boston has minimum collateral requirements which vary depending on the type of collateral pledged. Securities pledged as collateral under such transactions may not be sold or re-pledged by the transferee.
See Note 8 of the Notes to the Consolidated Financial Statements for information regarding our FHLB Boston advance agreements.
Mortgage Loans
Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Mortgage loans and the related valuation allowances are summarized as follows at:
 
December 31,
 
2017
 
2016
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded
Investment
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded
Investment
 
(Dollars in millions)
Commercial
$
44,375

 
64.8
%
 
$
214

 
0.5
%
 
$
41,512

 
64.0
%
 
$
202

 
0.5
%
Agricultural
13,014

 
19.0

 
41

 
0.3
%
 
12,564

 
19.4

 
39

 
0.3
%
Residential
11,136

 
16.2

 
59

 
0.5
%
 
10,829

 
16.6

 
63

 
0.6
%
Total
$
68,525

 
100.0
%
 
$
314

 
0.5
%
 
$
64,905

 
100.0
%
 
$
304

 
0.5
%
The information presented in the tables herein exclude mortgage loans where we elected the FVO. Such amounts are presented in Note 8 of the Notes to the Consolidated Financial Statements. The carrying value of all mortgage loans, net of valuation allowance was 15.0% of cash and invested assets at both December 31, 2017 and 2016.
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 loan portfolios, 82% are collateralized by properties located in the United States, with the remaining 18% collateralized by properties located outside the United States, which includes 7% of properties located in the U.K., at December 31, 2017. The carrying values of our commercial and agricultural mortgage loans located in California, New York and Texas were 19%, 11% and 7%, respectively, of total commercial and agricultural mortgage loans at December 31, 2017. 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 loan portfolio in a similar manner to reduce risk of concentration, with 90% collateralized by properties located in the United States, and the remaining 10% collateralized by properties located outside the United States, at December 31, 2017. The carrying values of our residential mortgage loans located in California, Florida, and New York were 31%, 9%, and 6%, respectively, of total residential mortgage loans at December 31, 2017.
In connection with our investment management business, we manage commercial, agricultural and residential mortgage loans on behalf of institutional clients, which are unaffiliated investors. These commercial, agricultural and residential mortgage loans had an estimated fair value of $14.7 billion and $3.0 billion at December 31, 2017 and 2016, respectively. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in our consolidated financial statements.

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Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest component of the mortgage loan invested asset class. The tables below present the diversification across geographic regions and property types of commercial mortgage loans at:
 
December 31,
 
2017
 
2016
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
(Dollars in millions)
Region
 
 
 
 
 
 
 
Pacific
$
9,875

 
22.3
%
 
$
9,506

 
22.9
%
International
9,101

 
20.5

 
7,772

 
18.7

Middle Atlantic
7,231

 
16.3

 
7,263

 
17.5

South Atlantic
5,311

 
12.0

 
5,192

 
12.5

West South Central
3,819

 
8.6

 
3,585

 
8.6

East North Central
2,683

 
6.0

 
2,037

 
4.9

Mountain
1,188

 
2.7

 
1,202

 
2.9

New England
901

 
2.0

 
1,199

 
2.9

East South Central
840

 
1.9

 
410

 
1.0

West North Central
477

 
1.1

 
497

 
1.2

Multi-Region and Other
2,949

 
6.6

 
2,849

 
6.9

Total recorded investment
44,375

 
100.0
%
 
41,512

 
100.0
%
Less: valuation allowances
214

 
 
 
202

 
 
Carrying value, net of valuation allowances
$
44,161

 
 
 
$
41,310

 
 
Property Type
 
 
 
 
 
 
 
Office
$
22,602

 
50.9
%
 
$
20,868

 
50.3
%
Retail
8,032

 
18.1

 
8,708

 
21.0

Apartment
6,113

 
13.8

 
5,240

 
12.6

Hotel
3,620

 
8.2

 
3,747

 
9.0

Industrial
3,125

 
7.0

 
2,659

 
6.4

Other
883

 
2.0

 
290

 
0.7

Total recorded investment
44,375

 
100.0
%
 
41,512

 
100.0
%
Less: valuation allowances
214

 
 
 
202

 
 
Carrying value, net of valuation allowances
$
44,161

 
 
 
$
41,310

 
 
__________________
Mortgage Loan Credit Quality  Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans that are current, past due, restructured and under foreclosure. See Note 8 of the Notes to the Consolidated Financial Statements for tables that present mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans, as well as impaired mortgage loans. See “— Real Estate and Real Estate Joint Ventures” for real estate acquired through foreclosure.
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, loan-to-value ratios, debt service coverage ratios 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 loan-to-value ratios and lower debt service coverage ratios. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis. We review our residential mortgage loans on an ongoing basis. See Note 8 of the Notes to the Consolidated Financial Statements for information on our evaluation of residential mortgage loans and related valuation allowance methodology.

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Loan-to-value ratios and debt service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans. Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. Loan-to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average loan-to-value ratio was 54% and 53% at December 31, 2017 and 2016, respectively, and our average debt service coverage ratio was 2.7x at both December 31, 2017 and 2016. The debt service coverage ratio, as well as the values utilized in calculating the ratio, is updated annually on a rolling basis, with a portion of the portfolio updated each quarter. In addition, the loan-to-value 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 loan-to-value ratio was 44% and 43% at December 31, 2017 and 2016, respectively. The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated.
Mortgage Loan Valuation Allowances. Our valuation allowances are established both on a loan specific basis for those loans considered impaired where a property specific or market specific risk has been identified that could likely result in a future loss, as well as for pools of loans with similar risk characteristics where a property specific or market specific risk has not been identified, but for which we expect to incur a loss. Accordingly, a valuation allowance is provided to absorb these estimated probable credit losses.
The determination of the amount of valuation allowances is based upon our periodic evaluation and assessment of known and inherent risks associated with our loan portfolios. Such evaluations and assessments are based upon several factors, including our experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the valuation allowances 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 valuation allowance. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the valuation allowance.
See Notes 1, 8 and 10 of the Notes to the Consolidated Financial Statements for information about how valuation allowances are established and monitored, activity in and balances of the valuation allowance, and the estimated fair value of impaired mortgage loans and related impairments included within net investment gains (losses) as of and for the years ended December 31, 2017, 2016 and 2015.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures is comprised of wholly-owned real estate and joint ventures with interests in single property income-producing real estate, and to a lesser extent joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties to the operation of income-producing properties, as well as a runoff portfolio of real estate private equity funds. The carrying values of real estate and real estate joint ventures was $9.6 billion and $8.9 billion, or 2.1% and 2.1% of cash and invested assets, including properties acquired through foreclosure of $48 million and $59 million, at December 31, 2017 and 2016, respectively. The estimated fair value of our real estate investments was $14.9 billion and $14.0 billion at December 31, 2017 and 2016, respectively. The total gross market value of such real estate investments was $19.1 billion and $18.7 billion at December 31, 2017 and 2016, respectively. Gross market value is the total estimated fair value of these investments regardless of encumbering debt.
Impairments recognized on real estate and real estate joint ventures were $13 million, less than $1 million and $92 million for the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation expense on real estate investments was $103 million, $92 million and $157 million for the years ended December 31, 2017, 2016 and 2015, respectively. Real estate investments were net of accumulated depreciation of $898 million and $789 million at December 31, 2017 and 2016, respectively.
In connection with our investment management business, we manage commercial real estate investments on behalf of institutional clients, which are unaffiliated investors. These commercial real estate investments under management for unaffiliated investors had an estimated fair value of $5.2 billion and $4.3 billion at December 31, 2017 and 2016, respectively. The total gross market value of commercial real estate investments under management for unaffiliated investors was $6.7 billion and $6.4 billion at December 31, 2017 and 2016, respectively. Gross market value is the total estimated fair value of these investments regardless of encumbering debt. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in our consolidated financial statements.

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We diversify our real estate investments by both geographic region and property type to reduce risk of concentration.
Geographical diversification: Of our real estate investments, excluding funds, 69% were located in the United States, with the remaining 31% located outside the United States, at December 31, 2017. The carrying value of our real estate investments, excluding funds, located in Japan, California and District of Columbia were 27%, 14% and 10%, respectively, of total real estate investments, excluding funds, at December 31, 2017. Real estate funds were 14% of our real estate investments at December 31, 2017. The majority of these funds hold underlying real estate investments that are well diversified across the United States.
Property type diversification: Real estate and real estate joint venture investments by property type are categorized by sector as follows at:
 
December 31,
 
2017
 
2016
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Office
$
3,728

 
38.7
%
 
$
3,478

 
39.1
%
Apartment
1,521

 
15.8

 
1,534

 
17.3

Real estate funds
1,324

 
13.7

 
908

 
10.2

Retail
1,114

 
11.6

 
1,040

 
11.7

Land
727

 
7.5

 
558

 
6.3

Hotel
475

 
4.9

 
505

 
5.7

Industrial
361

 
3.8

 
461

 
5.2

Agriculture
29

 
0.3

 
40

 
0.4

Other
358

 
3.7

 
367

 
4.1

Total real estate and real estate joint ventures
$
9,637

 
100.0
%
 
$
8,891

 
100.0
%
Other Limited Partnership Interests
Other limited partnership interests are comprised of private equity funds and hedge funds. The carrying value of other limited partnership interests was $5.7 billion, or 1.3% of cash and invested assets, and $5.1 billion, or 1.2% of cash and invested assets, at December 31, 2017 and 2016, respectively, which included $643 million and $834 million of hedge funds, at December 31, 2017 and 2016, respectively. Cash distributions on these investments are generated from investment gains, income from operations from the underlying investments of the funds and liquidation of the underlying investments of the funds. We estimate that the underlying investments of the funds will be liquidated over the next two to 10 years.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
 
 
December 31,
 
 
2017
 
2016
 
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
 
 
(Dollars in millions)
 
Freestanding derivatives with positive estimated fair values
$
8,551


49.5
%

$
12,139


62.8
%
 
Tax credit and renewable energy partnerships
3,167


18.3


3,118


16.1

 
Direct financing leases
1,323


7.7


1,115


5.8

 
Annuities funding structured settlement claims
1,284


7.4





 
Leveraged leases, net of non-recourse debt
1,278


7.4


1,521


7.9

 
Operating joint ventures
539


3.1


576


3.0

 
Funds withheld
298


1.7


110


0.6

 
Other
823


4.8


724


3.8

 
Total
$
17,263


100
%

$
19,303


100
%
 
Percentage of cash and invested assets
3.8
%



4.5
%



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Leveraged lease impairments were $79 million, $77 million and $41 million for the years ended December 31, 2017, 2016 and 2015, respectively.
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, leveraged and direct financing leases, annuities funding structured settlement claims, operating joint ventures and funds withheld.
Derivatives
Derivative Risks
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. 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 gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at December 31, 2017 and 2016.
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 December 31, 2017, 2016 and 2015.
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 at December 31, 2017 include: interest rate forwards with maturities which extend beyond the observable portion of the yield curve; interest rate total return swaps with unobservable repurchase rates; foreign currency swaps and forwards with certain unobservable inputs, including the unobservable portion of the yield curve; credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations; equity variance swaps with unobservable volatility inputs; and equity index options with unobservable correlation inputs. At December 31, 2017, less than 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.
The gain (loss) on Level 3 derivatives primarily relates to interest rate total return swaps with unobservable repurchase rates; certain purchased equity index options that are valued using models dependent on an unobservable market correlation input, equity variance swaps that are valued using observable equity volatility data plus an unobservable equity variance spread and foreign currency swaps and forwards that are valued using an unobservable portion of the swap yield curves. Other significant inputs, which are observable, include equity index levels, equity volatility and the swap yield curves. We validate the reasonableness of these inputs by valuing the positions using internal models and comparing the results to broker quotations.

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The gain (loss) on Level 3 derivatives, percentage of gain (loss) attributable to observable and unobservable inputs, and the primary drivers of observable gain (loss) are summarized as follows:
 
 
Year Ended December 31, 2017
Gain (loss) recognized in net income (loss)
 
$87 million
Percentage of gain (loss) attributable to observable inputs
 
91%
Primary drivers of observable gain (loss)
 
Decreases in interest rates on interest rate derivatives; weakening of the US dollar versus foreign currencies on receive inflation-linked foreign currency derivatives; partially offset by decreases in certain equity volatility levels and increases in certain equity index levels on equity derivatives.
Percentage of gain (loss) attributable to unobservable inputs
 
9%
See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect derivatives.
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.

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Credit Derivatives
The following table presents the gross notional amount and estimated fair value of credit default swaps at:
 
 
December 31,
 
 
2017
 
2016
Credit Default Swaps
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
 
(In millions)
Purchased
 
$
2,020

 
$
(36
)
 
$
2,001

 
$
(26
)
Written
 
11,375

 
271

 
10,732

 
152

Total
 
$
13,395

 
$
235

 
$
12,733

 
$
126

As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
The following table presents the gross gains, gross losses and net gain (losses) recognized in income for credit default swaps as follows: 
 
 
Years Ended December 31,
 
 
2017
 
2016
Credit Default Swaps
 
Gross
Gains 
(1)
 
Gross
Losses 
(1)
 
Net
Gains
(Losses)
 
Gross
Gains 
(1)
 
Gross
Losses 
(1)
 
Net
Gains
(Losses)
 
 
(In millions)
Purchased (2), (4)
 
$
5

 
$
(29
)
 
$
(24
)
 
$
7

 
$
(47
)
 
$
(40
)
Written (3), (4)
 
152

 
(7
)
 
145

 
95

 
(24
)
 
71

Total
 
$
157

 
$
(36
)
 
$
121

 
$
102

 
$
(71
)
 
$
31

__________________
(1)
Gains (losses) are reported in net derivative gains (losses), except for gains (losses) on the trading portfolio, which are reported in net investment income.
(2)
As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives. The gross gains and gross (losses) for purchased credit default swaps in the trading portfolio were $4 million and ($4) million, respectively, for the year ended December 31, 2016.
(3)
As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives. The gross gains and gross (losses) for written credit default swaps in the trading portfolio were $3 and ($3) million, respectively, for the year ended December 31, 2016.
(4)
Gains (losses) do not include earned income (expense) on credit default swaps.
The favorable change in net gains (losses) on purchased credit default swaps of $16 million was due to certain credit spreads on credit default swaps hedging certain bonds, narrowing less in the current period as compared to the prior period. The favorable change in net gains (losses) on written credit default swaps of $74 million was due to certain credit spreads on certain credit default swaps used as replications narrowing more in the current period as compared to 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 purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long-dated corporate bond, we have more flexibility in managing our credit exposures.

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Embedded Derivatives
See Note 10 of the Notes to the Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy.
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
See Note 9 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.
See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect embedded derivatives.

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Off-Balance Sheet Arrangements
Credit and Committed Facilities
We maintain an unsecured revolving credit facility, as well as committed facilities, with various financial institutions. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” for further descriptions of such arrangements. For the classification of expenses on such credit and committed facilities and the nature of the associated liability for letters of credit issued and drawdowns on these credit and committed facilities, see Note 12 of the Notes to the Consolidated Financial Statements.
Collateral for Securities Lending, Third-Party Custodian Administered Repurchase Programs and Derivatives
We participate in a securities lending program in the normal course of business for the purpose of enhancing the total return on our investment portfolio. Periodically we receive non-cash collateral for securities lending from counterparties on deposit from customers, which cannot be sold or re-pledged, and which has not been recorded on our consolidated balance sheets. The amount of this collateral was $19 million and $20 million at estimated fair value at December 31, 2017 and 2016, respectively. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements, as well as “— Investments — Securities Lending” for discussion of our securities lending program, the classification of revenues and expenses, and the nature of the secured financing arrangement and associated liability.
We also participate in third-party custodian administered repurchase programs for the purpose of enhancing the total return on our investment portfolio. We loan certain of our fixed maturity securities to financial institutions and, in exchange, non-cash collateral is put on deposit by the financial institutions on our behalf with third-party custodians. The estimated fair value of securities loaned in connection with these transactions was $182 million and $382 million at December 31, 2017 and December 31, 2016, respectively. Non-cash collateral on deposit with third-party custodians on our behalf was $194 million and $401 million at December 31, 2017 and December 31, 2016, respectively, which cannot be sold or re-pledged, and which has not been recorded on our consolidated balance sheets.
We enter into derivatives to manage various risks relating to our ongoing business operations. We have non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets. The amount of this non-cash collateral was $1.1 billion and $1.7 billion at December 31, 2017 and 2016, respectively. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and “Derivatives” in 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.
Lease Commitments
As lessee, we have entered into various lease and sublease agreements for office space, information technology and other equipment. Our commitments under such lease agreements are included within the contractual obligations table. See “— Liquidity and Capital Resources — The Company — Contractual Obligations” and Note 20 of the Notes to the Consolidated Financial Statements.
Guarantees
See “Guarantees” in Note 20 of the Notes to the Consolidated Financial Statements.
Other
We enter into the following additional 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 “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, and gains and losses from such investments. See also “— Investments — Fixed Maturity and Equity Securities AFS” and “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities and mortgage loans. See “— Investments — Real Estate and Real Estate Joint Ventures” and “— Investments — Other Limited Partnership Interests” for information on our partnership investments.
Other than the commitments disclosed in Note 20 of the Notes to the Consolidated Financial Statements, there are no other material obligations or liabilities arising from the commitments to fund mortgage loans, partnerships, bank credit facilities, bridge loans, and private corporate bond investments. For further information on commitments to fund partnership investments, mortgage loans, bank credit facilities, bridge loans and private corporate bond investments, see “— Liquidity and Capital Resources — The Company — Contractual Obligations.”

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Insolvency Assessments
See Note 20 of the Notes to the Consolidated Financial Statements.
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.”
Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future.
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.
We have experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, as well as turbulent financial markets that may have an adverse impact on our business, results of operations and financial condition. Due to their nature, we cannot predict the incidence, timing, severity or amount of losses from catastrophes and acts of terrorism, but we make broad use of catastrophic and non-catastrophic reinsurance to manage risk from these perils. We also use hedging, reinsurance and other risk management activities to mitigate financial market volatility.
Insurance regulators in many of the non-U.S. jurisdictions in which we operate require certain MetLife entities to prepare a sufficiency analysis of the reserves presented in the locally required regulatory financial statements, and to submit that analysis to the regulatory authorities.
See “Business — Regulation — U.S. Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” and “Business — Regulation — International Regulation” for further information.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements, “— Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” and “— Variable Annuity Guarantees.” 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, as well as property & casualty policies. 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. As a result, a sustained low interest rate environment could negatively impact earnings; however, we mitigate our risks by applying various ALM strategies, including the use of various interest rate derivative positions. The components of future policy benefits related to our property & casualty policies are liabilities for unpaid claims, estimated based upon assumptions such as rates of claim frequencies, levels of severities, inflation, judicial trends, legislative changes or regulatory decisions. Assumptions are based upon our historical experience and analysis of historical development patterns of the relationship of loss adjustment expenses to losses for each line of business, and we consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.

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Asia
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 yields than rates established at policy issuance, 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. We mitigate our risks by applying various ALM strategies.
Latin America
Future policy benefits for this segment are held primarily for immediate annuities in Chile, Argentina and Mexico and traditional life contracts mainly in Mexico, Brazil and Colombia. There are also liabilities held for total return pass-through provisions included in certain universal life and savings products in Mexico. Factors impacting these liabilities include sustained periods of lower yields than rates established at policy issuance, lower than expected asset reinvestment rates, and mortality and lapses different than expected. We mitigate our risks by applying various ALM strategies.
EMEA
Future policy benefits for this segment include unearned premium reserves for group life 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. We mitigate our risks by having premiums which are adjustable or cancellable in some cases, and by applying various ALM strategies.
MetLife Holdings
Future policy benefits for the life business are comprised mainly of liabilities for traditional life insurance contracts. In order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies. We routinely evaluate our reinsurance programs which may result in increases or decreases to existing coverage. We have entered into various interest rate derivative positions to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these 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 which are accounted for as insurance. Other 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 former Japan joint venture are comprised of liabilities for the variable annuity guaranteed minimum benefits which are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for the global employee benefits and other reinsurance business. Additionally, future policy benefits include liabilities for the U.S. direct business sold directly to consumers.
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. See “— Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” and “— Variable Annuity Guarantees.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements for additional information. A discussion of policyholder account balances by segment follows.
U.S.
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.

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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. A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various interest rate derivative positions to partially mitigate the risks associated with such a scenario.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Group Benefits:
 
December 31, 2017
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Greater than 0% but less than 2%
$
4,824

 
$
4,705

Equal to or greater than 2% but less than 4%
$
1,832

 
$
1,832

Equal to or greater than 4%
$
736

 
$
710

__________________
(1)
These amounts are not adjusted for policy loans.
Retirement and Income Solutions
Policyholder account balances in this business are primarily comprised of funding agreements. 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. We are exposed to interest rate risks, as well as foreign currency exchange rate risk, when guaranteeing payment of interest and return of principal at the contractual maturity date. We may invest in floating rate assets or enter into receive-floating interest rate swaps, also tied to external indices, as well as interest rate caps, to mitigate the impact of changes in market interest rates. We also mitigate our risks by applying various ALM strategies and seek to hedge all foreign currency exchange rate risk through the use of foreign currency hedges, including cross currency swaps.
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-type funds 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. These liabilities are generally impacted by sustained periods of low interest rates, where there are interest rate guarantees. We mitigate our risks by applying various ALM strategies and with reinsurance. Liabilities for unit-linked-type funds 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.

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The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
 
December 31, 2017
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Annuities
 
 
 
Greater than 0% but less than 2%
$
22,364

 
$
2,791

Equal to or greater than 2% but less than 4%
$
1,248

 
$
424

Equal to or greater than 4%
$
2

 
$
2

Life & Other
 
 
 
Greater than 0% but less than 2%
$
9,015

 
$
8,723

Equal to or greater than 2% but less than 4%
$
21,992

 
$
8,943

Equal to or greater than 4%
$
277

 
$
277

__________________
(1) These amounts are not adjusted for policy loans.
Latin America
Policyholder account balances in this segment are held largely for investment-type products and universal life products in Mexico and Chile, and deferred annuities in Brazil. Some of the deferred annuities in Brazil are unit-linked-type funds that do not meet the GAAP definition of separate accounts. The rest of the deferred annuities have minimum credited rate guarantees, and these liabilities and the universal life liabilities are generally impacted by sustained periods of low interest rates. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.
EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuity, pension products, and unit-linked-type funds that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Where there are interest rate guarantees, these liabilities are generally impacted by sustained periods of low interest rates. We mitigate our risks by applying various ALM strategies. Liabilities for unit-linked-type funds 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 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. A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various interest rate derivative positions to partially mitigate the risks associated with such a scenario. Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a former operating joint venture in Japan that are accounted for as embedded derivatives.

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The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for the MetLife Holdings segment:
 
December 31, 2017
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Greater than 0% but less than 2%
$
1,729

 
$
1,627

Equal to or greater than 2% but less than 4%
$
19,688

 
$
16,975

Equal to or greater than 4%
$
9,136

 
$
6,123

__________________
(1)
These amounts are not adjusted for policy loans.
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 certain GMWBs, and the non-life contingent portions of both GMWBs and GMIBs that require annuitization. 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.
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, and the non-life contingent portions of both GMWBs and GMIBs that do not require annuitization. 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.

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The table below presents the carrying value for guarantees at:

 
Future Policy
Benefits
 
Policyholder
Account Balances
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Asia
 
 

 
 
 

GMDB
$
38

 
$
29

 
$

 
$

GMAB

 

 
19

 
36

GMWB
92

 
98

 
182

 
189

EMEA
 
 
 
 
 
 
 
GMDB
1

 
1

 

 

GMAB

 

 
15

 
17

GMWB
42

 
30

 
(90
)
 
(50
)
MetLife Holdings
 
 
 
 
 
 
 
GMDB
304

 
257

 

 

GMIB
581

 
471

 
(125
)
 
93

GMAB

 

 

 
13

GMWB
183

 
161

 
322

 
586

Total
$
1,241

 
$
1,047

 
$
323

 
$
884

The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $130 million and $326 million at December 31, 2017 and 2016, 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. Recently, we have been diversifying the concentration of income benefits in the portfolio of the Company’s annuities business by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities. To this end, the GMIBs were no longer available for new purchases after February 19, 2016.
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, contractholder-directed investments which 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.

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GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31, 2017:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
Return of premium or five to seven year step-up
$
7,928

 
$
54,797

Annual step-up

 
3,719

Roll-up and step-up combination

 
6,605

Total
$
7,928

 
$
65,121

__________________
(1)
Total account value excludes $242 million for contracts with no GMDBs. Further, many of our annuity contracts offer more than one type of guarantee such that GMDB amounts listed above are not mutually exclusive to the amounts in the living benefit guarantees table below.
Based on total account value, less than 19% of our GMDBs included enhanced death benefits such as the annual step-up or roll-up and step-up combination products. We expect the above GMDB risk profile to be relatively consistent for the foreseeable future.
Living Benefit Guarantees
The table below presents our living benefit guarantees based on total account values at December 31, 2017:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
GMIB
$

 
$
25,257

GMWB - non-life contingent (2)
2,364

 
3,327

GMWB - life-contingent
3,801

 
11,208

GMAB
1,214

 
571

 
$
7,379

 
$
40,363

__________________
(1)
Total account value excludes $25.0 billion for contracts with no living benefit guarantees. Further, many of our annuity contracts offer more than one type of guarantee such that living benefit guarantee amounts listed above are not mutually exclusive of the amounts in the GMDBs table above.
(2)
The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $966 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.

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The table below presents our GMIB associated total account values, by their guaranteed payout basis, at December 31, 2017:
 
Total
Account Value
 
(In millions)
7-year setback, 2.5% interest rate
$
6,578

7-year setback, 1.5% interest rate
1,077

10-year setback, 1.5% interest rate
5,597

10-year mortality projection, 10-year setback, 1.0% interest rate
10,206

10-year mortality projection, 10-year setback, 0.5% interest rate
1,799

 
$
25,257

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, accompanied by an increase in the setback period from seven years to 10 years and the introduction of a 10-year mortality projection.
Additionally, 40% of the $25.3 billion of GMIB total account value has been invested in managed volatility funds as of December 31, 2017. 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, 2017, only 15% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of five 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 $525 million at December 31, 2017, of which $353 million was related to GMIB guarantees. 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, 2017:
 
In-the-Moneyness
 
Total 
Account Value
 
% of Total
 
 
 
(In millions)
 
 
In-the-money
30% +
 
$
322

 
1
%
 
20% to 30%
 
278

 
1
%
 
10% to 20%
 
545

 
2
%
 
0% to 10%
 
1,014

 
4
%
 
 
 
2,159

 
 
Out-of-the-money
-10% to 0%
 
2,571

 
10
%
 
-20% to 10%
 
3,145

 
13
%
 
-20% +
 
17,382

 
69
%
 
 
 
23,098

 
 
Total GMIBs
 
 
$
25,257

 
 

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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,
 
 
 
 
2017
 
2016
Primary Underlying Risk Exposure
 
 
 
Gross Notional
 
Estimated Fair Value
 
Gross Notional
 
Estimated Fair Value
 
Instrument Type
 
Amount
 
Assets
 
Liabilities
 
Amount
 
Assets
 
Liabilities
 
 
 
 
(In millions)
Interest rate
 
Interest rate swaps
 
$
16,080

 
$
433

 
$
22

 
$
19,715

 
$
1,590

 
$
924

 
 
Interest rate futures
 
3,060

 
1

 
4

 
2,671

 
2

 
11

 
 
Interest rate options
 
10,173

 
486

 
11

 
3,423

 
449

 
1

Foreign currency exchange rate
 
Foreign currency forwards
 
2,288

 
5

 
36

 
3,086

 
10

 
222

 
 
Currency futures
 

 

 

 
85

 

 

Equity market
 
Equity futures
 
3,781

 
17

 
4

 
4,283

 
29

 
3

 
 
Equity index options
 
9,546

 
383

 
690

 
13,975

 
403

 
524

 
 
Equity variance swaps
 
4,661

 
54

 
199

 
8,263

 
83

 
239

 
 
Equity total return swaps
 
1,117

 

 
41

 
1,046

 
1

 
43

 
 
Total
 
$
50,706

 
$
1,379

 
$
1,007

 
$
56,547

 
$
2,567

 
$
1,967

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 substantially 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 capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part because we have a large investment portfolio and our insurance liabilities and derivatives are sensitive to changing market factors. Changing conditions in the global capital 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 for MetLife, Inc. and its subsidiaries in light of market conditions, as well as changing needs and opportunities.

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Short-term Liquidity
We maintain a substantial short-term liquidity position, which was $10.0 billion and $9.1 billion at December 31, 2017 and 2016, 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 $209.1 billion and $199.1 billion at December 31, 2017 and 2016, 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 prior to obtaining full Board approval. The Board approves the capital policy and the annual capital plan and authorizes capital actions, as required.
See “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements for information regarding restrictions on payment of dividends and stock repurchases. See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchase authorizations.
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. 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 — Investments-Related Risks — Should the Need Arise, We May Have Difficulty Selling Certain Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner and Realizing Full Value Given Their Illiquid Nature.”

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In extreme circumstances, all general account assets within a particular legal entity — other than those which may have been pledged to a specific purpose — are 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. 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.
Rating Agencies
Rating agencies assign insurer financial strength ratings to MetLife, Inc.’s domestic life insurance subsidiaries and credit ratings to MetLife, 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. 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 adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels.
Downgrades in our insurer financial strength ratings could have a material adverse effect on our financial condition and results of operations in many ways. See “Risk Factors — Risks Related to Our Business — A Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings Could Result in a Loss of Business and Materially Adversely Affect Our Financial Condition and Results of Operations.”
A downgrade in the credit ratings or insurer financial strength ratings of MetLife, Inc. or its subsidiaries would likely impact us in the following ways, including:
impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our Retirement and Income Solutions business;
impact the cost and availability of financing for MetLife, Inc. and its 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.”
Statutory Capital and Dividends
Our U.S. insurance subsidiaries have statutory surplus well above levels to meet current regulatory requirements.
RBC requirements are used as minimum capital requirements by the NAIC and the state insurance departments to identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset, premium, claim, expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These rules apply to most of our U.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. At 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 a Delaware corporation, American Life is subject to Delaware law; however, because it does not conduct insurance business in Delaware or any other domestic state, it is exempt from RBC requirements under Delaware 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.

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The amount of dividends that our insurance subsidiaries can pay to MetLife, Inc. or to other parent entities is constrained by the amount of surplus we hold to maintain our ratings and 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 to MetLife, Inc. and other parent entities by their respective insurance subsidiaries is governed by insurance laws and regulations. See “Business — Regulation — U.S. Regulation — Insurance Regulation,” “Business — Regulation — International Regulation,” “— MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries” and Note 15 of the Notes to the Consolidated Financial Statements.
Affiliated Captive Reinsurance Transactions
Various subsidiaries of MetLife, Inc. cede specific policy classes, including term and universal life insurance, participating whole life insurance, long-term disability 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 committed to maintain the surplus of two of the domestic affiliated captive reinsurers, as well as provided guarantees of the reinsurers’ and other affiliated international insurance entities’ repayment obligations on the letters of credit. MetLife, Inc. has also provided guarantees of these reinsurers’ repayment obligations on derivative and certain reinsurance agreements entered into by these reinsurers. See “— MetLife, Inc. — Liquidity and Capital Uses — Support Agreements” for further details on certain of these guarantees. Various subsidiaries of MetLife, Inc. enter 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 NAIC continues to review insurance companies’ use of affiliated captive reinsurers and off-shore entities. The NYDFS continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any states other than New York and California 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.

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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,
 
2017
 
2016
 
2015
 
(In millions)
Sources:
 
 
 
 
 
Operating activities, net
$
12,283

 
$
14,774

 
$
14,052

Changes in policyholder account balances, net
6,131

 
4,925

 

Changes in payables for collateral under securities loaned and other transactions, net
903

 

 
1,544

Long-term debt issued
3,657

 

 
3,893

Financing element on certain derivative instruments and other derivative related transactions, net

 

 
181

Preferred stock issued, net of issuance costs

 

 
1,483

Other, net
118

 
139

 
94

Effect of change in foreign currency exchange rates on cash and cash equivalents
323

 

 

Total sources
23,415

 
19,838

 
21,247

Uses:
 
 
 
 
 
Investing activities, net
16,876

 
5,850

 
10,398

Changes in policyholder account balances, net

 

 
1,717

Changes in payables for collateral under securities loaned and other transactions, net

 
3,636

 

Long-term debt repaid
1,073

 
1,279

 
1,438

Collateral financing arrangements repaid
2,951

 
68

 
57

Distribution of Brighthouse
2,793

 

 

Financing element on certain derivative instruments and other derivative related transactions, net
151

 
1,367

 

Treasury stock acquired in connection with share repurchases
2,927

 
372

 
1,930

Repurchase of preferred stock

 

 
1,460

Preferred stock repurchase premium

 

 
42

Dividends on preferred stock
103

 
103

 
116

Dividends on common stock
1,717

 
1,736

 
1,653

Effect of change in foreign currency exchange rates on cash and cash equivalents

 
302

 
492

Total uses
28,591

 
14,713

 
19,303

Net increase (decrease) in cash and cash equivalents
$
(5,176
)
 
$
5,125

 
$
1,944

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, property & casualty, annuity and pension products, operating expenses and income tax, as well as interest expense. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal. The cash flows from discontinued operations are not separately classified, but generally arise from the same activities described above.

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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. Additional cash outflows relate to 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. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. The cash flows from discontinued operations are not separately classified, but generally arise from the same activities described above.
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 collateral financing arrangements, payments of dividends on and repurchases of MetLife, Inc.’s securities, withdrawals associated with policyholder account balances, cash disposed of in the distribution of Brighthouse and the return of securities on loan. The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early contractholder and policyholder withdrawal. The cash flows from discontinued operations are not separately classified, but generally arise from the same activities described above.
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 following additional information is provided regarding our primary sources of liquidity and capital. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding financing transactions related to the Separation.
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. 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
In June 2015, MetLife, Inc. issued 1,500,000 shares of Series C preferred stock, with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate proceeds of $1.5 billion. See Note 15 of the Notes to the Consolidated Financial Statements.
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. and MetLife Funding each have a commercial paper program that is supported by our unsecured revolving credit facility (see “— Credit and Committed Facilities”). MetLife Funding raises cash from its commercial paper program and uses the proceeds to extend loans through MetLife Credit Corp., another subsidiary of MLIC, to affiliates in order to enhance the financial flexibility and liquidity of these companies.
Federal Home Loan Bank Funding Agreements, Reported in Policyholder Account Balances
Certain of our domestic insurance subsidiaries are members of a regional FHLB. During the years ended December 31, 2017, 2016 and 2015, we issued $22.4 billion, $17.0 billion and $17.5 billion, respectively, and repaid $22.4 billion, $15.2 billion and $17.8 billion, respectively, under funding agreements with certain regional FHLBs. At both December 31, 2017 and 2016, total obligations outstanding under these funding agreements were $15.3 billion. See Note 4 of the Notes to the Consolidated Financial Statements.
Federal Home Loan Bank Advance Agreements, Reported in Payables for Collateral Under Securities Loaned and Other Transactions
During the year ended December 31, 2017, we issued $301 million and repaid $1 million, under advance agreements with a regional FHLB. At December 31, 2017, total obligations outstanding under these advance agreements were $300 million. There were no such transactions during the years ended December 31, 2016 or 2015. See Note 8 of the Notes to the Consolidated Financial Statements.

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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 either U.S. dollars or foreign currencies, to certain special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2017, 2016 and 2015, we issued $42.7 billion, $39.7 billion and $35.1 billion, respectively, and repaid $41.4 billion, $38.5 billion and $35.5 billion, respectively, under such funding agreements. At December 31, 2017 and 2016, total obligations outstanding under these funding agreements were $34.2 billion and $30.8 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, as well as to certain SPEs that have issued debt securities for which payment of interest and principal is secured by such funding agreements, and such debt securities are also guaranteed as to payment of interest and principal by Farmer Mac. The obligations under all such funding agreements are secured by a pledge of certain eligible agricultural mortgage loans. During the years ended December 31, 2017, 2016 and 2015, we issued $1.0 billion, $1.2 billion and $50 million, respectively, and repaid $1.0 billion, $1.2 billion and $50 million, respectively, under such funding agreements. At both December 31, 2017 and 2016, total obligations outstanding under these funding agreements were $2.6 billion. See Note 4 of the Notes to the Consolidated Financial Statements.
Long-term Debt Issued
Senior Notes
In November 2015 and March 2015, MetLife, Inc. issued $1.3 billion and $1.5 billion of senior notes, respectively. Net proceeds from these issuances were used for general corporate purposes, which included the early redemption or repayment upon maturity of certain senior notes.
Term Loans
In December 2015, MetLife Private Equity Holdings, LLC, a wholly-owned indirect investment subsidiary of MLIC, borrowed $350 million under term loans.
See Note 12 of the Notes to the Consolidated Financial Statements for further information on long-term debt issued.
Credit and Committed Facilities
At December 31, 2017, we maintained a $3.0 billion unsecured revolving credit facility and certain committed facilities aggregating $3.7 billion. When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
The unsecured revolving credit facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the issuance of letters of credit. At December 31, 2017, we had outstanding $130 million in letters of credit and no drawdowns against this facility. Remaining availability was $2.9 billion at December 31, 2017.
The committed facilities are used as collateral for certain of our affiliated reinsurance liabilities. At December 31, 2017, we had outstanding $3.1 billion in letters of credit and no drawdowns against these facilities. Remaining availability was $562 million at December 31, 2017. As of December 31, 2017, Brighthouse was a beneficiary of $2.4 billion of letters of credit issued under these committed facilities. See Note 3 of the Notes to the Consolidated Financial Statements.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these facilities. As commitments associated with letters of credit and financing arrangements may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.
Affiliated Preferred Units Issuances
In June 2017, Brighthouse Holdings, LLC issued 50,000 6.50% fixed rate cumulative preferred units to MetLife, Inc. and, in turn, MetLife, Inc. sold the preferred units to third-party investors, for net proceeds of $49 million. See Note 3 of the Notes to the Consolidated Financial Statements.

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Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt excluding long-term debt relating to CSEs at:
 
December 31,
 
2017
 
2016
 
(In millions)
Short-term debt (1)
$
477

 
$
242

Long-term debt (2)
$
15,680

 
$
16,429

Collateral financing arrangement (3)
$
1,121

 
$
1,274

Junior subordinated debt securities (4)
$
3,144

 
$
3,169

__________________
(1)
Includes $377 million and $142 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2017 and 2016, respectively. Certain subsidiaries have pledged assets to secure this debt.
(2)
Includes $523 million and $366 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2017 and 2016, respectively. Certain investment subsidiaries have pledged assets to secure this debt.
(2)
In April 2017, in connection with the Separation, MetLife, Inc. and MetLife Reinsurance Company of South Carolina (“MRSC”) terminated the MRSC collateral financing arrangement associated with secondary guarantees. As a result, the $2.8 billion collateral financing arrangement liability outstanding was extinguished utilizing $2.8 billion of assets held in trust with the remaining $590 million of assets held in trust returned to MetLife, Inc. as a cash return of capital from a subsidiary. For information regarding the remaining collateral financing arrangement, see Note 13 of the Notes to the Consolidated Financial Statements.
(3)
For information regarding the junior subordinated debt securities, see Note 14 of the Notes to the Consolidated Financial Statements and Note 5 in Schedule II of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information.
Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. We believe we were in compliance with all applicable covenants at December 31, 2017.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2017, 2016 and 2015 were $0, $291 million, and $0, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
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” and “— Contractual Obligations,” the following additional information is provided regarding our primary uses of liquidity and capital:
Preferred Stock Repurchase
In June 2015, MetLife, Inc. repurchased and canceled all of its Series B preferred stock for $1.5 billion in a series of related transactions as described in Note 15 of the Notes to the Consolidated Financial Statements.
Common Stock Repurchases
See Note 15 of the Notes to the Consolidated Financial Statements for information relating to authorizations by the Board of Directors to repurchase MetLife, Inc. common stock, amounts of common stock repurchased pursuant to such authorizations during the years ended December 31, 2017, 2016 and 2015, and the amount remaining under such authorizations at December 31, 2017. See Note 22 of the Notes to the Consolidated Financial Statements for information regarding shares of common stock repurchased subsequent to December 31, 2017.

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Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors. See “Business — Regulation — International Regulation — Global Systemically Important Insurers,” and “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish.”
Dividends
During each of the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. paid $1.7 billion of dividends on its common stock. During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. paid dividends on its preferred stock of $103 million, $103 million, and $116 million, respectively. See Note 15 of the Notes to the Consolidated Financial Statements for information regarding the calculation and timing of these dividend payments.
The declaration and payment of common stock dividends is subject to the discretion of our Board of Directors, and will depend on MetLife, Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board. See Note 22 of the Notes to the Consolidated Financial Statements for information regarding a common stock dividend declared subsequent to December 31, 2017.
Preferred stock dividends are paid quarterly in accordance with the terms of MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock, Series A. MetLife, Inc. paid dividends on its Series B preferred stock through the June 15, 2015 payment date. Dividends are paid semi-annually on MetLife, Inc.’s Series C preferred stock commencing December 15, 2015 and ending on June 15, 2020, and thereafter will be paid quarterly.
The payment of dividends is also subject to restrictions under the terms of our preferred stock and junior subordinated debentures in situations where we may be experiencing financial stress. See “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements.
Debt Repayments
See Notes 12 and 13 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt and the collateral financing arrangement, respectively, including:
During 2017, 2016 and 2015, following regulatory approval, MetLife Reinsurance Company of Charleston (“MRC”), a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $153 million, $68 million, and $57 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheet;
In December 2017, MetLife, Inc. repaid at maturity its $500 million 1.756% senior notes;
In December 2017, MetLife, Inc. repaid at maturity its $500 million 1.903% senior notes;
In June 2016, MetLife, Inc. repaid at maturity its $1.3 billion 6.750% senior notes; and
In June 2015, MetLife, Inc. repaid at maturity its $1.0 billion 5.000% senior notes.
Debt Repurchases
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases 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 any debt and the size and timing of any such repurchases will be determined at our discretion.
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, with respect to the applicable entity, has agreed to cause such entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event that these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet anticipated demands. See “— MetLife, Inc. — Liquidity and Capital Uses — Support Agreements.”

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Insurance Liabilities
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, property & casualty, annuity and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender or lapse behavior differs somewhat by segment. In the MetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. During the years ended December 31, 2017 and 2016, general account surrenders and withdrawals from annuity products were $1.6 billion and $1.5 billion, respectively. In the Retirement and Income Solutions business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the Retirement and Income Solutions business products that provide customers with limited rights to accelerate payments, as of December 31, 2017, there were funding agreements totaling $114 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, 2017 and 2016, we had received pledged cash collateral of $5.0 billion and $5.7 billion, respectively. At December 31, 2017 and 2016, we had pledged cash collateral of $456 million and $788 million, respectively. With respect to OTC-bilateral derivatives in a net liability position that have credit contingent provisions, a one-notch downgrade in the Company’s credit or financial strength rating, as applicable, would have required $15 million of additional collateral be provided to our counterparties as of December 31, 2017. 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 13 of the Notes to the Consolidated Financial Statements.
We pledge collateral from time to time in connection with funding agreements. See Note 4 of the Notes to the Consolidated Financial Statements.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Under our securities lending program, we were liable for cash collateral under our control of $19.4 billion and $20.1 billion at December 31, 2017 and 2016, respectively. Of these amounts, $3.8 billion and $4.5 billion at December 31, 2017 and 2016, respectively, were on open, meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we hold. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2017 was $3.7 billion, all of which were U.S. government and agency securities which, if put to us, could be immediately sold to satisfy the cash requirement. See Note 8 of the Notes to the Consolidated Financial Statements.
Repurchase Agreements
We participate in short-term repurchase agreements whereby securities are loaned to unaffiliated financial institutions. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Under these repurchase agreements, we were liable for cash collateral under our control of $1.1 billion and $102 million at December 31, 2017 and 2016, respectively. The estimated fair value of the securities on loan at December 31, 2017 was $1.1 billion which were primarily U.S. government and agency securities which, if put to us, could be immediately sold to satisfy the cash requirement. See Note 8 of the Notes to the Consolidated Financial Statements.
Litigation
Putative or certified class action litigation and other litigation, and claims and assessments against us, in addition to those discussed elsewhere herein and those otherwise provided for on the consolidated financial statements, have arisen in the course of our business, including, but not limited to, in connection with our activities as an insurer, employer, investor, investment advisor, taxpayer and, formerly, a mortgage lending bank. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. See Note 20 of the Notes to the Consolidated Financial Statements.

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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 or determine 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. Although in light of these considerations, it is possible that an adverse outcome in certain cases could have a material adverse effect upon our financial position, based on information currently known by us, in our opinion, the outcome of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods.
Acquisitions
Cash outflows for acquisitions and investments in strategic partnerships during the years ended December 31, 2017, 2016 and 2015 were $211 million, $0 and $0, respectively.
Contractual Obligations
The following table summarizes our major contractual obligations at December 31, 2017:
 
Total
 
One Year
or Less
 
More than
One Year to
Three Years
 
More than
Three Years
to Five Years
 
More than Five Years
 
(In millions)
Insurance liabilities
$
298,966

 
$
20,761

 
$
16,084

 
$
15,627

 
$
246,494

Policyholder account balances
224,784

 
31,285

 
23,109

 
15,684

 
154,706

Payables for collateral under securities loaned and other transactions
25,723

 
25,723

 

 

 

Debt
36,153

 
2,659

 
3,569

 
3,689

 
26,236

Investment commitments
9,513

 
9,098

 
312

 
91

 
12

Operating leases
2,262

 
302

 
521

 
446

 
993

Other
18,258

 
17,856

 
11

 

 
391

Total
$
615,659

 
$
107,684

 
$
43,606

 
$
35,537

 
$
428,832

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 amounts presented 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. All estimated cash payments presented 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. Because the exact timing and amount of the ultimate policyholder dividend obligation is subject to significant uncertainty and the amount of the policyholder dividend obligation is based upon a long-term projection of the performance of the closed block, we have reflected the obligation at the amount of the liability, if any, presented on the consolidated balance sheet in the more than five years category. Additionally, the more than five years category includes estimated payments due for periods extending for more than 100 years.
The sum of the estimated cash flows of $299.0 billion exceeds the liability amounts of $196.3 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.
Actual cash payments may differ significantly from the liabilities as presented on the consolidated balance sheet and the estimated cash payments as presented due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments.

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For the majority of our insurance operations, estimated contractual obligations for future policy benefits and policyholder account balances, as presented, 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 “— Policyholder Account Balances.”
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 “— Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations related to future policy benefits and policyholder account balances.
Amounts presented represent the estimated 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.
The sum of the estimated cash flows of $224.8 billion exceeds the liability amount of $182.5 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.
Payables for Collateral Under Securities Loaned and Other Transactions
We have accepted cash collateral in connection with securities lending and derivatives. As the securities lending transactions expire within the next year and the timing of the return of the derivatives collateral is uncertain, the return of the collateral has been included in the one year or less category in the table above. We also held non-cash collateral, which is not reflected as a liability on the consolidated balance sheet, of $1.1 billion at December 31, 2017.
Debt
Amounts presented for debt include short-term debt, long-term debt, the collateral financing arrangement and junior subordinated debt securities, the total of which differs from the total of the corresponding amounts presented on the consolidated balance sheet as the amounts presented herein (i) do not include premiums or discounts upon issuance or purchase accounting fair value adjustments; (ii) include future interest on such obligations for the period from January 1, 2018 through maturity; and (iii) do not include long-term debt relating to CSEs at December 31, 2017 as such debt does not represent our contractual obligation. Future interest on variable rate debt was computed using prevailing rates at December 31, 2017 and, as such, does not consider the impact of future rate movements. Future interest on fixed rate debt was computed using the stated rate on the obligations for the period from January 1, 2018 through maturity, except with respect to junior subordinated debt which was computed using the stated rates through the scheduled redemption dates as it is our expectation that such obligations will be redeemed as scheduled. Inclusion of interest payments on junior subordinated debt securities through the final maturity dates would increase the contractual obligation by $7.7 billion. Pursuant to the collateral financing arrangement, MetLife, Inc. may be required to deliver cash or pledge collateral to the unaffiliated financial institution. See Note 13 of the Notes to the Consolidated Financial Statements.
Investment Commitments
To enhance the return on our investment portfolio, we commit to lend funds under mortgage loans, bank credit facilities, bridge loans and private corporate bond investments and we commit to fund partnership investments. In the table above, the timing of the funding of mortgage loans and private corporate bond investments is based on the expiration dates of the corresponding commitments. As it relates to commitments to fund partnerships and bank credit facilities, we anticipate that these amounts could be invested any time over the next five years; however, as the timing of the fulfillment of the obligation cannot be predicted, such obligations are generally presented in the one year or less category. Commitments to fund bridge loans are short-term obligations and, as a result, are presented in the one year or less category. See Note 20 of the Notes to the Consolidated Financial Statements and “— Off-Balance Sheet Arrangements.”
Operating Leases
As a lessee, we have various operating leases, primarily for office space. Contractual provisions exist that could increase or accelerate those lease obligations presented, including various leases with early buyouts and/or escalation clauses. However, the impact of any such transactions would not be material to our financial position or results of operations. See Note 20 of the Notes to the Consolidated Financial Statements.

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Other
Other obligations presented are principally comprised of amounts due under reinsurance agreements, payables related to securities purchased but not yet settled, securities sold short, accrued interest on debt obligations, estimated fair value of derivative obligations, deferred compensation arrangements, guaranty liabilities, and accruals and accounts payable due under contractual obligations, which are all reported in other liabilities on the consolidated balance sheet. If the timing of any of these other obligations is sufficiently uncertain, the amounts are included within the one year or less category. Items reported in other liabilities on the consolidated balance sheet that were excluded from the table represent accounting conventions or are not liabilities due under contractual obligations. Unrecognized tax benefits and related accrued interest totaling $1.7 billion was excluded as the timing of payment cannot be reliably determined.
Separate account liabilities are excluded as they are fully funded by cash flows from the corresponding separate account assets and are set equal to the estimated fair value of separate account assets.
We also enter into agreements to purchase goods and services in the normal course of business; however, such amounts are excluded as these purchase obligations were not material to our consolidated results of operations or financial position at December 31, 2017.
Additionally, we have agreements in place for services we conduct, generally at cost, between subsidiaries relating to insurance, reinsurance, loans and capitalization. Intercompany transactions have been eliminated in consolidation. Intercompany transactions among insurance subsidiaries and affiliates have been approved by the appropriate insurance regulators as required.
MetLife, Inc.
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 on MetLife, 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 of MetLife, 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 limit MetLife, 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 — Capital — Rating Agencies.”
Liquidity
For a summary of MetLife, Inc.’s liquidity, see “— The Company — Liquidity.”
Capital
For a summary of MetLife, Inc.’s capital, see “— The Company — Capital.” For further information regarding potential capital restrictions and limitations on MetLife, Inc. as a G-SII, see “Business — Regulation — International Regulation — Global Systemically Important Insurers.” See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” and “— The Company — Liquidity and Capital Uses — Preferred Stock Repurchase” for information regarding MetLife, Inc.’s common and preferred stock repurchases, respectively.
Liquid Assets
At December 31, 2017 and 2016, MetLife, Inc. and other MetLife holding companies had $5.7 billion and $5.8 billion, respectively, in liquid assets. Of these amounts, $4.1 billion and $3.7 billion were held by MetLife, Inc. and $1.6 billion and $2.1 billion were held by other MetLife holding companies at December 31, 2017 and 2016, 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.

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Liquid assets held in non-U.S. holding companies are generated in part through dividends from non-U.S. insurance operations. Such dividends are subject to local insurance regulatory requirements, as discussed in “— Liquidity and Capital Sources — Dividends from Subsidiaries.” The cumulative earnings of certain active non-U.S. operations have historically been reinvested indefinitely in such non-U.S. operations. Following a post-Separation review of our capital needs in the third quarter of 2017, we expect to repatriate approximately $3.0 billion of pre-2017 earnings in the future. As a result, in the third quarter of 2017, we recorded a $444 million tax charge related to this future repatriation of pre-2017 earnings. This charge was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations, accordingly, the Company recorded a $180 million net tax charge in the third quarter of 2017. The enactment of U.S. Tax Reform in the fourth quarter of 2017 moves the U.S. from a worldwide tax system to a participation exemption system by imposing a one-time transition tax on untaxed earnings of foreign subsidiaries by deeming those earnings to be repatriated. As a result, we recorded a $170 million charge in the fourth quarter of 2017. Subsequent to 2017, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax. See further information in Note 18 of the Notes to the Consolidated Financial Statements and “Risk Factors Regulatory and Legal Risks U.S. Tax Reform Could Have an Impact on Us.”
See “— Executive Summary — Consolidated Company Outlook,” for the targeted level of liquid assets at the holding companies.

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MetLife, Inc. and Other MetLife Holding Companies Sources and Uses of Liquid Assets and Sources and Uses of Liquid Assets included in Free Cash Flow
MetLife, Inc.’s sources and uses of liquid assets, as well as sources and uses of liquid assets included in free cash flow are summarized as follows.
 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
 
Sources and Uses of Liquid Assets
 
Sources and Uses of Liquid Assets Included in Free Cash Flow
 
Sources and Uses of Liquid Assets
 
Sources and Uses of Liquid Assets Included in Free Cash Flow
 
Sources and Uses of Liquid Assets
 
Sources and Uses of Liquid Assets Included in Free Cash Flow
 
 
(In millions)
MetLife, Inc. (Parent Company Only)
 
 
 
 
 
 
 
 
 
 
 
 
Sources:
 
 
 
 
 
 
 
 
 
 
 
 
Dividends and returns of capital from subsidiaries (1)
 
$
7,404

 
$
7,404

 
$
4,550

 
$
4,550

 
$
2,340

 
$
2,340

Long-term debt issued (2)
 

 

 

 

 
2,739

 
1,750

Repayments on and (issuances of) loans to subsidiaries and related interest, net (3)
 

 

 

 

 
383

 
383

Other, net (4)
 
107

 
4

 
120

 
(210
)
 
755

 
795

Total sources
 
7,511

 
7,408

 
4,670

 
4,340

 
6,217

 
5,268

Uses:
 
 
 
 
 
 
 
 
 
 
 
 
Capital contributions to subsidiaries (5)
 
339

 
124

 
1,733

 
1,733

 
667

 
667

Long-term debt repaid — unaffiliated
 
1,000

 

 
1,250

 

 
1,000

 

Interest paid on debt and financing arrangements — unaffiliated
 
980

 
980

 
983

 
983

 
965

 
965

Dividends on common stock
 
1,717

 

 
1,736

 

 
1,653

 

Treasury stock acquired in connection with share repurchases
 
2,927

 

 
372

 

 
1,930

 

Dividends on preferred stock
 
103

 
103

 
103

 
103

 
116

 
116

Issuances of and (repayments on) loans to subsidiaries and related interest, net (3)
 
33

 
33

 
99

 
99

 

 

Total uses
 
7,099

 
1,240

 
6,276

 
2,918

 
6,331

 
1,748

Net increase (decrease) in liquid assets, MetLife, Inc. (Parent Company Only)
 
412

 
 
 
(1,606
)
 
 
 
(114
)
 
 
Liquid assets, beginning of year
 
3,683

 
 
 
5,289

 
 
 
5,403

 
 
Liquid assets, end of year
 
$
4,095

 
 
 
$
3,683

 
 
 
$
5,289

 
 
Free Cash Flow, MetLife, Inc. (Parent Company Only)
 
 
 
6,168

 
 
 
1,422

 
 
 
3,520

Net cash provided by operating activities, MetLife, Inc. (Parent Company Only)
 
$
6,462

 
 
 
$
3,747

 
 
 
$
1,606

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other MetLife Holding Companies
 
 
 
 
 
 
 
 
 
 
 
 
Sources:
 
 
 
 
 
 
 
 
 
 
 
 
Dividends and returns of capital from subsidiaries
 
$
2,125

 
$
2,125

 
$
1,485

 
$
1,485

 
$
1,354

 
$
1,354

Capital contributions from MetLife, Inc.
 

 

 

 

 
150

 
150

Total sources
 
2,125

 
2,125

 
1,485

 
1,485

 
1,504

 
1,504

Uses:
 
 
 
 
 
 
 
 
 
 
 
 
Capital contributions to subsidiaries
 
12

 
12

 
53

 
53

 
27

 
27

Repayments on and (issuance of) loans to subsidiaries and affiliates and related interest, net
 
6

 
6

 
307

 
307

 
510

 
510

Dividends and returns of capital to MetLife, Inc.
 
2,200

 
2,200

 

 

 

 

Other, net
 
408

 
408

 
123

 
123

 
506

 
506

Total uses
 
2,626

 
2,626

 
483

 
483

 
1,043

 
1,043

Net increase (decrease) in liquid assets, Other MetLife Holding Companies
 
(501
)
 


 
1,002

 
 
 
461

 
 
Liquid assets, beginning of year
 
2,144

 


 
1,142

 
 
 
681

 
 
Liquid assets, end of year
 
$
1,643

 
 
 
$
2,144

 
 
 
$
1,142

 
 
Free Cash Flow, Other MetLife Holding Companies
 
 
 
(501
)
 
 
 
1,002

 
 
 
461

Net increase (decrease) in liquid assets, All Holding Companies
 
$
(89
)
 
 
 
$
(604
)
 
 
 
$
347

 
 
Free Cash Flow, All Holding Companies (6) (7)
 
 
 
$
5,667

 
 
 
$
2,424

 
 
 
$
3,981

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(1)
Dividends and returns of capital to MetLife, Inc. included $5.2 billion, $4.6 billion and $2.3 billion from operating subsidiaries and $2.2 billion, $0 and $0 from other MetLife holding companies during the years ended December 31, 2017, 2016 and 2015, respectively. Included in dividends and returns of capital to MetLife, Inc. above are the following which increased MetLife, Inc. liquid assets and free cash flow: dividends from Brighthouse subsidiaries, of $1.8 billion, $556 million and $500 million, and returns of capital from Brighthouse subsidiaries of $590 million, $0 and $0, during the years ended December 31, 2017, 2016 and 2015, respectively. Also, includes $49 million from the June 2017, issuance by Brighthouse Holdings, LLC of 50,000 units of 6.50% fixed rate cumulative preferred units to MetLife, Inc. and in turn MetLife, Inc. sold the preferred units to third-party investors.
(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)
See MetLife, Inc. (Parent Company Only) Condensed Statements of Cash Flows included in Schedule II of the Financial Statement Schedules for the source of liquid assets from receipts on loans to subsidiaries (excluding interest) and for the use of liquid assets for the issuances of loans to subsidiaries (excluding interest).
(4)
Other, net includes $860 million, $433 million and $171 million of net receipts by MetLife, Inc. to and from subsidiaries under a tax sharing agreement and tax payments to tax agencies during the years ended December 31, 2017, 2016 and 2015, respectively.
(5)
Amounts to fund business acquisitions were $215 million, $0 and $0 (included in capital contributions to subsidiaries) during the years ended December 31, 2017, 2016 and 2015, respectively.
(6)
In 2017, $2.1 billion of Separation-related items (comprised of certain Separation-related inflows primarily related to dividends from Brighthouse, net of outflows) were included in free cash flow, which increased our holding companies’ liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $3.6 billion for the year ended December 31, 2017. In 2016, we incurred $2.3 billion of Separation-related items (comprised of certain Separation-related outflows, net of inflows related to dividends from Brighthouse subsidiaries) which reduced our holding companies’ liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $4.7 billion for the year ended December 31, 2016.
(7)
See “— Non-GAAP and Other Financial Disclosures” for the reconciliation of net cash provided by operating activities of MetLife, Inc. to free cash flow of all holding companies.
Sources and Uses of Liquid Assets of MetLife, Inc.
The primary sources of MetLife, Inc.’s liquid assets are dividends and returns of capital from subsidiaries, issuances of long-term debt, issuance of common or 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 of MetLife, Inc.’s liquid assets are principal and interest payments on long-term debt, dividends on or 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 to MetLife, Inc. Accordingly, changes in MetLife, 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 — Long-term Debt Issued — Maturities and Issuances of Affiliated Long-term Debt” and “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions.”
Sources and Uses of Liquid Assets of Other MetLife Holding Companies
The primary sources of liquid assets of other MetLife 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.”

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The primary uses of liquid assets of other MetLife 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 to MetLife, Inc. and the following items, which are reported within other, net: business acquisitions; and operating expenses. There were no uses of liquid assets of other MetLife holding companies to fund business acquisitions during the years ended December 31, 2017, 2016, or 2015.
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” the following additional information is provided regarding MetLife, Inc.’s primary sources of liquidity and capital.
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. The dividend limitation for U.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 by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory approval and the respective dividends paid:
 
 
2018
 
 
2017
 
 
2016
 
2015
Company
 
Permitted Without Approval (1)
 
 
Paid (2)
 
 
Permitted Without Approval (3)
 
 
Paid (2)
 
 
Permitted Without Approval (3)
 
Paid (2)
 
 
Permitted Without Approval (3)
 
 
(In millions)
Metropolitan Life Insurance Company (4)
 
$
3,075

 
 
$
2,523

 
 
$
2,723

 
 
$
5,740

(5)
 
$
3,753

 
$
1,489

 
 
$
1,200

American Life Insurance Company
 
$

 
 
$
2,200

(6)
 
$

 
 
$

 
 
$

 
$


 
$

Brighthouse Life Insurance Company
 
N/A

 
 
$

 
 
$
473

(7
)
 
$
261


 
$
586

 
$
500


 
$
3,056

Metropolitan Property and Casualty Insurance Company
 
$
125

 
 
$
185

 
 
$
98

 
 
$
228

 
 
$
130

 
$
235

 
 
$
239

Metropolitan Tower Life Insurance Company
 
$
73

 
 
$

 
 
$
66

 
 
$
60


 
$
70

 
$
102

 
 
$
102

New England Life Insurance Company
 
N/A

 
 
$

 
 
$
106

(7
)
 
$
295

(8)
 
$
156

 
$
199

(9)
 
$
199

General American Life Insurance Company
 
$
118

 
 
$
1

 
 
$
91

 
 
$

 
 
$
136

 
$

 
 
$
88

__________________
(1)
Reflects dividend amounts that may be paid during 2018 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 2018, some or all of such dividends may require regulatory approval. See also note (7) below regarding the impact of the Separation on the dividends permitted to be paid by Brighthouse Insurance and New England Life Insurance Company (“NELICO”).
(2)
Reflects all amounts paid, including those requiring regulatory approval.
(3)
Reflects dividend amounts that could have been paid during the relevant year without prior regulatory approval.
(4)
The New York Insurance Law was amended, permitting MLIC to pay dividends without prior regulatory approval under one of two alternative formulations beginning in 2016. See Note 15 of the Notes to the Consolidated Financial Statements. The dividend amounts that MLIC was permitted to pay starting in 2016 and going forward were calculated using the new formulation.

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(5)
In 2016, MLIC paid an ordinary cash dividend to MetLife, Inc. in the amount of $3.6 billion. In addition, in December 2016, MLIC distributed all of the issued and outstanding shares of common stock of each of NELICO and GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend in the amount of $981 million and $1.2 billion, respectively, as calculated on a statutory basis.
(6)
Represents an extraordinary dividend.
(7)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc. Accordingly, MetLife, Inc. will no longer receive dividends from Brighthouse Insurance or NELICO after the Separation. See Note 3 of the Notes to the Consolidated Financial Statements.
(8)
Represents an extraordinary dividend paid by NELICO in 2016 to MetLife, Inc.
(9)
Dividends paid by NELICO in 2015 were paid to its former parent, MLIC.
In addition to the amounts presented in the table above, on August 3, 2017, Brighthouse Financial, Inc. paid a cash dividend to MetLife, Inc. of $1.8 billion in connection with the Separation. For the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. also received cash payments of $39 million, $26 million and $9 million, respectively, representing dividends from non-Brighthouse subsidiaries. Additionally, for the year ended December 31, 2017, MetLife, Inc. received cash returns of capital of $610 million from certain subsidiaries, including $590 million from MRSC in connection with the Separation. For the years ended December 31, 2016 and 2015, MetLife, Inc. received cash of $80 million and $5 million, respectively, representing returns of capital from certain subsidiaries. See Note 3 of the Notes to the Consolidated Financial Statements.
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 the U.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 into MetLife, 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 certain U.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-Related Risks — As a Holding Company, MetLife, Inc. Depends on the Ability of Its Subsidiaries to Pay Dividends, a Major Component of Holding Company Free Cash Flow” and Note 15 of the Notes to the Consolidated Financial Statements.
Short-term Debt
MetLife, Inc. maintains a commercial paper program, the proceeds of which can be used to finance the general liquidity needs of MetLife, Inc. and its subsidiaries. MetLife, Inc. had no short-term debt outstanding at either December 31, 2017 or 2016.
Preferred Stock
For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Sources — Global Funding Sources — Preferred Stock.”
Long-term Debt Issued
For information on MetLife, Inc.’s unaffiliated long-term debt issued, see “— The Company — Liquidity and Capital Sources — Global Funding Sources — Long-term Debt Issued.”
Maturities and Issuances of Affiliated Long-term Debt
In September 2016, a $250 million senior note issued to MLIC matured and, subsequently, in September 2016 MetLife, Inc. issued a new $250 million senior note to MLIC. The note matures in September 2020 and bears interest at a rate per annum of 3.03%, payable semi-annually.

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Collateral Financing Arrangement and Junior Subordinated Debt Securities
For information on MetLife, Inc.’s collateral financing arrangement and junior subordinated debt securities, see Notes 13 and 14 of the Notes to the Consolidated Financial Statements, respectively and Note 5 in Schedule II of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information.
Credit and Committed Facilities
The committed facilities are used as collateral for certain of the Company’s affiliated reinsurance liabilities. MetLife, Inc. maintains a committed facility with a capacity of $395 million. At December 31, 2017, MetLife, Inc. had outstanding under this facility $395 million in letters of credit, no drawdowns outstanding and no remaining availability. In addition, MetLife, Inc. is a party and/or guarantor to committed facilities of certain of its subsidiaries, which aggregated $3.3 billion at December 31, 2017. See Note 3 of the Notes to the Consolidated Financial Statements for discussion of reductions in the committed facilities totaling $7.8 billion in April 2017 in connection with the Separation.
See “— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities,” as well as Note 12 of the Notes to the Consolidated Financial Statements, for further information regarding the unsecured revolving credit facility and these committed facilities.
In June 2016, MetLife, Inc. entered into a five-year agreement with an indirect wholly-owned subsidiary, MetLife Ireland Treasury d.a.c. (formerly known as MetLife Ireland Treasury Limited) (“MIT”), to borrow up to $1.3 billion on a revolving basis, at interest rates based on the United States Internal Revenue Service’s safe harbor interest rate in effect at the time of the borrowing. MetLife, Inc. may borrow funds under the agreement at MIT’s discretion and subject to the availability of funds. There were no outstanding borrowings at December 31, 2017.
Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt of MetLife, Inc. at:
 
December 31,
 
2017
 
2016
 
(In millions)
Long-term debt — unaffiliated
$
14,599

 
$
15,505

Long-term debt — affiliated (1)
$
2,000

 
$
3,100

Collateral financing arrangement (2)
$

 
$
2,797

Junior subordinated debt securities (3)
$
2,454

 
$
1,734

__________________
(1)
On April 28, 2017, in connection with the Separation, MetLife, Inc. repaid $750 million and $350 million of senior notes to MetLife Reinsurance Company of Delaware (“MRD”) due September 2032 and December 2033, respectively, in an exchange transaction. The $750 million senior note bore interest at a fixed rate of 4.21% and the $350 million senior note bore interest at a fixed rate of 5.10%. Simultaneously, MRD repaid $750 million and $350 million of surplus notes to MetLife, Inc. See “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions.”
(2)
See Note 3 of the Notes to the Consolidated Financial Statements for discussion of a $2.8 billion repayment on the MRSC collateral financing agreement liability in April 2017 in connection with the Separation, utilizing assets held in trust.
(3)
See “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions” for discussion of a $750 million junior subordinated debt securities exchange. Also see Note 5 in Schedule II of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information for information regarding the Junior Subordinated Debt Securities exchange transaction in February 2017.
Debt and Facility Covenants
Certain of MetLife, Inc.’s debt instruments and committed facilities, as well as its unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. MetLife, Inc. believes it was in compliance with all applicable covenants at December 31, 2017.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2017, 2016 and 2015 were $0, $291 million, and $0, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.

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Liquidity and Capital Uses
The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common and preferred stock repurchases, 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 enable MetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock, contribute capital to its subsidiaries, repurchase its common and preferred stock, pay all general operating expenses and meet its cash needs.
In addition to the description of liquidity and capital uses in “— The Company — Liquidity and Capital Uses” and “— The Company — Contractual Obligations” the following additional information is provided regarding MetLife, Inc.’s primary uses of liquidity and capital:
Affiliated Capital and Debt Transactions
During the year ended December 31, 2017, MetLife, Inc. invested a net amount of $729 million in various non-Brighthouse subsidiaries. During the years ended December 31, 2016 and 2015, MetLife, Inc. invested a net amount of $1.5 billion and $88 million, respectively, in various subsidiaries. The investment in 2016 included a cash capital contribution of $1.5 billion to Brighthouse Insurance in connection with the Separation.
MetLife, Inc. lends funds, as necessary, to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements. MetLife, Inc. had loans to subsidiaries outstanding of $100 million and $1.2 billion at December 31, 2017 and 2016, respectively.
In April 2017, in connection with the Separation, MRD repaid $750 million and $350 million surplus notes to MetLife, Inc., in an exchange transaction. The $750 million surplus note bore interest at a fixed rate of 5.13% and the $350 million surplus note bore interest at a fixed rate of 6.00%, both payable semi-annually. Simultaneously, MetLife, Inc. repaid $750 million and $350 million senior notes to MRD.
In February 2017, MetLife, Inc. exchanged $750 million aggregate principal amount of its 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068 for $750 million aggregate liquidation preference of the 9.250% Fixed-to- Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital Trust X (the “Trust”). As a result of the exchange, MetLife, Inc. became the sole beneficial owner of the Trust, a special purpose entity which issued the exchangeable surplus trust securities to third-party investors. In March 2017, MetLife, Inc. dissolved the Trust and became the direct holder of $750 million 8.595% surplus notes previously held by the Trust that were issued by Brighthouse Insurance. See Note 14 of the Notes to the Consolidated Financial Statements. In June 2017, MetLife, Inc. forgave Brighthouse Insurance’s obligation to pay the principal amount of such surplus notes. This transaction, which was a non-cash capital contribution to Brighthouse Holdings, LLC, and a corresponding non-cash capital contribution to Brighthouse Insurance, had no impact on the consolidated financial statements of MetLife, Inc. as of the date of the transaction.
In April 2016, American Life issued a $140 million short-term note to MetLife, Inc. which was repaid in June 2016. The short-term note bore interest at six-month LIBOR plus 1.00%.
In May 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in June 2015. The short-term note bore interest at six-month LIBOR plus 1.00%.
In April 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in May 2015. The short-term note bore interest at six-month LIBOR plus 0.875%.
In July 2013, MIT borrowed the Chilean peso equivalent of $1.5 billion from MetLife, Inc., which was due July 2023. The loan bore interest at a fixed rate of 8.5%, payable annually. In December, September and June 2015, MIT made loan payments of the Chilean peso equivalent of $77 million, $153 million and $231 million, respectively. At December 31, 2015, the loan was fully paid.
Debt Repayments
For information on MetLife, Inc.’s debt repayments, see “— The Company — Liquidity and Capital Uses — Debt Repayments.” MetLife, Inc. intends to repay or refinance, in whole or in part, all the debt that is due in 2018.

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Repayments of Affiliated Long-term Debt
In April 2017, in connection with the Separation, MetLife, Inc. in an exchange transaction repaid $750 million and $350 million of senior notes to MRD due September 2032 and December 2033, respectively. The $750 million senior note bore interest at a fixed rate of 4.21% and the $350 million senior note bore interest at a fixed rate of 5.10%. Simultaneously, MRD repaid $750 million and $350 million of surplus notes to MetLife, Inc.
In June 2016, March 2016 and December 2015, MetLife, Inc. repaid $204 million, $10 million and $286 million, respectively, of affiliated long-term debt to MetLife Exchange Trust I, at maturity, in exchange for returns of capital. The long-term notes bore interest at three-month LIBOR plus 0.70%.
Maturities of Senior Notes
The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity through 2022 and 2023 to 2046, excluding any premium or discount and unamortized issuance costs, at December 31, 2017:
Year of Maturity
 
Principal
 
Interest Rate
 
 
(In millions)
 
 
2018
 
$
1,035

 
6.82%
2019
 
$
1,035

 
7.72%
2019
 
$
500

 
3.54%
2019
 
$
250

 
3.57%
2020
 
$
541

 
5.25%
2020
 
$
250

 
3.03%
2021
 
$
1,000

 
4.75%
2021
 
$
500

 
5.64%
2021
 
$
500

 
5.86%
2022
 
$
500

 
3.05%
2023 - 2046
 
$
10,574

 
Ranging from 3.00% - 6.50%
Support Agreements
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. Under these arrangements, MetLife, Inc. has agreed to cause each such entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. See “— The Company — Liquidity and Capital Uses — Support Agreements.”
MetLife, Inc. guarantees the obligations of its subsidiary, DelAm, under a stop loss reinsurance agreement with RGA Reinsurance (Barbados) Inc. (“RGARe”), pursuant to which RGARe retrocedes to DelAm a portion of the whole life medical insurance business that RGARe assumed from American Life on behalf of its Japan operations. Also, MetLife, Inc. guarantees the obligations of its subsidiary, Missouri Reinsurance, Inc. (“MoRe”), under a retrocession agreement with RGARe, pursuant to which MoRe retrocedes a portion of the closed block liabilities associated with industrial life and ordinary life insurance policies that it assumed from MLIC.
MetLife, Inc. guarantees the obligations of MetLife Reinsurance Company of Bermuda, Ltd. (“MrB”), a Bermuda insurance affiliate and an indirect, wholly-owned subsidiary of MetLife, Inc. under a reinsurance agreement with Mitsui Sumitomo Primary Life Insurance Co., Ltd. (“Mitsui”), a former affiliate that is now an unaffiliated third party, under which MrB reinsures certain variable annuity business written by Mitsui.
MetLife, Inc. guarantees the obligations of MrB in an aggregate amount up to $1.0 billion, under a reinsurance agreement with MetLife Europe d.a.c. (“MEL”) (formerly known as MetLife Europe Limited), under which MrB reinsured the guaranteed living benefits and guaranteed death benefits associated with certain unit-linked annuity contracts issued by MEL.
MetLife, Inc., in connection with MetLife Reinsurance Company of Vermont (“MRV”) reinsurance of certain universal life and term life insurance risks, committed to the Vermont Department of Banking, Insurance, Securities and Health Care Administration to take necessary action to cause the two protected cells of MRV to maintain total adjusted capital in an amount that is equal to or greater than 200% of each such protected cell’s authorized control level RBC, as defined in Vermont state insurance statutes. See Note 12 of the Notes to the Consolidated Financial Statements.

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MetLife, Inc., in connection with the collateral financing arrangement associated with MRC’s reinsurance of a portion of the liabilities associated with the closed block, committed to the South Carolina Department of Insurance to make capital contributions, if necessary, to MRC so that MRC may at all times maintain its total adjusted capital in an amount that is equal to or greater than 200% of the company action level RBC, as defined in South Carolina state insurance statutes as in effect on the date of determination or December 31, 2007, whichever calculation produces the greater capital requirement, or as otherwise required by the South Carolina Department of Insurance. See Note 13 of the Notes to the Consolidated Financial Statements.
MetLife, Inc. guarantees obligations arising from derivatives of the following subsidiaries: MrB, MetLife International Holdings, LLC and MetLife Worldwide Holdings, LLC. These subsidiaries are exposed to various risks relating to their ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. These subsidiaries use a variety of strategies to manage these risks, including the use of derivatives. Further, all of the subsidiaries’ derivatives are subject to industry standard netting agreements and collateral agreements that limit the unsecured portion of any open derivative position. On a net counterparty basis at December 31, 2017 and 2016, derivative transactions with positive mark-to-market values (in-the-money) were $515 million and $495 million, respectively, and derivative transactions with negative mark-to-market values (out-of-the-money) were $126 million and $237 million, respectively. To secure the obligations represented by the out of-the-money transactions, the subsidiaries had provided collateral to their counterparties with an estimated fair value of $114 million and $233 million at December 31, 2017 and 2016, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were $12 million and $4 million at December 31, 2017 and 2016, respectively.
MetLife, Inc. also guarantees the obligations of certain of its subsidiaries under committed facilities with third-party banks. See Note 12 of the Notes to the Consolidated Financial Statements.
Acquisitions
Cash outflows for acquisitions during the year ended December 31, 2017 were $211 million. There were no cash outflows from MetLife, Inc. for acquisitions during either of the years ended December 31, 2016 or 2015.
Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Future Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of our business.
The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
Non-GAAP financial measures:
Comparable GAAP financial measures:
(i)
adjusted revenues
(i)
revenues
(ii)
adjusted expenses
(ii)
expenses
(iii)
adjusted earnings
(iii)
income (loss) from continuing operations, net of income tax
(iv)
adjusted earnings available to common shareholders
(iv)
net income (loss) available to MetLife, Inc.’s common shareholders
(v)
free cash flow of all holding companies
(v)
MetLife, Inc.’s net cash provided by operating activities

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Reconciliations of these non-GAAP measures to the most directly comparable historical GAAP measures are included in this section and the results of operations, see “— Results of Operations.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures is not accessible on a forward-looking basis because we believe it is not possible without unreasonable efforts 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. These “adjusted” non-GAAP financial measures were formerly referred to as “operating” non-GAAP financial measures.
Our definitions of the various 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; and
adjusted earnings available to common shareholders.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings 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, both net of income tax. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends.
Adjusted revenues and adjusted expenses
These financial measures focus on our primary businesses principally by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or will be sold or exited by MetLife but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses. Divested businesses also includes the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MetLife that do not meet the criteria to be included in results of discontinued operations under GAAP. In addition, for the year ended December 31, 2016, adjusted revenues and adjusted 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. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted revenues:
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”);
Net investment income: (i) includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iii) excludes certain amounts related to contractholder-directed unit-linked investments and (iv) 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.

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The following additional adjustments are made to expenses, in the line items indicated, in calculating adjusted expenses:
Policyholder benefits and claims and policyholder dividends excludes: (i) 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 DAC and 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.
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Return on equity, allocated equity and related measures:
MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as MetLife, Inc.’s common stockholders’ equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment components of AOCI, net of income tax.
Adjusted ROE is defined as adjusted earnings available to common shareholders, divided by average GAAP common stockholders’ equity.
Adjusted ROE, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders divided by average GAAP common stockholders’ equity, excluding AOCI other than FCTA.
Allocated equity is the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments and sub-segments based on local capital requirements and economic capital. See “— 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. Also refer to the utilization of adjusted earnings and other financial measures based on adjusted earnings mentioned above.

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The following additional information is relevant to an understanding of our performance results:
The impact of changes in our foreign currency exchange rates is calculated using the average foreign currency exchange rates for the current period and is applied to each of the comparable periods (“Constant Currency Basis”).
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 our Latin America, Asia and EMEA segments are on a Constant Currency Basis.
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 the U.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.
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 at MetLife’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 of MetLife, Inc. to free cash flow of all holding companies for the years ended December 31, 2017, 2016 and 2015 is provided below.

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Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc. to Free Cash Flow of All Holding Companies
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
MetLife, Inc. (parent company only) net cash provided by operating activities
$
6,462

 
$
3,747

 
$
1,606

Adjustments from net cash provided by operating activities to free cash flow:


 


 

Add: Incremental debt to be at or below target leverage ratios

 

 
1,750

Add: Capital contributions to subsidiaries
(124
)
 
(1,733
)
 
(667
)
Add: Returns of capital from subsidiaries
610

 
80

 
5

Add: Repayments on and (issuances of) loans to subsidiaries, net

 

 
461

Add: Investment portfolio and derivatives changes and other, net
(780
)
 
(672
)
 
365

MetLife, Inc. (parent company only) free cash flow
6,168

 
1,422

 
3,520

Other MetLife, Inc. holding companies:
 
 
 
 
 
Add: Dividends and returns of capital from subsidiaries
2,125

 
1,485

 
1,354

Add: Capital contributions from MetLife, Inc.

 

 
150

Add: Capital contributions to subsidiaries
(12
)
 
(53
)
 
(27
)
Add: Repayments on and (issuances of) loans to subsidiaries, net
(6
)
 
(307
)
 
(510
)
Add: Other expenses
(626
)
 
(671
)
 
(729
)
Add: Dividends and returns of capital to MetLife, Inc.
(2,200
)
 

 

Add: Investment portfolio and derivative changes and other, net
218

 
548

 
223

Total other MetLife, Inc. holding companies free cash flow
(501
)
 
1,002

 
461

Free cash flow of all holding companies (1)
$
5,667

 
$
2,424

 
$
3,981

 
 
 
 
 
 
Ratio of net cash provided by operating activities to consolidated net income (loss) available to MetLife, Inc.'s common shareholders:
 
 
 
 
 
MetLife, Inc. (parent company only) net cash provided by operating activities
$
6,462

 
$
3,747

 
$
1,606

Consolidated net income (loss) available to MetLife, Inc.’s common
shareholders (1)
$
3,907

 
$
747

 
$
5,215

Ratio of net cash provided by operating activities (parent company only) to
consolidated net income (loss) available to MetLife, Inc.'s common
shareholders (1) (2)
165
%
 
502
%
 
31
%
Ratio of free cash flow to adjusted earnings available to common shareholders:
 
 
 
 
 
Free cash flow of all holding companies (3)
$
5,667

 
$
2,424

 
$
3,981

Consolidated adjusted earnings available to common shareholders (3)
$
4,235

 
$
4,033

 
$
3,914

Ratio of free cash flow of all holding companies to consolidated adjusted
earnings available to common shareholders (3)
134
%
 
60
%
 
102
%
__________________
(1)
Consolidated net income (loss) available to MetLife, Inc.’s common shareholders for 2017 includes Separation-related costs of $312 million, net of income tax. Excluding this amount from the denominator of the ratio, this ratio, as adjusted, would be 153%. Consolidated net income (loss) available to MetLife, Inc.'s common shareholders for 2016 includes Separation-related costs of $73 million, net of income tax. Excluding this amount from the denominator of the ratio, this ratio, as adjusted, would be 457%. Consolidated net income (loss) available to MetLife, Inc.'s common shareholders for 2015 includes a non-cash charge of $792 million, net of income tax, related to an uncertain tax position. Excluding this charge from the denominator of the ratio, this ratio, as adjusted, would be 27%. See “— Liquidity and Capital Resources — MetLife, Inc. — Liquid Assets — MetLife, Inc. and Other MetLife Holding Companies Sources and Uses of Liquid Assets and Sources and Uses of Liquid Assets included in Free Cash Flow.”

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(2)
Including the free cash flow of other MetLife, Inc. holding companies of ($501) million, $1.0 billion and $461 million for the years ended December 31, 2017, 2016 and 2015, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 153%, 636% and 40%, respectively. Including the free cash flow of other MetLife, Inc. holding companies in the numerator of the ratio and excluding the Separation-related costs and uncertain tax position non-cash charge from the denominator of the ratio, this ratio, as adjusted, would be 141%, 579% and 34% for the years ended December 31, 2017, 2016 and 2015, respectively.
(3)
i) In 2017, $2.1 billion of Separation-related items (comprised of certain Separation-related inflows primarily related to dividends from Brighthouse, net of outflows) were included, which increased our holding companies’ liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $3.6 billion for the year ended December 31, 2017. Consolidated adjusted earnings available to common shareholders for 2017 was negatively impacted by notable items, primarily related to tax adjustments, of $622 million, net of income tax. Excluding the Separation-related items, which increased free cash flow, from the numerator of the ratio and excluding such notable items negatively impacting consolidated adjusted earnings available to common shareholders from the denominator of the ratio, the adjusted free cash flow ratio for 2017 would be 75%.
ii) In 2016, we incurred $2.3 billion of Separation-related items (comprised of certain Separation-related outflows, net of inflows related to dividends from Brighthouse subsidiaries) which reduced our holding companies’ liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $4.7 billion for the year ended December 31, 2016. Consolidated adjusted earnings available to common shareholders for 2016 was negatively impacted by notable items, primarily related to the actuarial assumption review and other insurance adjustments, of $709 million, net of income tax, and Separation-related costs of $15 million, net of income tax. Excluding the Separation-related items, which reduced free cash flow, from the numerator of the ratio and excluding such notable items and Separation-related costs negatively impacting consolidated adjusted earnings available to common shareholders from the denominator of the ratio, the adjusted free cash flow ratio for 2016 would be 98%.
iii) In 2015, dividends from Brighthouse subsidiaries of $500 million were included in and increased our holding companies’ liquid assets, as well as our free cash flow. Excluding these inflows related to dividends from Brighthouse subsidiaries, adjusted free cash flow would be $3.5 billion for the year ended December 31, 2015. Consolidated adjusted earnings available to common shareholders for 2015 includes a non-cash charge of $792 million, net of income tax, related to an uncertain tax position. Excluding these Brighthouse inflows, which increased free cash flow, from the numerator of the ratio and excluding such non-cash charge negatively impacting consolidated adjusted earnings available to common shareholders from the denominator of the ratio, the adjusted free cash flow ratio for 2015 would be 74%.
Subsequent Events
See Note 22 of the Notes to the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
We have an integrated process for managing risk, which we conduct through multiple Board and senior management committees (financial and non-financial) across the GRM, ALM, Finance, Treasury, Investments and business segment departments. The risk committee structure is designed to provide a consolidated enterprise-wide assessment and management of risk. The ERC is responsible for reviewing all material risks to 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. Additional committees at the MetLife, Inc. and subsidiary insurance company level manage capital and risk positions, and establish corporate business standards.
Global Risk Management
Independent from the lines of business, the centralized GRM, led by the CRO, coordinates across all committees to ensure that all material risks are properly identified, measured, aggregated, 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.

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GRM considers and monitors a full range of risks against the Company’s solvency, liquidity, earnings, business operations and reputation. GRM’s primary responsibilities consist of:
implementing a corporate risk framework, which outlines our enterprise approach for managing risk;
developing policies and procedures for managing, measuring, monitoring and controlling those risks identified in the corporate risk framework;
coordinating Own Risk and Solvency Assessments for the Board, senior management and regulator use;
establishing appropriate corporate risk tolerance levels;
recommending risk appetite statements and investment general authorizations to the Board;
measuring capital on an economic basis;
recommending capital allocations on an economic capital basis; and
reporting to (i) the Finance and Risk Committee of MetLife, Inc.’s Board of Directors; (ii) the Investment Committee of MetLife, Inc.’s Board of Directors (iii) the Compensation Committee of MetLife, Inc.’s Board of Directors; and (iv) the financial and non-financial senior management committees on various aspects of risk.
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, GRM, and Investments departments, with the engagement of senior members of the business segments, and is governed by the ALM Committees. The ALM Committees’ duties include reviewing and approving target portfolios 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. Generally, our ALM Steering Committee and the Hybrid Guarantee Product ALM Committee oversee the activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee and Hybrid Guarantee Product ALM Committee report 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 VA hedging programs and associated investment portfolios for different blocks of VA 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, VA market sensitivities (to interest rates, equity market levels, equity volatility, and foreign exchange rates), stress scenario payoffs, liquidity, foreign exchange, asset sector concentration and credit quality.
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 resulting from changes in interest rates, foreign currency exchange rates and equity markets.
Interest Rates
Our exposure to interest rate changes results most significantly from our holdings of fixed maturity securities, as well as our interest rate sensitive liabilities. The fixed maturity securities include U.S. and foreign government bonds, securities issued by government agencies, corporate bonds, mortgage-backed securities and ABS, 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. 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-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period.”

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Foreign Currency Exchange Rates
Our exposure to fluctuations in foreign currency exchange rates against the U.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 Euro, the Japanese yen and the British pound. Selectively, we use U.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 in U.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 — Risks Related to Our Business — Fluctuations in Foreign Currency Exchange Rates Could Negatively Affect Our Profitability.”
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. In addition, we have a significant equity ownership position in Brighthouse Financial, Inc., and changes in the market price of its common stock may have a material impact on us. Our equity exposure to Brighthouse Financial, Inc. is included in the analysis. Equity exposures associated with other 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.
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. 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 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 all 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.

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Foreign Currency Exchange Rate Risk Management
MetLife has a well-established Enterprise Foreign Exchange (“FX”) Risk Policy to ensure it manages 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 FX derivatives. Enterprise FX risk limits are established by the ERC. Management of each of our segments, with oversight from our FX Risk Committee and the respective ALM committee for the 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 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, total rate of return swaps and equity variance swaps. This risk is managed by our ALM Unit in partnership with the Investments Department.
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 U.S. 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 variable annuity living guarantee benefits. These derivatives include equity and interest rate futures, interest rate swaps, currency futures/forwards, equity indexed options, total rate of return swaps, 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 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 and swaptions.
Foreign Currency Exchange Rate Risk — We use currency swaps, 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 to U.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, 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.

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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 10% change (increase or decrease) in interest rates, foreign currency exchange rates and equity market prices. We believe that a 10% change (increase or decrease) in these market rates and prices is reasonably possible in the near term. In performing the analysis summarized below, we used market rates at December 31, 2017. 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 in market rates and prices on the estimated fair values of our market sensitive assets and liabilities as follows:
the net present values of our interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates;
the U.S. dollar equivalent estimated fair values of our foreign currency exposures due to a 10% change (increase in the value of the U.S. dollar compared to all foreign currencies or decrease in the value of the U.S. dollar compared to all foreign currencies) in foreign currency exchange rates; and
the estimated fair value of our equity positions due to a 10% change (increase or decrease) in equity market prices.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure that our actual losses in any particular period will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis include:
interest sensitive and foreign currency exchange sensitive liabilities do not include $193.5 billion of insurance contracts, which are accounted for on a book value basis. 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 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 and real estate 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 10% change (increase or decrease) in market rates and 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 of our market sensitive assets and liabilities at:
 
December 31, 2017
 
(In millions)
Interest rate risk
$
5,862

Foreign currency exchange rate risk
$
7,867

Equity market risk
$
71

__________________

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In 2016, the Company reinvested its trading securities portfolio into other asset classes and, at December 31, 2016, the Company no longer held any actively traded securities. The potential losses in estimated fair value presented are for non-trading securities.
The risk sensitivities derived used a 10% increase to interest rates, a 10% strengthening of the U.S. dollar against foreign currencies, and a 10% decrease in equity prices.

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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 10% increase in yield curve by type of asset or liability at:
 
December 31, 2017
 
Notional
Amount
 
Estimated
Fair
Value (1)
 
Assuming a
10% Increase
in the Yield
Curve
 
(In millions)
Assets
 
 
 
 
 
Fixed maturity securities
 
 
$
308,931

 
$
(5,130
)
Equity securities
 
 
$
2,513

 

FVO general account securities
 
 
$
2,224

 
(7
)
Mortgage loans
 
 
$
69,797

 
(657
)
Policy loans
 
 
$
11,512

 
(103
)
Short-term investments
 
 
$
4,870

 
(4
)
Other invested assets
 
 
$
608

 

Cash and cash equivalents
 
 
$
12,701

 

Accrued investment income
 
 
$
3,524

 

Premiums, reinsurance and other receivables
 
 
$
4,339

 
(236
)
Other assets
 
 
$
328

 
(3
)
Embedded derivatives within asset host contracts (2)
 
 
$
144

 

Total assets
 
 
 
 
$
(6,140
)
Liabilities (3)
 
 
 
 
 
Policyholder account balances
 
 
$
111,415

 
$
581

Payables for collateral under securities loaned and other transactions
 
 
$
25,723

 

Short-term debt
 
 
$
477

 

Long-term debt
 
 
$
17,773

 
380

Collateral financing arrangement
 
 
$
894

 

Junior subordinated debt securities
 
 
$
4,319

 
106

Other liabilities
 
 
$
3,841

 
(43
)
Embedded derivatives within liability host contracts (2)
 
 
$
418

 
105

Total liabilities
 
 
 
 
$
1,129

Derivative Instruments
 
 
 
 
 
Interest rate swaps
$
67,912

 
$
4,144

 
$
(629
)
Interest rate floors
$
7,201

 
$
92

 
(22
)
Interest rate caps
$
53,079

 
$
76

 
43

Interest rate futures
$
4,366

 
$
(2
)
 
34

Interest rate options
$
12,009

 
$
645

 
(25
)
Interest rate forwards
$
3,549

 
$
(170
)
 
(130
)
Interest rate total return swaps

$
1,048

 
$
6

 
(53
)
Synthetic GICs
$
11,318

 
$

 

Foreign currency swaps
$
43,170

 
$
(304
)
 
(62
)
Foreign currency forwards
$
15,823

 
$
(149
)
 
2

Currency futures
$
846

 
$
2

 

Currency options
$
12,531

 
$
(70
)
 
(4
)
Credit default swaps
$
13,395

 
$
235

 
(1
)
Equity futures
$
4,005

 
$
14

 

Equity index options
$
19,886

 
$
(121
)
 
(4
)
Equity variance swaps
$
4,661

 
$
(145
)
 

Equity total return swaps
$
1,117

 
$
(41
)
 

Total derivative instruments
 
 
 
 
$
(851
)
Net Change
 
 
 
 
$
(5,862
)
__________________
(1)
Separate account assets and liabilities and contractholder-directed 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. FVO general account securities and long-term debt exclude $6 million and $5 million, respectively, related to CSEs. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding CSEs.

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(2)
Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)
Excludes $193.5 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% increase in the yield curve.
Sensitivity to rising interest rates increased $0.1 billion to $5.9 billion at December 31, 2017 from $5.8 billion December 31, 2016. Sensitivity increased $0.2 billion as a result of increased rates and durations, since the sensitivity is calculated based on a 10% increase in the yield curve, offset with a decrease of $0.1 billion from our use of derivatives, used by the Company as hedges against low rates.


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The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% increase in the U.S. dollar compared to all foreign currencies at:
 
December 31, 2017
 
Notional
Amount
 
Estimated
Fair
Value (1)
 
Assuming a
10% Increase
in the Foreign
Exchange Rate
 
(In millions)
Assets
 
 
 
 
 
Fixed maturity securities
 
 
$
308,931

 
$
(9,746
)
Equity securities
 
 
$
2,513

 
(59
)
FVO general account securities
 
 
$
2,224

 
(93
)
Mortgage loans
 
 
$
69,797

 
(870
)
Policy loans
 
 
$
11,512

 
(157
)
Short-term investments
 
 
$
4,870

 
(312
)
Other invested assets
 
 
$
608

 
(207
)
Cash and cash equivalents
 
 
$
12,701

 
(478
)
Accrued investment income
 
 
$
3,524

 
(103
)
Premiums, reinsurance and other receivables
 
 
$
4,339

 
(43
)
Other assets
 
 
$
328

 
(8
)
Embedded derivatives within asset host contracts (2)
 
 
$
144

 
(14
)
Total assets
 
 
 
 
$
(12,090
)
Liabilities (3)
 
 
 
 
 
Policyholder account balances
 
 
$
111,415

 
$
3,722

Payables for collateral under securities loaned and other transactions
 
 
$
25,723

 
123

Long-term debt
 
 
$
17,773

 
118

Other liabilities
 
 
$
3,841

 
9

Embedded derivatives within liability host contracts (2)
 
 
$
418

 
42

Total liabilities
 
 
 
 
$
4,014

Derivative Instruments
 
 
 
 
 
Interest rate swaps
$
67,912

 
$
4,144

 
$
(37
)
Interest rate floors
$
7,201

 
$
92

 

Interest rate caps
$
53,079

 
$
76

 

Interest rate futures
$
4,366

 
$
(2
)
 

Interest rate options
$
12,009

 
$
645

 
(51
)
Interest rate forwards
$
3,549

 
$
(170
)
 
4

Interest rate total return swaps

$
1,048

 
$
6

 

Synthetic GICs
$
11,318

 
$

 

Foreign currency swaps
$
43,170

 
$
(304
)
 
629

Foreign currency forwards
$
15,823

 
$
(149
)
 
(804
)
Currency futures
$
846

 
$
2

 
(85
)
Currency options
$
12,531

 
$
(70
)
 
542

Credit default swaps
$
13,395

 
$
235

 
(6
)
Equity futures
$
4,005

 
$
14

 

Equity index options
$
19,886

 
$
(121
)
 
17

Equity variance swaps
$
4,661

 
$
(145
)
 

Equity total return swaps
$
1,117

 
$
(41
)
 

Total derivative instruments
 
 
 
 
$
209

Net Change
 
 
 
 
$
(7,867
)
__________________
(1)
Does not necessarily represent those financial instruments solely subject to foreign currency exchange rate risk. Separate account assets and liabilities and contractholder-directed 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. FVO general securities and long-term debt exclude $6 million and $5 million, respectively, related to CSEs. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding CSEs.

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(2)
Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
(3)
Excludes $193.5 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% increase in foreign currency exchange rates.
Sensitivity to foreign currency exchange rates increased by $1.0 billion, or 13%, to $7.9 billion at December 31, 2017 from $6.9 billion at December 31, 2016. This change was primarily due to an increase in the fair value of foreign currency assets which may be backing foreign currency liabilities that are not included in this analysis.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% decrease in equity prices by type of asset or liability at:
 
December 31, 2017
 
Notional
Amount
 
Estimated
Fair
Value (1)
 
Assuming a
10% Decrease
in Equity
Prices
 
(In millions)
Assets
 
 
 
 
 
Equity securities
 
 
$
2,513

 
$
(251
)
FVO general account securities

 
 
$
2,224

 
(157
)
Embedded derivatives within asset host contracts (2)
 
 
$
144

 

Total assets
 
 
 
 
$
(408
)
Liabilities
 
 
 
 
 
Policyholder account balances
 
 
$
111,415

 
$

Embedded derivatives within liability host contracts (2)
 
 
$
418

 
(228
)
Total liabilities
 
 
 
 
$
(228
)
Derivative Instruments
 
 
 
 
 
Interest rate swaps
$
67,912

 
$
4,144

 
$

Interest rate floors
$
7,201

 
$
92

 

Interest rate caps
$
53,079

 
$
76

 

Interest rate futures
$
4,366

 
$
(2
)
 

Interest rate options
$
12,009

 
$
645

 

Interest rate forwards
$
3,549

 
$
(170
)
 

Interest rate total return swaps

$
1,048

 
$
6

 

Synthetic GICs
$
11,318

 
$

 

Foreign currency swaps
$
43,170

 
$
(304
)
 

Foreign currency forwards
$
15,823

 
$
(149
)
 

Currency futures
$
846

 
$
2

 

Currency options
$
12,531

 
$
(70
)
 

Credit default swaps
$
13,395

 
$
235

 

Equity futures
$
4,005

 
$
14

 
313

Equity index options
$
19,886

 
$
(121
)
 
125

Equity variance swaps
$
4,661

 
$
(145
)
 
3

Equity total return swaps
$
1,117

 
$
(41
)
 
124

Total derivative instruments
 
 
 
 
$
565

Net Change
 
 
 
 
$
(71
)
__________________
(1)
Does not necessarily represent those financial instruments solely subject to equity price risk. Additionally, separate account assets and liabilities and contractholder-directed 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.
(2)
Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
As of December 31, 2017, sensitivity to a 10% equity market decrease was $71 million. This compares to a $23 million sensitivity to a 10% equity market increase at December 31,2016. The change is primarily due to the application of shock to BHF stock acquired in the Separation.


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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules
 
Page
Financial Statements at December 31, 2017 and 2016 and for the Years Ended December 31, 2017, 2016 and 2015:
 
 

Financial Statement Schedules at December 31, 2017 and 2016 and for the Years Ended December 31, 2017, 2016 and 2015:
 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of MetLife, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of MetLife, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, 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, 2017, and the related notes and the schedules listed in the Index to Consolidated Financial Statements, Notes and Schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 March 1, 2018, expressed an adverse opinion on the Company’s internal control over financial reporting because of material weaknesses.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
New York, New York
March 1, 2018

We have served as the Company’s auditor since at least 1968; however, the specific year has not been determined.


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MetLife, Inc.
Consolidated Balance Sheets
December 31, 2017 and 2016
(In millions, except share and per share data)
 
 
2017
 
2016
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $286,069 and $271,676, respectively)
 
$
308,931

 
$
289,563

Equity securities available-for-sale, at estimated fair value (cost: $2,140 and $2,464, respectively)
 
2,513

 
2,894

Fair value option securities, at estimated fair value ($6 and $8, respectively, relating to variable interest entities)
 
16,745

 
13,923

Mortgage loans (net of valuation allowances of $314 and $304, respectively; includes $520 and $566, respectively, under the fair value option)
 
68,731

 
65,167

Policy loans
 
9,669

 
9,511

Real estate and real estate joint ventures (includes $25 and $59, respectively, of real estate held-for-sale)
 
9,637

 
8,891

Other limited partnership interests (includes $0 and $14, respectively, relating to variable interest entities)
 
5,708

 
5,136

Short-term investments, principally at estimated fair value
 
4,870

 
6,523

Other invested assets (includes $125 and $31, respectively, relating to variable interest entities)
 
17,263

 
19,303

Total investments
 
444,067

 
420,911

Cash and cash equivalents, principally at estimated fair value (includes $12 and $1, respectively, relating to variable interest entities)
 
12,701

 
12,651

Accrued investment income
 
3,524

 
3,308

Premiums, reinsurance and other receivables (includes $3 and $2, respectively, relating to variable interest entities)
 
18,423

 
15,445

Deferred policy acquisition costs and value of business acquired
 
18,419

 
17,590

Current income tax recoverable
 

 
20

Goodwill
 
9,590

 
9,220

Assets of disposed subsidiary
 

 
216,983

Other assets (includes $2 and $3, respectively, relating to variable interest entities)
 
8,167

 
7,058

Separate account assets
 
205,001

 
195,578

Total assets
 
$
719,892

 
$
898,764

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
177,974

 
$
166,636

Policyholder account balances
 
182,518

 
172,486

Other policy-related balances
 
15,515

 
13,402

Policyholder dividends payable
 
682

 
696

Policyholder dividend obligation
 
2,121

 
1,931

Payables for collateral under securities loaned and other transactions
 
25,723

 
25,873

Short-term debt
 
477

 
242

Long-term debt (includes $6 and $12, respectively, at estimated fair value, relating to variable interest entities)
 
15,686

 
16,441

Collateral financing arrangement
 
1,121

 
1,274

Junior subordinated debt securities
 
3,144

 
3,169

Liabilities of disposed subsidiary
 

 
202,707

Current income tax payable
 
311

 

Deferred income tax liability
 
6,767

 
6,892

Other liabilities (includes $3 and $0, respectively, relating to variable interest entities)
 
23,982

 
23,735

Separate account liabilities
 
205,001

 
195,578

Total liabilities
 
661,022

 
831,062

Contingencies, Commitments and Guarantees (Note 20)
 

 

Equity
 
 
 
 
MetLife, Inc.’s stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; $2,100 aggregate liquidation preference
 

 

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,168,710,101 and 1,164,029,985 shares issued, respectively; 1,043,588,396 and 1,095,519,005 shares outstanding, respectively
 
12

 
12

Additional paid-in capital
 
31,111

 
30,944

Retained earnings
 
26,527

 
34,683

Treasury stock, at cost; 125,121,705 and 68,510,980 shares, respectively
 
(6,401
)
 
(3,474
)
Accumulated other comprehensive income (loss)
 
7,427

 
5,366

Total MetLife, Inc.’s stockholders’ equity
 
58,676

 
67,531

Noncontrolling interests
 
194

 
171

Total equity
 
58,870

 
67,702

Total liabilities and equity
 
$
719,892

 
$
898,764

See accompanying notes to the consolidated financial statements.

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MetLife, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2017, 2016 and 2015
(In millions, except per share data)

 
 
2017
 
2016
 
2015
Revenues
 
 
 
 
 
 
Premiums
 
$
38,992

 
$
37,202

 
$
36,403

Universal life and investment-type product policy fees
 
5,510

 
5,483

 
5,570

Net investment income
 
17,363

 
16,790

 
16,205

Other revenues
 
1,341

 
1,685

 
1,927

Net investment gains (losses):
 
 
 
 
 
 
Other-than-temporary impairments on fixed maturity securities
 
(11
)
 
(96
)
 
(61
)
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss)
 
1

 
(11
)
 
2

Other net investment gains (losses)
 
(298
)
 
424

 
668

Total net investment gains (losses)
 
(308
)
 
317

 
609

Net derivative gains (losses)
 
(590
)
 
(690
)
 
629

Total revenues
 
62,308

 
60,787

 
61,343

Expenses
 
 
 
 
 
 
Policyholder benefits and claims
 
38,313

 
36,358

 
35,144

Interest credited to policyholder account balances
 
5,607

 
5,176

 
4,415

Policyholder dividends
 
1,231

 
1,223

 
1,356

Other expenses
 
13,621

 
13,749

 
14,777

Total expenses
 
58,772

 
56,506

 
55,692

Income (loss) from continuing operations before provision for income tax
 
3,536

 
4,281

 
5,651

Provision for income tax expense (benefit)
 
(1,470
)
 
693

 
1,590

Income (loss) from continuing operations, net of income tax
 
5,006

 
3,588

 
4,061

Income (loss) from discontinued operations, net of income tax
 
(986
)
 
(2,734
)
 
1,324

Net income (loss)
 
4,020

 
854

 
5,385

Less: Net income (loss) attributable to noncontrolling interests
 
10

 
4

 
12

Net income (loss) attributable to MetLife, Inc.
 
4,010

 
850

 
5,373

Less: Preferred stock dividends
 
103

 
103

 
116

Preferred stock repurchase premium
 

 

 
42

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
3,907

 
$
747

 
$
5,215

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
Basic
 
$
4.57

 
$
3.16


$
3.48

Diluted
 
$
4.53

 
$
3.13

 
$
3.44

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
Basic
 
$
3.65

 
$
0.68


$
4.67

Diluted
 
$
3.62

 
$
0.67

 
$
4.62

Cash dividends declared per common share
 
$
1.600

 
$
1.575

 
$
1.475

See accompanying notes to the consolidated financial statements.

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Table of Contents
MetLife, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)


 
2017
 
2016
 
2015
Net income (loss)
$
4,020

 
$
854

 
$
5,385

Other comprehensive income (loss):
 
 
 
 
 
Unrealized investment gains (losses), net of related offsets
4,623

 
796

 
(7,449
)
Unrealized gains (losses) on derivatives
(1,165
)
 
573

 
589

Foreign currency translation adjustments
767

 
(363
)
 
(1,624
)
Defined benefit plans adjustment
144

 
131

 
354

Other comprehensive income (loss), before income tax
4,369

 
1,137

 
(8,130
)
Income tax (expense) benefit related to items of other comprehensive income (loss)
(984
)
 
(450
)
 
2,203

Other comprehensive income (loss), net of income tax
3,385

 
687

 
(5,927
)
Comprehensive income (loss)
7,405

 
1,541

 
(542
)
Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax
14

 
92

 
32

Comprehensive income (loss) attributable to MetLife, Inc.
$
7,391

 
$
1,449

 
$
(574
)
See accompanying notes to the consolidated financial statements.

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Table of Contents

MetLife, Inc.
Consolidated Statements of Equity
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
 
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
 
Total
Equity
Balance at December 31, 2014, as previously reported
 
$
1

 
$
12

 
$
30,543

 
$
32,020

 
$
(1,172
)
 
$
10,649

 
$
72,053

 
$
507

 
$
72,560

Prior-period revisions (Note 1)
 

 

 

 
90

 

 
65

 
155

 

 
155

Balance at December 31, 2014
 
$
1

 
$
12

 
$
30,543

 
$
32,110

 
$
(1,172
)
 
$
10,714

 
$
72,208

 
$
507

 
$
72,715

Repurchase of preferred stock
 
(1
)
 
 
 
(1,459
)
 
 
 
 
 
 
 
(1,460
)
 
 
 
(1,460
)
Preferred stock repurchase premium
 
 
 
 
 
 
 
(42
)
 
 
 
 
 
(42
)
 
 
 
(42
)
Preferred stock issuance
 
 
 
 
 
1,483

 
 
 
 
 
 
 
1,483

 
 
 
1,483

Treasury stock acquired in connection with share repurchases

 
 
 
 
 
 
 
 
 
(1,930
)
 
 
 
(1,930
)
 
 
 
(1,930
)
Stock-based compensation
 
 
 
 
 
182

 
 
 
 
 
 
 
182

 
 
 
182

Dividends on preferred stock
 
 
 
 
 
 
 
(116
)
 
 
 
 
 
(116
)
 
 
 
(116
)
Dividends on common stock
 
 
 
 
 
 
 
(1,653
)
 
 
 
 
 
(1,653
)
 
 
 
(1,653
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(69
)
 
(69
)
Net income (loss)
 
 
 
 
 
 
 
5,373

 
 
 
 
 
5,373

 
12

 
5,385

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
(5,947
)
 
(5,947
)
 
20

 
(5,927
)
Balance at December 31, 2015
 

 
12

 
30,749

 
35,672

 
(3,102
)
 
4,767

 
68,098

 
470

 
68,568

Treasury stock acquired in connection with share repurchases
 
 
 
 
 
 
 
 
 
(372
)
 
 
 
(372
)
 
 
 
(372
)
Stock-based compensation
 
 
 
 
 
195

 
 
 
 
 
 
 
195

 
 
 
195

Dividends on preferred stock
 
 
 
 
 
 
 
(103
)
 
 
 
 
 
(103
)
 
 
 
(103
)
Dividends on common stock
 
 
 
 
 
 
 
(1,736
)
 
 
 
 
 
(1,736
)
 
 
 
(1,736
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(391
)
 
(391
)
Net income (loss)
 
 
 
 
 
 
 
850

 
 
 
 
 
850

 
4

 
854

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
599

 
599

 
88

 
687

Balance at December 31, 2016
 

 
12

 
30,944

 
34,683

 
(3,474
)
 
5,366

 
67,531

 
171

 
67,702

Treasury stock acquired in connection with share repurchases
 
 
 
 
 
 
 
 
 
(2,927
)
 
 
 
(2,927
)
 
 
 
(2,927
)
Stock-based compensation
 
 
 
 
 
167

 
 
 
 
 
 
 
167

 
 
 
167

Dividends on preferred stock
 
 
 
 
 
 
 
(103
)
 
 
 
 
 
(103
)
 
 
 
(103
)
Dividends on common stock
 
 
 
 
 
 
 
(1,717
)
 
 
 
 
 
(1,717
)
 
 
 
(1,717
)
Distribution of Brighthouse, net of income tax (Note 3)
 
 
 
 
 
 
 
(10,346
)
 
 
 
(1,320
)
 
(11,666
)
 
 
 
(11,666
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 
9

 
9

Net income (loss)
 
 
 
 
 
 
 
4,010

 
 
 
 
 
4,010

 
10

 
4,020

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
3,381

 
3,381

 
4

 
3,385

Balance at December 31, 2017
 
$

 
$
12

 
$
31,111

 
$
26,527

 
$
(6,401
)
 
$
7,427

 
$
58,676

 
$
194

 
$
58,870

See accompanying notes to the consolidated financial statements.

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Table of Contents

MetLife, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
2017
 
2016
 
2015
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
4,020

 
$
854

 
$
5,385

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization expenses
795

 
652

 
693

Amortization of premiums and accretion of discounts associated with investments, net
(1,044
)
 
(1,110
)
 
(1,141
)
(Gains) losses on investments and from sales of businesses, net
363

 
(183
)
 
(560
)
(Gains) losses on derivatives, net
3,610

 
8,779

 
1,371

(Income) loss from equity method investments, net of dividends or distributions
194

 
475

 
481

Interest credited to policyholder account balances
6,260

 
6,282

 
5,610

Universal life and investment-type product policy fees
(7,708
)
 
(9,207
)
 
(9,507
)
Goodwill impairment

 
260

 

Change in fair value option and trading securities
(436
)
 
111

 
784

Change in accrued investment income
(280
)
 
(31
)
 
138

Change in premiums, reinsurance and other receivables
(991
)
 
(2,158
)
 
(831
)
Change in deferred policy acquisition costs and value of business acquired, net
(693
)
 
(937
)
 
488

Change in income tax
(2,796
)
 
(1,522
)
 
715

Change in other assets
691

 
3,248

 
2,752

Change in insurance-related liabilities and policy-related balances
8,511

 
6,321

 
6,408

Change in other liabilities
1,603

 
2,801

 
1,172

Other, net
184

 
139

 
94

Net cash provided by (used in) operating activities
12,283

 
14,774

 
14,052

Cash flows from investing activities
 
 
 
 
 
Sales, maturities and repayments of:
 
 
 
 
 
Fixed maturity securities
95,945

 
150,658

 
146,732

Equity securities
1,433

 
1,241

 
1,117

Mortgage loans
10,353

 
12,977

 
12,647

Real estate and real estate joint ventures
972

 
826

 
3,256

Other limited partnership interests
1,082

 
1,542

 
1,827

Purchases of:
 
 
 
 
 
Fixed maturity securities
(105,683
)
 
(146,397
)
 
(148,799
)
Equity securities
(920
)
 
(1,006
)
 
(996
)
Mortgage loans
(14,374
)
 
(21,017
)
 
(20,449
)
Real estate and real estate joint ventures
(1,446
)
 
(1,515
)
 
(1,298
)
Other limited partnership interests
(1,486
)
 
(1,313
)
 
(1,429
)
Cash received in connection with freestanding derivatives
5,315

 
4,259

 
2,690

Cash paid in connection with freestanding derivatives
(8,696
)
 
(6,963
)
 
(4,211
)
Cash received under repurchase agreements

 

 
199

Cash paid under repurchase agreements

 

 
(199
)
Cash received under reverse repurchase agreements

 

 
199

Cash paid under reverse repurchase agreements

 

 
(199
)
Cash disposed due to distribution of Brighthouse

(663
)
 

 

Sales of businesses, net of cash and cash equivalents disposed of $0, $135 and $0, respectively

 
156

 

Purchases of businesses

(211
)
 

 

Purchases of investments in operating joint ventures

 
(39
)
 

Net change in policy loans
(67
)
 
195

 
287

Net change in short-term investments
2,087

 
1,270

 
(777
)
Net change in other invested assets
(171
)
 
(267
)
 
(936
)
Other, net
(346
)
 
(457
)
 
(59
)
Net cash provided by (used in) investing activities
$
(16,876
)
 
$
(5,850
)
 
$
(10,398
)
See accompanying notes to the consolidated financial statements.

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Table of Contents

MetLife, Inc.
Consolidated Statements of Cash Flows — (continued)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
2017
 
2016
 
2015
Cash flows from financing activities
 
 
 
 
 
Policyholder account balances:
 
 
 
 
 
Deposits
$
88,511

 
$
88,188

 
$
92,904

Withdrawals
(82,380
)
 
(83,263
)
 
(94,621
)
Net change in payables for collateral under securities loaned and other transactions
903

 
(3,636
)
 
1,544

Long-term debt issued
3,657

 

 
3,893

Long-term debt repaid
(1,073
)
 
(1,279
)
 
(1,438
)
Collateral financing arrangements repaid
(2,951
)
 
(68
)
 
(57
)
Distribution of Brighthouse

(2,793
)
 

 

Financing element on certain derivative instruments and other derivative related transactions, net
(151
)
 
(1,367
)
 
181

Treasury stock acquired in connection with share repurchases
(2,927
)
 
(372
)
 
(1,930
)
Preferred stock issued, net of issuance costs

 

 
1,483

Repurchase of preferred stock

 

 
(1,460
)
Preferred stock repurchase premium

 

 
(42
)
Dividends on preferred stock
(103
)
 
(103
)
 
(116
)
Dividends on common stock
(1,717
)
 
(1,736
)
 
(1,653
)
Other, net
118

 
139

 
94

Net cash provided by (used in) financing activities
(906
)
 
(3,497
)
 
(1,218
)
Effect of change in foreign currency exchange rates on cash and cash equivalents balances
323

 
(302
)
 
(492
)
Change in cash and cash equivalents
(5,176
)
 
5,125

 
1,944

Cash and cash equivalents, beginning of year
17,877

 
12,752

 
10,808

Cash and cash equivalents, end of year
$
12,701

 
$
17,877

 
$
12,752

Cash and cash equivalents, of disposed subsidiary, beginning of year
$
5,226

 
$
1,570

 
$
1,603

Cash and cash equivalents, of disposed subsidiary, end of year
$

 
$
5,226

 
$
1,570

Cash and cash equivalents, from continuing operations, beginning of year
$
12,651

 
$
11,182

 
$
9,205

Cash and cash equivalents, from continuing operations, end of year
$
12,701

 
$
12,651

 
$
11,182

Supplemental disclosures of cash flow information:
 
 
 
 
 
Net cash paid (received) for:
 
 
 
 
 
Interest
$
1,118

 
$
1,202

 
$
1,178

Income tax
$
1,530

 
$
672

 
$
1,127

Non-cash transactions
 
 
 
 
 
Disposal of Brighthouse (See Note 3):
 
 
 
 
 
Assets disposed
$
225,502

 
$

 
$

Liabilities disposed
(210,999
)
 

 

Net assets disposed
14,503

 

 

Cash disposed
(3,456
)
 

 

Net non-cash disposed
$
11,047

 
$

 
$

Fixed maturity securities received in connection with pension risk transfer transactions
$

 
$
985

 
$
903

Reduction of fixed maturity securities in connection with a reinsurance transaction
$

 
$
224

 
$

Reduction of other invested assets in connection with a reinsurance transaction
$

 
$
676

 
$

Deconsolidation of operating joint venture:
 
 
 
 
 
Reduction of fixed maturity securities
$

 
$
917

 
$

Reduction of noncontrolling interests
$

 
$
373

 
$

Deconsolidation of real estate investment vehicles:
 
 
 
 
 
Reduction of long-term debt
$

 
$

 
$
571

Reduction of real estate and real estate joint ventures
$

 
$

 
$
688

See accompanying notes to the consolidated financial statements.


207

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements

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 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; Europe, the Middle East and Africa (“EMEA”); and MetLife Holdings.
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to the MetLife, Inc. common shareholders (the “Separation”). See Note 3 for additional information on the Separation.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The accompanying 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. The Company’s consolidated financial statements for 2015 reflect the operating results of such subsidiaries for the year ended November 30, 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 on 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 year ended December 31, 2016 and did not retrospectively apply the effects of this change to prior periods.
Discontinued Operations
The results of operations of a component of the Company that has either been disposed of or is classified as held-for-sale are reported in discontinued operations if certain criteria are met. A disposal of a component is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The results of Brighthouse are reflected in MetLife, Inc.'s consolidated financial statements as discontinued operations and, therefore, are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income (loss) from discontinued operations on the consolidated statements of operations. Intercompany transactions between the Company and Brighthouse prior to the Separation have been eliminated. See Note 3 for information on discontinued operations and transactions with Brighthouse.

208

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Separate Accounts
Separate accounts are established in conformity with insurance laws. Generally, the assets of the separate accounts cannot be used to settle the liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if:
such separate accounts are legally recognized;
assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities;
investments are directed by the contractholder; and
all investment performance, net of contract fees and assessments, is passed through to the contractholder.
The Company reports separate account assets at their fair value which is based on the estimated fair values of the underlying assets comprising the individual separate account portfolios. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line on the statements of operations. Separate accounts credited with a contractual investment return are combined on a line-by-line basis with the Company’s general account assets, liabilities, revenues and expenses and the accounting for these investments is consistent with the methodologies described herein for similar financial instruments held within the general account. Unit-linked separate account investments that are directed by contractholders but do not meet one or more of the other above criteria are included in fair value option (“FVO”) securities.
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. Such fees are included in universal life and investment-type product policy fees on the statements of operations.
Reclassifications
Certain amounts in the prior years’ consolidated financial statements and related footnotes thereto have been reclassified to conform with the current year presentation as discussed throughout the Notes to the Consolidated Financial Statements.
Revisions
As a result of the following adjustments, amounts previously reported have been immaterially restated. In addition, the Company has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified them.
Group Annuity Reserves
On December 15, 2017, the Company announced that it was undertaking a review of practices and procedures used to estimate its reserves related to certain Retirement and Income Solutions (“RIS”) group annuitants who have been unresponsive or missing over time. As a result of this process, the Company increased reserves by $510 million, before income tax, to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. Of this increase, $372 million was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017.
Assumed Variable Annuity Guarantee Reserves
An internal review of practices and procedures was completed in early 2018, focusing on the calculation of certain reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint venture in Japan. As a result, the Company reduced these reserves by $896 million, before income tax. Of this decrease, $682 million was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017.

209

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

A summary of the revisions to prior period net income (loss) available to MetLife, Inc.’s common shareholders is shown in the table below:
 
 
For the Years Ended December 31,
 
 
2016
 
2015
 
 
(In millions)
Assumed variable annuity guarantee reserves
 
$
184

 
$
80

Group annuity reserves
 
(33
)
 
(31
)
Other revisions to continuing operations, net
 
(10
)
 
(106
)
Impact to income (loss) from continuing operations before provision for income tax
 
141

 
(57
)
Provision for income tax expense (benefit) (1)
 
27

 
(110
)
Impact to income (loss) from continuing operations, net of income tax
 
114

 
53

Other revisions to discontinued operations, net of income tax (1)
 
(64
)
 
10

Impact to net income (loss) available to MetLife, Inc.’s common shareholders
 
$
50

 
$
63

__________________
(1)
Includes impact of certain tax-specific revisions.
The impact of the revisions is shown in the tables below:
 
 
December 31, 2016
Consolidated Balance Sheets
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Liabilities
 
 
 
 
 
 
Future policy benefits
 
$
166,701

 
$
(65
)
 
$
166,636

Policyholder account balances
 
$
173,168

 
$
(682
)
 
$
172,486

Other policy-related balances
 
$
13,030

 
$
372

 
$
13,402

Deferred income tax liability
 
$
6,774

 
$
118

 
$
6,892

Other liabilities
 
$
23,700

 
$
35

 
$
23,735

Total liabilities
 
$
831,284

 
$
(222
)
 
$
831,062

Stockholders’ Equity
 
 
 


 
 
Retained earnings
 
$
34,480

 
$
203

 
$
34,683

Accumulated other comprehensive income
 
$
5,347

 
$
19

 
$
5,366

Total MetLife, Inc.’s stockholders’ equity
 
$
67,309

 
$
222

 
$
67,531

Total equity
 
$
67,480

 
$
222

 
$
67,702


210

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

 
 
For the Years Ended December 31,
 
 
2016
 
2015
Consolidated Statements of Operations
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions, except per share data)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Universal life and investment-type product policy fees
 
$
5,482

 
$
1

 
$
5,483

 
$
5,570

 
$

 
$
5,570

Net investment income
 
$
16,790

 
$

 
$
16,790

 
$
16,243

 
$
(38
)
 
$
16,205

Other net investment gains (losses)
 
$
412

 
$
12

 
$
424

 
$
705

 
$
(37
)
 
$
668

Total net investment gain (losses)
 
$
305

 
$
12

 
$
317

 
$
646

 
$
(37
)
 
$
609

Net derivatives gain (losses)
 
$
(874
)
 
184

 
$
(690
)
 
$
545

 
$
84

 
$
629

Total revenues
 
$
60,590

 
$
197

 
$
60,787

 
$
61,334

 
$
9

 
$
61,343

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims
 
$
36,316

 
$
42

 
$
36,358

 
$
35,102

 
$
42

 
$
35,144

Other expenses
 
$
13,735

 
$
14

 
$
13,749

 
$
14,753

 
$
24

 
$
14,777

Total expenses
 
$
56,450

 
$
56

 
$
56,506

 
$
55,626

 
$
66

 
$
55,692

Income (loss) from continuing operations before provision for income tax
 
$
4,140

 
$
141

 
$
4,281

 
$
5,708

 
$
(57
)
 
$
5,651

Provision for income tax expense (benefit)
 
$
666

 
$
27

 
$
693

 
$
1,700

 
$
(110
)
 
$
1,590

Income (loss) from continuing operations, net of income tax
 
$
3,474

 
$
114

 
$
3,588

 
$
4,008

 
$
53

 
$
4,061

Income (loss) from discontinued operations, net of income tax
 
$
(2,670
)
 
$
(64
)
 
$
(2,734
)
 
$
1,314

 
$
10

 
$
1,324

Net income (loss)
 
$
804

 
$
50

 
$
854

 
$
5,322

 
$
63

 
$
5,385

Net income (loss)attributable to MetLife, Inc.
 
$
800

 
$
50

 
$
850

 
$
5,310

 
$
63

 
$
5,373

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
697

 
$
50

 
$
747

 
$
5,152

 
$
63

 
$
5,215

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
3.06


$
0.10


$
3.16


$
3.43


$
0.05


$
3.48

Diluted
 
$
3.04


$
0.09


$
3.13


$
3.40


$
0.04


$
3.44

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 

















Basic
 
$
0.63


$
0.05


$
0.68


$
4.61


$
0.06


$
4.67

Diluted
 
$
0.63


$
0.04


$
0.67


$
4.57


$
0.05


$
4.62


211

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

 
 
For the Years Ended December 31,
 
 
2016
 
2015
Consolidated Statements of Comprehensive Income (Loss)
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Net income (loss)
 
$
804

 
$
50

 
$
854

 
$
5,322

 
$
63

 
$
5,385

Unrealized investment gains (losses), net of related offsets
 
$
760

 
$
36

 
$
796

 
$
(7,443
)
 
$
(6
)
 
$
(7,449
)
Other comprehensive income (loss), before income tax
 
$
1,101

 
$
36

 
$
1,137

 
$
(8,124
)
 
$
(6
)
 
$
(8,130
)
Income tax (expense) benefit related to items of other comprehensive income (loss)
 
$
(437
)
 
$
(13
)
 
$
(450
)
 
$
2,266

 
$
(63
)
 
$
2,203

Other comprehensive income (loss), net of income tax
 
$
664

 
$
23

 
$
687

 
$
(5,858
)
 
$
(69
)
 
$
(5,927
)
Comprehensive income (loss)
 
$
1,468

 
$
73

 
$
1,541

 
$
(536
)
 
$
(6
)
 
$
(542
)
Comprehensive income (loss) attributable to MetLife, Inc.
 
$
1,376

 
$
73

 
$
1,449

 
$
(568
)
 
$
(6
)
 
$
(574
)
Consolidated Statements of Equity
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Retained Earnings
 
 
 
 
 
 
Balance at December 31, 2014
 
$
32,020

 
$
90

 
$
32,110

Net income (loss)
 
$
5,310

 
$
63

 
$
5,373

Balance at December 31, 2015
 
$
35,519

 
$
153

 
$
35,672

Net income (loss)
 
$
800

 
$
50

 
$
850

Balance at December 31, 2016
 
$
34,480

 
$
203

 
$
34,683

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
Balance at December 31, 2014
 
$
10,649

 
$
65

 
$
10,714

Other comprehensive income (loss), net of income tax
 
$
(5,878
)
 
$
(69
)
 
$
(5,947
)
Balance at December 31, 2015
 
$
4,771

 
$
(4
)
 
$
4,767

Other comprehensive income (loss), net of income tax
 
$
576

 
$
23

 
$
599

Balance at December 31, 2016
 
$
5,347

 
$
19

 
$
5,366

Total MetLife, Inc.'s Stockholders' Equity
 
 
 
 
 
 
Balance at December 31, 2014
 
$
72,053

 
$
155

 
$
72,208

Balance at December 31, 2015
 
$
67,949

 
$
149

 
$
68,098

Balance at December 31, 2016
 
$
67,309

 
$
222

 
$
67,531

Total Equity
 
 
 
 
 
 
Balance at December 31, 2014
 
$
72,560

 
$
155

 
$
72,715

Balance at December 31, 2015
 
$
68,419

 
$
149

 
$
68,568

Balance at December 31, 2016
 
$
67,480

 
$
222

 
$
67,702


212

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

 
 
For the Years Ended December 31,
 
 
2016
 
2015
Consolidated Statements of Cash Flows
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
804

 
$
50

 
$
854

 
$
5,322

 
$
63

 
$
5,385

(Gains) losses on investments and from sales of businesses, net
 
$
(171
)
 
$
(12
)
 
$
(183
)
 
$
(597
)
 
$
37

 
$
(560
)
(Gains) losses on derivatives, net
 
$
8,963

 
$
(184
)
 
$
8,779

 
$
1,451

 
$
(80
)
 
$
1,371

Universal life and investment-type product policy fees
 
$
(9,206
)
 
$
(1
)
 
$
(9,207
)
 
$
(9,507
)
 
$

 
$
(9,507
)
Change in premiums, reinsurance and other receivables
 
$
(2,125
)
 
$
(33
)
 
$
(2,158
)
 
$
(837
)
 
$
6

 
$
(831
)
Change in deferred policy acquisition costs and value of business acquired, net
 
$
(949
)
 
$
12

 
$
(937
)
 
$
491

 
$
(3
)
 
$
488

Change in income tax
 
$
(1,557
)
 
$
35

 
$
(1,522
)
 
$
825

 
$
(110
)
 
$
715

Change in insurance-related liabilities and policy-related balances
 
$
6,279

 
$
42

 
$
6,321

 
$
6,366

 
$
42

 
$
6,408

Change in other liabilities
 
$
2,766

 
$
35

 
$
2,801

 
$
1,134

 
$
38

 
$
1,172

Other, net (1)
 
$
136

 
$
56

 
$
192

 
$
164

 
$
7

 
$
171

__________________
(1)
Excludes impact related to adoption during 2017 of stock-based compensation guidance which decreased Other, net by $53 million and $77 million for the years ended December 31, 2016 and 2015, respectively. See “— Adoption of New Accounting Pronouncements.”
Summary of Significant Accounting Policies
The following are the Company’s significant accounting policies with references to notes providing additional information on such policies and critical accounting estimates relating to such policies.
Accounting Policy
Note
Insurance
4
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
5
Reinsurance
6
Investments
8
Derivatives
9
Fair Value
10
Goodwill
11
Employee Benefit Plans
17
Income Tax
18
Litigation Contingencies
20

213

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Insurance
Future Policy Benefit Liabilities and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. 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. For long duration insurance contracts, assumptions such as mortality, morbidity and interest rates are “locked in” upon the issuance of new business. However, significant adverse changes in experience on such contracts may require the establishment of premium deficiency reserves. Such reserves are determined based on the then current assumptions and do not include a provision for adverse deviation.
Premium deficiency reserves may also be established for short-duration contracts to provide for expected future losses. These reserves are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred for which claims have not been reported. The provisions for unreported claims are calculated using studies that measure the historical length of time between the incurred date of a claim and its eventual reporting to the Company. Anticipated investment income is considered in the calculation of premium deficiency losses for short-duration contracts.
Liabilities for universal and variable life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the 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 deferred policy acquisition costs (“DAC”), and are thus subject to the same variability and risk as further discussed herein. The assumptions of investment performance and volatility for variable products are consistent with historical experience of appropriate underlying equity indices, such as the Standard & Poor’s Global Ratings (“S&P”) 500 Index. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
The Company regularly reviews its estimates of liabilities for future policy benefits and compares them with its actual experience. Differences result in changes to the liability balances with related charges or credits to benefit expenses in the period in which the changes occur.
Policyholder account balances relate to contracts or contract features where the Company has no significant insurance risk.
The Company issues directly and assumes through reinsurance 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. These guarantees are accounted for as insurance liabilities or as embedded derivatives depending on how and when the benefit is paid. Specifically, a guarantee is accounted for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to annuitize. Alternatively, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event, or (ii) annuitization. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is split and accounted for under both models.
Guarantees accounted for as insurance liabilities in future policy benefits include guaranteed minimum death benefits (“GMDBs”), the portion of guaranteed minimum income benefits (“GMIBs”) that require annuitization, and the life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”).
Guarantees accounted for as embedded derivatives in policyholder account balances include the non life-contingent portion of GMWBs, guaranteed minimum accumulation benefits (“GMABs”) and the portion of GMIBs that do not require annuitization. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.

214

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Other Policy-Related Balances
Other policy-related balances include policy and contract claims, premiums received in advance, unearned revenue liabilities, obligations assumed under structured settlements, policyholder dividends due and unpaid, policyholder dividends left on deposit and negative value of business acquired.
The liability for policy and contract claims generally relates to incurred but not reported (“IBNR”) death, disability, long-term care and dental claims, as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of IBNR claims principally from analyses of historical patterns of claims by business line. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made.
The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premiums received in advance and applies the cash received to premiums when due.
The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and amortized using the product’s estimated gross profits and margins, similar to DAC as discussed further herein. Such amortization is recorded in universal life and investment-type product policy fees.
See Note 3 for additional information on obligations assumed under structured settlement assignments.
See “— Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles” for a discussion of negative value of business acquired.
Recognition of Insurance Revenues and Deposits
Premiums related to traditional life, annuity contracts with life contingencies, long-duration accident & health, and credit insurance policies are recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated lives of the insurance policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments.
Premiums related to short-duration non-medical health and disability, accident & health, and certain credit insurance contracts are recognized on a pro rata basis over the applicable contract term.
Deposits related to universal life-type and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of fees for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to earnings include interest credited and benefit claims incurred in excess of related policyholder account balances.
Premiums related to property & casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums, representing the portion of premium written related to the unexpired coverage, are also included in future policy benefits.
All revenues and expenses are presented net of reinsurance as applicable.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
incremental direct costs of contract acquisition, such as commissions;
the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed;
other essential direct costs that would not have been incurred had a policy not been acquired or renewed; and
the costs of direct-response advertising, the primary purpose of which is to elicit sales to customers who could be shown to have responded specifically to the advertising and that results in probable future benefits.

215

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

All other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
Value of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience on the purchased business may vary from these projections.
DAC and VOBA are amortized as follows:
Products:
In proportion to the following over estimated lives of the contracts:
Nonparticipating and non-dividend-paying traditional contracts:
 
Actual and expected future gross premiums.
 
Term insurance
 
 
 
Nonparticipating whole life insurance
 
 
 
Traditional group life insurance
 
 
 
Non-medical health insurance
 
 
 
Accident & health insurance
 
 
Participating, dividend-paying traditional contracts
 
Actual and expected future gross margins.
Fixed and variable universal life contracts
 
Actual and expected future gross profits.
Fixed and variable deferred annuity contracts
 
 
Credit insurance contracts
 
Actual and future earned premiums.
Property & casualty insurance contracts
 
 
Other short-duration contracts
 
 
See Note 5 for additional information on DAC and VOBA amortization. Amortization of DAC and VOBA is included in other expenses.
The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated on the financial statements for reporting purposes.
The Company generally has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus whereby the policyholder’s initial account balance is increased by an amount equal to a specified percentage of the customer’s deposit; and (ii) the policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The amortization of sales inducements is included in policyholder benefits and claims. Each year, or more frequently if circumstances indicate a potential recoverability issue exists, the Company reviews deferred sales inducements (“DSI”) to determine the recoverability of the asset.
Value of distribution agreements acquired (“VODA”) is reported in other assets and represents the present value of expected future profits associated with the expected future business derived from the distribution agreements acquired as part of a business combination. Value of customer relationships acquired (“VOCRA”) is also reported in other assets and represents the present value of the expected future profits associated with the expected future business acquired through existing customers of the acquired company or business. The VODA and VOCRA associated with past business combinations are amortized over useful lives ranging from 10 to 40 years and such amortization is included in other expenses. Each year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews VODA and VOCRA to determine whether the asset is impaired.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

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. The fair value of the in-force contract obligations is based on projections by each block of business. Negative VOBA is amortized over the policy period in proportion to the approximate consumption of losses included in the liability usually expressed in terms of insurance in-force or account value. Such amortization is recorded as an offset in other expenses.
Reinsurance
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer. The Company reviews all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums; and ceded (assumed) premiums, reinsurance and other receivables (future policy benefits) are established.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums. Unearned premiums are reflected as a component of premiums, reinsurance and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of insurance protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of reinsurance accounting, amounts paid (received) in excess of the related insurance liabilities ceded (assumed) are recognized immediately as a loss and are reported in the appropriate line item within the statement of operations. Any gain on such retroactive agreement is deferred and is amortized as part of DAC, primarily using the recovery method.
Amounts currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts currently payable are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other revenues. With respect to GMIBs, a portion of the directly written GMIBs are accounted for as insurance liabilities, but the associated reinsurance agreements contain embedded derivatives. These embedded derivatives are included in premiums, reinsurance and other receivables with changes in estimated fair value reported in policyholder benefits and claims.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Investments
Net Investment Income and Net Investment Gains (Losses)
Income from investments is reported within net investment income, unless otherwise stated herein. Gains and losses on sales of investments, impairment losses and changes in valuation allowances are reported within net investment gains (losses), unless otherwise stated herein.
Fixed Maturity and Equity Securities
The majority of the Company’s fixed maturity and equity securities are classified as available-for-sale (“AFS”) and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of other comprehensive income (loss) (“OCI”), net of policy-related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Investment gains and losses on sales are determined on a specific identification basis.
Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts, and is based on the estimated economic life of the securities, which for mortgage-backed and asset-backed securities considers the estimated timing and amount of prepayments of the underlying loans. See Note 8 “— Investments — Fixed Maturity and Equity Securities AFS — Methodology for Amortization of Premium and Accretion of Discount on Structured Securities.” The amortization of premium and accretion of discount of fixed maturity securities also takes into consideration call and maturity dates. Dividends on equity securities are recognized when declared.
The Company periodically evaluates fixed maturity and equity securities for impairment. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value, as well as an analysis of the gross unrealized losses by severity and/or age as described in Note 8 “— Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities.”
For fixed maturity securities in an unrealized loss position, an other-than-temporary impairment (“OTTI”) is recognized in earnings when it is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the OTTI recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings (“credit loss”). If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to other-than-credit factors (“noncredit loss”) is recorded in OCI.
With respect to equity securities, the Company considers in its OTTI analysis its intent and ability to hold a particular equity security for a period of time sufficient to allow for the recovery of its estimated fair value to an amount equal to or greater than cost. If a sale decision is made for an equity security and recovery to an amount at least equal to cost prior to the sale is not expected, the security will be deemed to be other-than-temporarily impaired in the period that the sale decision was made and an OTTI loss will be recorded in earnings. The OTTI loss recognized is the entire difference between the security’s cost and its estimated fair value.
FVO Securities
FVO securities are stated at estimated fair value and include investments for which the FVO has been elected (“FVO Securities”). FVO Securities include:
fixed maturity and equity securities held-for-investment by the general account to support asset and liability management strategies for certain insurance products and investments in certain separate accounts (“FVO general account securities”); and
contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting as separate account summary total assets and liabilities. These investments are primarily mutual funds and, to a lesser extent, fixed maturity and equity securities, short-term investments and cash and cash equivalents. The investment returns on these investments inure to contractholders and are offset by a corresponding change in policyholder account balances through interest credited to policyholder account balances (“FVO contractholder-directed unit-linked investments”).

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Investments that are actively purchased and sold (“Actively traded securities”) principally include fixed maturity securities and short sale agreement liabilities, which are included in other liabilities.
The Company previously maintained a trading securities portfolio. During 2016, the Company reinvested this portfolio into other asset classes and at December 31, 2016 the Company no longer held any Actively traded securities. Changes in estimated fair value of FVO Securities and Actively traded securities are included in net investment income, except for certain securities included in FVO Securities, where changes are included in net investment gains (losses).
Mortgage Loans
The Company disaggregates its mortgage loan investments into three portfolio segments: commercial, agricultural and residential. The accounting policies that are applicable to all portfolio segments are presented below and the accounting policies related to each of the portfolio segments are included in Note 8.
Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of valuation allowances. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts.
Also included in mortgage loans are residential mortgage loans for which the FVO was elected, and which are stated at estimated fair value. Changes in estimated fair value are recognized in net investment income.
Policy Loans
Policy loans are stated at unpaid principal balances. Interest income is recorded as earned using the contractual interest rate. Generally, accrued interest is capitalized on the policy’s anniversary date. Valuation allowances are not established for policy loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal and accrued interest is deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy.
Real Estate
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset (typically 20 to 55 years). Rental income is recognized on a straight-line basis over the term of the respective leases. The Company periodically reviews its real estate held-for-investment for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, which is generally computed using the present value of expected future cash flows discounted at a rate commensurate with the underlying risks.
Real estate for which the Company commits to a plan to sell within one year and actively markets in its current condition for a reasonable price in comparison to its estimated fair value is classified as held-for-sale. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated.
Real Estate Joint Ventures and Other Limited Partnership Interests
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. 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. The Company recognizes distributions on cost method investments when such distributions become payable or received. Because of the nature and structure of these cost method investments, they do not meet the characteristics of an equity security in accordance with applicable accounting standards.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The Company routinely evaluates its equity method and cost method investments for impairment. For equity method investees, the Company considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an impairment has occurred. The Company considers its cost method investments for impairment when the carrying value of such investments exceeds the net asset value (“NAV”). The Company takes into consideration the severity and duration of this excess when determining whether the cost method investment is impaired.
Short-term Investments
Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates estimated fair value.
Other Invested Assets
Other invested assets consist principally of the following:
Freestanding derivatives with positive estimated fair values which are described in “— Derivatives” below.
Tax credit and renewable energy partnerships which derive a significant source of investment return in the form of income tax credits or other tax incentives. Where tax credits are guaranteed by a creditworthy third party, the investment is accounted for under the effective yield method. Otherwise, the investment is accounted for under the equity method. See Note 18.
Leveraged leases which are recorded net of non-recourse debt. Income is recognized by applying the leveraged lease’s estimated rate of return to the net investment in the lease. Leveraged leases derive investment returns in part from their income tax treatment. The Company regularly reviews residual values for impairment.
Direct financing leases gross investment is equal to the minimum lease payments plus the unguaranteed residual value. Income is recorded by applying the pre-tax internal rate of return to the investment balance. The Company regularly reviews lease receivables for impairment. Certain direct financing leases are linked to inflation.
Annuities funding structured settlement claims represent annuities funding claims assumed by the Company in its capacity as a structured settlements assignment company. The annuities are stated at their contract value, which represents the present value of the future periodic claim payments to be provided. The net investment income recognized reflects the amortization of discount of the annuity at its implied effective interest rate. See Note 3.
Funds withheld represent a receivable for amounts contractually withheld by ceding companies in accordance with reinsurance agreements. The Company recognizes interest on funds withheld at rates defined by the terms of the agreement which may be contractually specified or directly related to the underlying investments.
Investments in operating joint ventures that engage in insurance underwriting activities are accounted for under the equity method.
Securities Lending Program
Securities lending transactions, whereby blocks of securities are loaned to third parties, primarily brokerage firms and commercial banks, are treated as financing arrangements and the associated liability is recorded at the amount of cash received. The Company obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, and maintains it at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the Company’s financial statements. The Company monitors the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained as necessary throughout the duration of the loan. Income and expenses associated with securities lending transactions are reported as investment income and investment expense, respectively, within net investment income.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these agreements, the Company lends fixed maturity securities and receives cash as collateral in an amount generally equal to 85% to 100% of the estimated fair value of the securities loaned at the inception of the transaction. The associated liability is recorded at the amount of cash received. The Company monitors the estimated fair value of the collateral and the securities loaned throughout the duration of the transaction and additional collateral is obtained as necessary. Securities loaned under such transactions may be sold or re-pledged by the transferee.
FHLB Boston Advance Agreements
A subsidiary of the Company has entered into short-term advance agreements with the Federal Home Loan Bank (“FHLB”) of Boston (“FHLB Boston”). Under these advance agreements, the subsidiary pledges fixed maturity securities as collateral and receives cash, which is segregated and reinvested, primarily into fixed maturity securities and cash equivalents. While the collateral management practices are unique to this program, these transactions are accounted for and have collateral maintenance requirements similar to securities lending and repurchase agreement transactions, as described above, but securities pledged as collateral may not be sold or re-pledged by the transferee.
Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in net derivative gains (losses) except as follows:
Statement of Operations Presentation:
Derivative:
Policyholder benefits and claims
Economic hedges of variable annuity guarantees included in future policy benefits
Net investment income
Economic hedges of equity method investments in joint ventures
 
All derivatives held in relation to trading portfolios
 
Derivatives held within contractholder-directed unit-linked investments
Hedge Accounting
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement presentation of changes in estimated fair value of the hedging derivatives are as follows:
Fair value hedge (a hedge of the estimated fair value of a recognized asset or liability) - in net derivative gains (losses), consistent with the change in estimated fair value of the hedged item attributable to the designated risk being hedged.
Cash flow hedge (a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability) - effectiveness in OCI (deferred gains or losses on the derivative are reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item); ineffectiveness in net derivative gains (losses).
Net investment in a foreign operation hedge - effectiveness in OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation; ineffectiveness in net derivative gains (losses).

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item. Accruals on derivatives in net investment hedges are recognized in OCI.
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in OCI pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in net derivative gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company sells variable annuities and issues certain insurance products and investment contracts and is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses), except for those in policyholder benefits and claims related to ceded reinsurance of GMIB. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition.
Subsequent to initial recognition, fair values are based on unadjusted quoted prices for identical assets or liabilities in active markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management’s judgment are used to determine the estimated fair value of assets and liabilities.
Goodwill
Goodwill represents the future economic benefits arising from net assets acquired in a business combination that are not individually identified and recognized. Goodwill is calculated as the excess of cost over the estimated fair value of such net assets acquired, is not amortized, and is tested for impairment based on a fair value approach at least annually, or more frequently if events or circumstances indicate that there may be justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter based upon data as of the close of the second quarter. Goodwill associated with a business acquisition is not tested for impairment during the year the business is acquired unless there is a significant identified impairment event.
The impairment test is performed at the reporting unit level, which is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, there may be an indication of impairment. In such instances, the implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business combination. The excess of the carrying value of goodwill over the implied fair value of goodwill would be recognized as an impairment and recorded as a charge against net income.
On an ongoing basis, the Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various plans that provide defined benefit pension and other postretirement benefits covering eligible employees. Measurement dates used for all of the subsidiaries’ defined benefit pension and other postretirement benefit plans correspond with the fiscal year ends of sponsoring subsidiaries, which is December 31 for U.S. and non-U.S. subsidiaries.
The Company recognizes the funded status of each of its defined benefit pension and postretirement benefit plans, measured as the difference between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation (“PBO”) for pension benefits and the accumulated postretirement benefit obligation (“APBO”) for other postretirement benefits in other assets or other liabilities.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Actuarial gains and losses result from differences between the actual experience and the assumed experience on plan assets or PBO during a particular period and are recorded in accumulated OCI (“AOCI”). To the extent such gains and losses exceed 10% of the greater of the PBO or the estimated fair value of plan assets, the excess is amortized into net periodic benefit costs, generally over the average projected future service years of the active employees. In addition, prior service costs (credit) are recognized in AOCI at the time of the amendment and then amortized to net periodic benefit costs over the average projected future service years of the active employees.
Net periodic benefit costs are determined using management’s estimates and actuarial assumptions and are comprised of service cost, interest cost, settlement and curtailment costs, expected return on plan assets, amortization of net actuarial (gains) losses, and amortization of prior service costs (credit). Fair value is used to determine the expected return on plan assets.
The subsidiaries also sponsor defined contribution plans for substantially all U.S. employees under which a portion of employee contributions is matched. Applicable matching contributions are made each payroll period. Accordingly, the Company recognizes compensation cost for current matching contributions. As all contributions are transferred currently as earned to the defined contribution plans, no liability for matching contributions is recognized on the balance sheets.
Income Tax
MetLife, Inc. and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. Non-includable subsidiaries file either separate individual corporate tax returns or separate consolidated tax returns.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established against deferred tax assets when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including:
the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
the jurisdiction in which the deferred tax asset was generated;
the length of time that carryforward can be utilized in the various taxing jurisdictions;
future taxable income exclusive of reversing temporary differences and carryforwards;
future reversals of existing taxable temporary differences;
taxable income in prior carryback years; and
tax planning strategies.
The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period of change.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

On December 22, 2017, President Trump signed into law H.R.1, commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). See Note 18 for additional information on U.S. Tax Reform and related Staff Accounting Bulletin (“SAB”) 118 provisional amounts.
Litigation Contingencies
The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Except as otherwise disclosed in Note 20, legal costs are recognized as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected on the Company’s financial statements.
Other Accounting Policies
Stock-Based Compensation
The Company grants certain employees and directors stock-based compensation awards under various plans that are subject to specific vesting conditions. With the exception of performance shares granted in 2013 and after which are re-measured quarterly, the cost of all stock-based transactions is measured at fair value at grant date and recognized over the period during which a grantee is required to provide services in exchange for the award. Although the terms of the Company’s stock-based plans do not accelerate vesting upon the attainment of the applicable criteria for post-employment award continuation, the requisite service period subsequent to attaining such criteria is considered non-substantive. Accordingly, the Company recognizes compensation expense related to stock-based awards over the shorter of the requisite service period or the period to attainment of such criteria. An estimation of future forfeitures of stock-based awards is incorporated into the determination of compensation expense when recognizing expense over the requisite service period.
Cash and Cash Equivalents
The Company considers all highly liquid securities and other investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at amortized cost, which approximates estimated fair value.
Property, Equipment, Leasehold Improvements and Computer Software
Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets, as appropriate. The estimated life is generally 40 years for company occupied real estate property, from one to 25 years for leasehold improvements, and from three to seven years for all other property and equipment. The cost basis of the property, equipment and leasehold improvements was $2.5 billion and $2.4 billion at December 31, 2017 and 2016, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $1.1 billion at both December 31, 2017 and 2016. Related depreciation and amortization expense was $207 million, $206 million and $215 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as certain internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a four-year period using the straight-line method. The cost basis of computer software was $2.8 billion and $2.2 billion at December 31, 2017 and 2016, respectively. Accumulated amortization of capitalized software was $2.0 billion and $1.5 billion at December 31, 2017 and 2016, respectively. Related amortization expense was $250 million, $208 million and $212 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Other Revenues
Other revenues primarily include, in addition to items described elsewhere herein, prepaid legal plan fees, administrative service fees, and fees related to certain stable value products. Such fees are recognized in the period in which services are performed.

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Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries.
Foreign Currency
Assets, liabilities and operations of foreign affiliates and subsidiaries are recorded based on the functional currency of each entity. The determination of the functional currency is made based on the appropriate economic and management indicators. For most of the Company’s foreign operations, the local currency is the functional currency. For certain other foreign operations, such as Japan, the local currency and one or more other currencies qualify as functional currencies. Assets and liabilities of foreign affiliates and subsidiaries are translated from the functional currency to U.S. dollars at the exchange rates in effect at each year-end and revenues and expenses are translated at the average exchange rates during the year. The resulting translation adjustments are charged or credited directly to OCI, net of applicable taxes. Gains and losses from foreign currency transactions, including the effect of re-measurement of monetary assets and liabilities to the appropriate functional currency, are reported as part of net investment gains (losses) in the period in which they occur.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares, or their equivalent, outstanding during the period. Diluted earnings per common share include the dilutive effect of the assumed exercise or issuance of stock-based awards using the treasury stock method. Under the treasury stock method, exercise or issuance of stock-based awards is assumed to occur with the proceeds used to purchase common stock at the average market price for the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.
Adoption of New Accounting Pronouncements
Effective January 1, 2017, the Company early adopted guidance relating to business combinations. The new guidance clarifies the definition of a business and requires that an entity apply certain criteria in order to determine when a set of assets and activities qualifies as a business. The adoption of this standard will result in fewer acquisitions qualifying as businesses and, accordingly, acquisition costs for those acquisitions that do not qualify as businesses will be capitalized rather than expensed. The adoption did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2017, the Company retrospectively adopted guidance relating to consolidation. The new guidance does not change the characteristics of a primary beneficiary under current GAAP. It changes how a reporting entity evaluates whether it is the primary beneficiary of a VIE by changing how a reporting entity that is a single decisionmaker of a VIE handles indirect interests in the entity held through related parties that are under common control with the reporting entity. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2017, the Company adopted guidance related to stock-based compensation. The new guidance changes several aspects of the accounting for share-based payment and award transactions, including (i) income tax consequences when awards vest or are settled; (ii) classification as either equity or liability due to statutory tax withholding requirements; and (iii) classification on the statement of cash flows. In addition, the new guidance provides an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. The Company has elected to continue to account for forfeitures based on an estimate of expected forfeitures. In addition, the Company elected to apply the change in presentation in the consolidated statements of cash flows related to excess tax benefits prospectively and prior periods have not been adjusted. The change in presentation for cash paid to a taxing authority when directly withholding equivalent shares has been classified as a financing activity in the consolidated statements of cash flows. The change was applied retrospectively and thus the directly withheld share equivalent amount was reclassified from an operating activity to a financing activity in the consolidated statements of cash flows. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

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Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

Effective January 1, 2016, the Company retrospectively adopted guidance relating to short-duration contracts. 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 did not have an impact on the Company’s consolidated financial statements other than expanded disclosures in Note 4.
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 decisionmaker 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 December 31, 2016, disclosed in Note 8, reflect the application of the new guidance.
Other
Effective January 3, 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments impacted the accounting treatment of the Company’s centrally cleared derivatives for which the CME serves as the central clearing party. As of the effective date, the application of the amended rulebook reduced gross derivative assets by $1.8 billion, gross derivative liabilities by $2.0 billion, accrued investment income by $101 million, accrued investment expense recorded within other liabilities by $14 million, collateral receivables recorded within premiums, reinsurance and other receivables of $991 million, and collateral payables recorded within payables for collateral under securities loaned and other transactions of $816 million.
Future Adoption of New Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on reporting comprehensive income (Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from AOCI). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate or law in U.S. Tax Reform is recognized. Early adoption is permitted. Current GAAP guidance requires that the effect of a change in tax laws or rates on deferred tax liabilities or assets to be included in income from continuing operations in the reporting period that includes the enactment date, even if the related income tax effects were originally charged or credited directly to AOCI. The new guidance allows a reclassification of AOCI to retained earnings for stranded tax effects resulting from U.S. Tax Reform. Also, the new guidance requires certain disclosures about stranded tax effects. The Company will early adopt the new guidance in the first quarter of 2018. The Company expects the impact of this new guidance at adoption will be a decrease to retained earnings as of January 1, 2018 of approximately $1.2 billion with a corresponding increase to AOCI.
In August 2017, the FASB issued new guidance on hedging activities (ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted. The new guidance simplifies the application of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In May 2017, the FASB issued new guidance on share-based payment awards (ASU 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The new guidance should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted. The ASU includes guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.

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Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

In March 2017, the FASB issued new guidance on purchased callable debt securities (ASU 2017-08, Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the new guidance does not require an accounting change for securities held at a discount whose discount continues to be amortized to maturity. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In March 2017, the FASB issued new guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost (ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost). The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The guidance requires that an employer that offers to its employees defined benefit pension or other postretirement benefit plans report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement to present the other components of net benefit cost must be disclosed. In addition, the guidance allows only the service cost component to be eligible for capitalization when applicable. The guidance should be applied retrospectively for the presentation of the service cost component in the income statement with a practical expedient for the estimation basis for applying the retrospective presentation requirements, and prospectively for the capitalization of the service component. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In February 2017, the FASB issued new guidance on derecognition of nonfinancial assets (ASU 2017-05, Other Income -Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment to retained earnings at the date of adoption. The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued new guidance on goodwill impairment (ASU 2017- 04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment). The new guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The new guidance simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The new guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company expects the adoption of this new guidance will reduce the complexity involved with the evaluation of goodwill for impairment. The impact of this guidance will depend on the outcomes of future goodwill impairment tests.
In November 2016, the FASB issued new guidance on restricted cash (ASU 2016-18, Statement of Cash Flows (Topic 230): A consensus of the FASB Emerging Issues Task Force). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied on a retrospective basis. Early adoption is permitted. The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, the new guidance requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance does not provide a definition of restricted cash or restricted cash equivalents. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.

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Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

In October 2016, the FASB issued new guidance on tax accounting for intra-entity transfers of assets (ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied on a modified retrospective basis. The Company will apply this guidance as of January 1, 2018. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Based on the Company’s assessment of the intra-entity asset transfers and related deferred income taxes that are in scope, the Company expects the adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued new guidance on cash flow statement presentation (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied retrospectively to all periods presented. Early adoption is permitted in any interim or annual period. The new guidance addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued new guidance on measurement of credit losses on financial instruments (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU replaces the incurred loss impairment methodology with one that reflects expected credit losses. The measurement of expected credit losses should be based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance requires that an OTTI on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses. The guidance also requires enhanced disclosures. The Company has assessed the asset classes impacted by the new guidance and is currently assessing the accounting and reporting system changes that will be required to comply with the new guidance. The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company is continuing to evaluate the overall impact of the new 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. 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. Leases would be classified as finance or operating leases and both types of leases will 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’s implementation efforts are primarily focused on the review of its existing lease contracts, identification of other contracts that may fall under the scope of the new guidance, and performing a gap analysis on the current state of lease-related activities compared with the future state of lease-related activities. The Company is currently evaluating the overall impact of the new guidance on its consolidated financial statements.

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Notes to the Consolidated Financial Statements — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)

In January 2016, the FASB issued new guidance (ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as amended by ASU 2018-03, Financial Instruments-Overall: Technical Corrections and Improvements, issued in February 2018) 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 FVO that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income. The Company has assessed the population of financial instruments that are subject to the new guidance and has determined that the most significant impact will be the requirement to report changes in fair value in net income each reporting period for all equity securities currently classified as AFS and to a lesser extent, other limited partnership interests and real estate joint ventures that are currently accounted for under the cost method. The Company will utilize a modified retrospective approach to adopt the new guidance effective January 1, 2018. The expected impact related to the change in accounting for equity securities AFS will be $280 million of net unrealized investment gains, net of income tax, which will be reclassified from AOCI to retained earnings. The estimated financial statement impact related to cost method other limited partnership interests and real estate joint ventures was not material.
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, 2017 and interim periods within those fiscal years. The Company will apply this guidance retrospectively with a cumulative-effect adjustment as of January 1, 2018. The new guidance supersedes nearly all existing revenue recognition guidance under U.S. GAAP. However, it does not impact the accounting for insurance and investment contracts within the scope of Accounting Standards Codification (ASC) Topic 944, Financial Services - Insurance, leases, financial instruments and certain guarantees. For those contracts that are impacted, the new guidance requires 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 identified revenue streams within the scope of the guidance that are all included within other revenues in the consolidated statements of operations and evaluated the related contracts, primarily consisting of prepaid legal plans and administrative-only contracts within the U.S. segment, distribution and administrative services fees within the MetLife Holdings segment, and fee-based investment management services within Corporate & Other. As other revenues represents approximately 2% of consolidated total revenues for the year ended December 31, 2017, the modified retrospective adoption as of January 1, 2018, did not have a material impact on the Company’s consolidated financial position and the Company has not identified any material prospective changes in the recognition and measurement of other revenue. The Company expects to expand its qualitative disclosures within the notes to the consolidated financial statements.
Other
Effective January 16, 2018, the London Clearing House (“LCH”) amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments will impact the accounting treatment of the Company’s centrally cleared derivatives, for which the LCH serves as the central clearing party. The application of the amended rulebook is expected to reduce the gross derivative assets and liabilities, as well as the related collateral, recorded on the consolidated balance sheet for trades cleared through the LCH. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.
2. Segment Information
Following the Separation and the elimination of the Brighthouse Financial segment, as described in Note 3, MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other.

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Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

U.S.
The U.S. segment offers a broad range of protection products and services aimed at serving the financial needs of customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. The U.S. segment is organized into three businesses: Group Benefits, Retirement and Income Solutions and Property & Casualty.
The Group Benefits business offers insurance products and services which include life, dental, group short- and long-term disability, individual disability, accidental death and dismemberment, vision and accident & health coverages, as well as prepaid legal plans. This business also sells administrative services-only arrangements to some employers.
The Retirement and Income Solutions business offers a broad range of annuity and investment products, including capital market investment products, institutional income annuities, stable value and pension risk transfer products. This business also includes products to fund tort settlements, as well as postretirement benefits and company-, bank- or trust-owned life insurance.
The Property & Casualty business offers personal and commercial lines of property and casualty insurance, including private passenger automobile, homeowners’ and personal excess liability insurance. In addition, Property & Casualty offers small business owners property, liability and business interruption insurance.
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 and endowment products.
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, credit insurance and retirement and savings 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 and retirement and savings products.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses no longer actively marketed by the Company in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, long-term care insurance, as well as the assumed variable annuity guarantees from the Company’s former operating joint venture in Japan.
Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external integration and disposition costs, internal resource costs for associates committed to acquisitions and dispositions, enterprise-wide strategic initiative restructuring charges and 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, as well as the direct to consumer portion of the U.S. Direct business). Corporate & Other also includes interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includes the elimination of intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates commensurate with related borrowings. As a result of the Separation, for the years ended 2016 and 2015, Corporate & Other includes corporate overhead costs previously allocated to the former Brighthouse Financial segment.

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Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. Adjusted earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The Company believes the presentation of adjusted earnings as the Company measures it for management purposes enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings allows analysis of the Company’s performance relative to the Company’s business plan and facilitates comparisons to industry results.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax.
The financial measures of adjusted revenues and adjusted expenses focus on the Company’s primary businesses principally by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or will be sold or exited by MetLife but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses. Divested businesses also includes the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MetLife that do not meet the criteria to be included in results of discontinued operations under GAAP. In addition, for the year ended December 31, 2016, adjusted revenues and adjusted 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. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted revenues:
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”);
Net investment income: (i) includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iii) excludes certain amounts related to contractholder-directed unit-linked investments and (iv) 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 expenses, in the line items indicated, in calculating adjusted 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 DAC and 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.

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Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the years ended December 31, 2017, 2016 and 2015 and at December 31, 2017 and 2016. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for adjusted earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s business.
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, income (loss) from continuing operations, net of income tax or adjusted earnings.
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.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

 
 
 
 
 
 
 
Year Ended December 31, 2017
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
23,632

 
$
6,755

 
$
2,693

 
$
2,061

 
$
4,144

 
$
54

 
$
39,339

 
$
(347
)
 
$
38,992

Universal life and investment-type product policy fees
 
1,012

 
1,584

 
1,044

 
405

 
1,361

 
1

 
5,407

 
103

 
5,510

Net investment income
 
6,396

 
2,985

 
1,219

 
309

 
5,607

 
28

 
16,544

 
819

 
17,363

Other revenues
 
806

 
43

 
32

 
58

 
244

 
271

 
1,454

 
(113
)
 
1,341

Net investment gains (losses)
 

 

 

 

 

 

 

 
(308
)
 
(308
)
Net derivative gains (losses)
 

 

 

 

 

 

 

 
(590
)
 
(590
)
Total revenues
 
31,846

 
11,367

 
4,988

 
2,833

 
11,356

 
354

 
62,744

 
(436
)
 
62,308

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
23,627

 
5,075

 
2,535

 
1,077

 
7,000

 
26

 
39,340

 
204

 
39,544

Interest credited to policyholder account balances
 
1,474

 
1,351

 
369

 
100

 
1,018

 
1

 
4,313

 
1,294

 
5,607

Capitalization of DAC
 
(458
)
 
(1,710
)
 
(364
)
 
(414
)
 
(82
)
 
(8
)
 
(3,036
)
 
34

 
(3,002
)
Amortization of DAC and VOBA
 
459

 
1,300

 
224

 
357

 
302

 
6

 
2,648

 
33

 
2,681

Amortization of negative VOBA
 

 
(111
)
 
(1
)
 
(19
)
 

 

 
(131
)
 
(9
)
 
(140
)
Interest expense on debt
 
11

 

 
5

 

 
24

 
1,105

 
1,145

 
(16
)
 
1,129

Other expenses
 
3,682

 
3,613

 
1,479

 
1,376

 
1,365

 
894

 
12,409

 
544

 
12,953

Total expenses
 
28,795

 
9,518

 
4,247

 
2,477

 
9,627

 
2,024

 
56,688

 
2,084

 
58,772

Provision for income tax expense (benefit)
 
1,024

 
620

 
156

 
59

 
547

 
(688
)
 
1,718

 
(3,188
)
 
(1,470
)
Adjusted earnings
 
$
2,027

 
$
1,229

 
$
585

 
$
297

 
$
1,182

 
$
(982
)
 
4,338

 
 
 
 
Adjustments to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
(436
)
 
 
 
 
Total expenses
 
(2,084
)
 
 
 
 
Provision for income tax (expense) benefit
 
3,188

 
 
 
 
Income (loss) from continuing operations, net of income tax
 
$
5,006

 
 
 
$
5,006

At December 31, 2017
 
U.S.
 
Asia (1)
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
 
(In millions)
Total assets
 
$
255,428

 
$
136,928

 
$
79,670

 
$
30,500

 
$
183,160

 
$
34,206

 
$
719,892

Separate account assets
 
$
81,243

 
$
10,032

 
$
56,218

 
$
5,975

 
$
51,533

 
$

 
$
205,001

Separate account liabilities
 
$
81,243

 
$
10,032

 
$
56,218

 
$
5,975

 
$
51,533

 
$

 
$
205,001

__________________
(1)
Total assets includes $111.0 billion of assets from the Japan operations which represents 15% of total consolidated assets.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

 
 
 
 
 
 
 
Year Ended December 31, 2016
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
21,501

 
$
6,902

 
$
2,529

 
$
2,027

 
$
4,506

 
$
40

 
$
37,505

 
$
(303
)
 
$
37,202

Universal life and investment-type product policy fees
 
989

 
1,488

 
1,025

 
391

 
1,436

 
2

 
5,331

 
152

 
5,483

Net investment income
 
6,206

 
2,707

 
1,084

 
318

 
5,944

 
178

 
16,437

 
353

 
16,790

Other revenues
 
784

 
61

 
34

 
73

 
581

 
110

 
1,643

 
42

 
1,685

Net investment gains (losses)
 

 

 

 

 

 

 

 
317

 
317

Net derivative gains (losses)
 

 

 

 

 

 

 

 
(690
)
 
(690
)
Total revenues
 
29,480

 
11,158

 
4,672

 
2,809

 
12,467

 
330

 
60,916

 
(129
)
 
60,787

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
21,591

 
5,211

 
2,443

 
1,067

 
7,523

 
41

 
37,876

 
(295
)
 
37,581

Interest credited to policyholder account balances
 
1,302

 
1,298

 
328

 
112

 
1,042

 
6

 
4,088

 
1,088

 
5,176

Capitalization of DAC
 
(471
)
 
(1,668
)
 
(321
)
 
(403
)
 
(281
)
 
(7
)
 
(3,151
)
 
(1
)
 
(3,152
)
Amortization of DAC and VOBA
 
471

 
1,236

 
184

 
408

 
736

 
8

 
3,043

 
(325
)
 
2,718

Amortization of negative VOBA
 

 
(208
)
 
(1
)
 
(13
)
 

 

 
(222
)
 
(47
)
 
(269
)
Interest expense on debt
 
9

 

 
2

 

 
57

 
1,139

 
1,207

 
(50
)
 
1,157

Other expenses
 
3,706

 
3,586

 
1,336

 
1,323

 
2,392

 
597

 
12,940

 
355

 
13,295

Total expenses
 
26,608

 
9,455

 
3,971

 
2,494

 
11,469

 
1,784

 
55,781

 
725

 
56,506

Provision for income tax expense (benefit)
 
976

 
479

 
158

 
42

 
292

 
(948
)
 
999

 
(306
)
 
693

Adjusted earnings
 
$
1,896

 
$
1,224

 
$
543

 
$
273

 
$
706

 
$
(506
)
 
4,136



 
 
Adjustments to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
(129
)
 
 
 
 
Total expenses
 
(725
)
 
 
 
 
Provision for income tax (expense) benefit
 
306

 
 
 
 
Income (loss) from continuing operations, net of income tax
 
$
3,588

 
 
 
$
3,588

At December 31, 2016
 
U.S.
 
Asia (1)
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other (2)
 
Total
 
 
(In millions)
Total assets
 
$
253,926

 
$
120,656

 
$
67,233

 
$
25,596

 
$
183,832

 
$
247,521

 
$
898,764

Separate account assets
 
$
85,950

 
$
8,020

 
$
48,455

 
$
4,329

 
$
48,823

 
$
1

 
$
195,578

Separate account liabilities
 
$
85,950

 
$
8,020

 
$
48,455

 
$
4,329

 
$
48,823

 
$
1

 
$
195,578

__________________
(1)
Total assets includes $98.0 billion of assets from the Japan operations which represents 11% of total consolidated assets.
(2)
Includes assets of disposed subsidiary of $216,983 million at December 31, 2016.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

 
 
 
 
 
 
 
Year Ended December 31, 2015
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
20,861

 
$
6,937

 
$
2,581

 
$
2,036

 
$
4,545

 
$
(92
)
 
$
36,868

 
$
(465
)
 
$
36,403

Universal life and investment-type product policy fees
 
943

 
1,542

 
1,117

 
424

 
1,482

 
(4
)
 
5,504

 
66

 
5,570

Net investment income
 
6,183

 
2,675

 
1,038

 
326

 
6,189

 
260

 
16,671

 
(466
)
 
16,205

Other revenues
 
751

 
105

 
41

 
61

 
930

 
69

 
1,957

 
(30
)
 
1,927

Net investment gains (losses)
 

 

 

 

 

 

 

 
609

 
609

Net derivative gains (losses)
 

 

 

 

 

 

 

 
629

 
629

Total revenues
 
28,738

 
11,259

 
4,777

 
2,847

 
13,146

 
233

 
61,000

 
343

 
61,343

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
20,899

 
5,266

 
2,408

 
988

 
7,346

 
(114
)
 
36,793

 
(293
)
 
36,500

Interest credited to policyholder account balances
 
1,216

 
1,309

 
349

 
120

 
1,062

 
23

 
4,079

 
336

 
4,415

Capitalization of DAC
 
(493
)
 
(1,720
)
 
(341
)
 
(472
)
 
(410
)
 
(3
)
 
(3,439
)
 
120

 
(3,319
)
Amortization of DAC and VOBA
 
471

 
1,253

 
271

 
497

 
577

 
(1
)
 
3,068

 
116

 
3,184

Amortization of negative VOBA
 

 
(309
)
 
(1
)
 
(16
)
 

 

 
(326
)
 
(35
)
 
(361
)
Interest expense on debt
 
4

 

 

 

 
55

 
1,169

 
1,228

 
(60
)
 
1,168

Other expenses
 
3,685

 
3,611

 
1,429

 
1,469

 
2,694

 
935

 
13,823

 
282

 
14,105

Total expenses
 
25,782

 
9,410

 
4,115

 
2,586

 
11,324

 
2,009

 
55,226

 
466

 
55,692

Provision for income tax expense (benefit)
 
1,009

 
461

 
37

 
21

 
582

 
(366
)
 
1,744

 
(154
)
 
1,590

Adjusted earnings
 
$
1,947

 
$
1,388

 
$
625

 
$
240

 
$
1,240

 
$
(1,410
)
 
4,030

 
 
 
 
Adjustments to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
343

 
 
 
 
Total expenses
 
(466
)
 
 
 
 
Provision for income tax (expense) benefit
 
154

 
 
 
 
Income (loss) from continuing operations, net of income tax
 
$
4,061

 
 
 
$
4,061


236

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)

The following table presents total premiums, universal life and investment-type product policy fees and other revenues by major product groups of the Company’s segments, as well as Corporate & Other:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Life insurance
$
20,330

 
$
20,436

 
$
20,847

Accident & health insurance
14,002

 
14,128

 
13,109

Annuities
6,999

 
5,552

 
5,730

Property & casualty insurance
3,613

 
3,560

 
3,504

Non-insurance
899

 
694

 
710

Total
$
45,843

 
$
44,370

 
$
43,900

The following table presents total premiums, universal life and investment-type product policy fees and other revenues associated with the Company’s U.S. and foreign operations:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
U.S.
$
30,971

 
$
29,166

 
$
29,094

Foreign:
 
 
 
 
 
Japan
6,444

 
7,089

 
6,264

Other
8,428

 
8,115

 
8,542

Total
$
45,843

 
$
44,370

 
$
43,900

Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2017, 2016 and 2015.
3. Dispositions
2017 Pending Disposition
On October 25, 2017, the Company entered into a definitive agreement to sell MetLife Afore, S.A. de C.V. (“MetLife Afore”), its pension fund management business in Mexico. As a result of the agreement, a loss of $98 million ($73 million, net of income tax), which includes a reduction to goodwill of $16 million, was recorded for the year ended December 31, 2017 and is reflected within net investment gains (losses).
At December 31, 2017, MetLife Afore reported $3.9 billion and $3.7 billion of total assets and total liabilities, respectively, which primarily consisted of $3.7 billion of separate account assets and liabilities. MetLife Afore’s results of operations are included in continuing operations and are reported in the Latin America segment. The transaction closed on February 20, 2018.
2017 Disposition
Separation of Brighthouse
In January 2016, MetLife, Inc. announced its plan to separate a substantial portion of its former Retail segment, as well as certain portions of its former Corporate Benefit Funding segment and Corporate & Other. MetLife, Inc. subsequently re-segmented the business to be separated and rebranded it as “Brighthouse Financial.” On July 6, 2017, MetLife, Inc. announced that the U.S. Securities and Exchange Commission (“SEC”) declared Brighthouse Financial, Inc.’s registration statement on Form 10 effective. Additionally, all required state regulatory approvals were granted.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse. MetLife, Inc. common shareholders received a distribution of one share of Brighthouse Financial, Inc. common stock for every 11 shares of MetLife, Inc. common stock they owned as of 5:00 p.m., New York City time, on the July 19, 2017 record date. Shareholders of MetLife, Inc. who owned less than 11 shares of common stock, or others who would have otherwise received fractional shares, received cash. MetLife, Inc. distributed 96,776,670 of the 119,773,106 shares of Brighthouse Financial, Inc. common stock outstanding, representing approximately 80.8% of those shares. Certain MetLife affiliates hold MetLife, Inc. common stock and, as a result, participated in the distribution.
The loss recognized in connection with the Separation was $1,302 million, net of income tax, which included: (i) a $1,016 million loss on MetLife's retained investment in Brighthouse Financial, Inc., (ii) a $42 million net tax charge and (iii) a $306 million charge, net of income tax, for transaction costs, partially offset by a $61 million gain, net of income tax, for previously deferred intercompany gains realized upon Separation. The $42 million net tax charge is comprised of a $1,093 million tax separation agreement charge offset by $1,051 million of Separation tax benefits. Of the $1,302 million total loss, net of income tax, a $131 million loss, net of income tax, was reported within continuing operations as (i) a $693 million net investment loss, (ii) a $147 million charge within policyholder benefits and claims, (iii) a $218 million charge within other expenses, and (iv) a $927 million income tax benefit. The remaining $1,171 million loss was reported within discontinued operations, which primarily includes a tax-related charge.
MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock and recognized its investment in Brighthouse Financial, Inc. common stock based on the NASDAQ reported market price. The Company elected to record the investment under the FVO as an observable measure of estimated fair value that is aligned with the Company’s intent to divest of the retained shares as soon as practicable. Subsequent changes in estimated fair value of the investment are recorded to net investment gains (losses).The estimated fair value of the Brighthouse Financial, Inc. common stock held by the Company (“FVO Brighthouse Common Stock”) as of December 31, 2017 was $1.3 billion reported within FVO securities. The Company recorded a $1,016 million mark-to-market loss on its retained investment in Brighthouse Financial, Inc. to net investment gains (losses) at the Separation date and an additional $95 million loss to net investment gains (losses) for the change in Brighthouse Financial, Inc.’s common stock share price from the Separation date to December 31, 2017.
In 2016, the Company recorded a non-cash charge of $260 million ($223 million, net of income tax) for the impairment of Brighthouse goodwill included in discontinued operations. As of the Separation date, the Company evaluated the assets of Brighthouse for potential impairment, and determined that no additional impairment charge was required.
The Company incurred pre-tax Separation-related transaction costs of $470 million for the year ended December 31, 2017, primarily related to fees for the terminations of financing arrangements and professional services. The Company incurred pre-tax Separation-related transaction costs of $212 million for the year ended December 31, 2016 primarily related to professional services. For the year ended December 31, 2017, the Company reported $333 million within discontinued operations for fees for the terminations of financing arrangements and costs required to complete the Separation. All other Separation-related transaction costs are recorded in other expenses and reported within continuing operations.
In connection with the Separation, MetLife, Inc. terminated various support agreements with Brighthouse.
Agreements
In connection with the Separation, MetLife and Brighthouse entered into various agreements. The significant agreements were as follows:
Master Separation Agreement
MetLife entered into a master separation agreement with Brighthouse prior to the completion of the distribution. The master separation agreement sets forth agreements with Brighthouse relating to the ownership of certain assets and the allocation of certain liabilities in connection with the Separation. It also sets forth other agreements governing the relationship with Brighthouse after the distribution, including certain payment obligations between the parties.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

Tax Agreements
Immediately prior to the Separation, MetLife entered into a tax separation agreement with Brighthouse. Among other things, the tax separation agreement governs the allocation between MetLife and Brighthouse of the responsibility for the taxes of the MetLife group. The tax separation agreement also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. For the taxable periods prior to Separation, MetLife and Brighthouse have joint and several liability for the MetLife consolidated U.S. federal income tax returns’ current taxes (and the benefits of tax attributes such as losses) allocated to Brighthouse. The tax separation agreement provides that the Brighthouse allocation of taxes could vary depending upon the outcome of Internal Revenue Service (“IRS”) examinations. Upon Separation, MetLife, Inc. recorded a current income tax receivable of $1.4 billion and a corresponding payable to Brighthouse reported in other liabilities. On October 2, 2017, in accordance with the tax separation agreement, $729 million of this amount was paid by MetLife, Inc. to Brighthouse.
As part of the tax separation agreement, MetLife, Inc. is liable for the U.S. federal income tax cost of a discrete Separation‑related tax charge incurred by Brighthouse. The income tax charge arises from the recapture of certain tax benefits incurred prior to Separation, and is caused by the deconsolidation of Brighthouse from the MetLife tax group at Separation. As a result, MetLife, Inc. recorded a decrease to current income tax recoverable and a charge to provision for income tax expense (benefit) of $1,093 million, which was reported in discontinued operations for the Company.
Additionally, MetLife, Inc. has the right to receive future payments from Brighthouse for a tax asset that Brighthouse received as a result of restructuring prior to the Separation. Included in other assets at December 31, 2017, is a receivable from Brighthouse of $333 million related to these future payments, after a reduction of $222 million as a result of U.S. Tax Reform.
Transactions Prior to the Separation
Prior to the Separation, the Company completed the following transactions in 2017.
Contributions of Entities, Mergers and Dividend
In April 2017, following receipt of applicable regulatory approvals, MetLife contributed certain captive reinsurance companies to Brighthouse Life Insurance Company (“Brighthouse Insurance”), which were merged into Brighthouse Reinsurance Company of Delaware (“BRCD”), a newly-formed captive reinsurance company that is wholly-owned by Brighthouse Insurance.
In July 2017, MetLife, Inc. contributed the voting common interests of Brighthouse Holdings, LLC, a subsidiary of MetLife, Inc. at that time, to Brighthouse Financial, Inc. Brighthouse Holdings, LLC was at that time an intermediate holding company which owned all of the subsidiaries within Brighthouse.
In August 2017, Brighthouse Financial, Inc. paid a cash dividend to MetLife, Inc. of $1.8 billion in connection with the Separation.
Termination of Financing Arrangements
In April 2017, MetLife, Inc. and MetLife Reinsurance Company of South Carolina (“MRSC”) terminated the MRSC collateral financing arrangement associated with secondary guarantees. As a result, the $2.8 billion collateral financing arrangement liability outstanding was extinguished utilizing $2.8 billion of assets held in trust, with the remaining $590 million of assets held in trust returned to MetLife, Inc. as a cash return of capital from a subsidiary. Total fees associated with the termination were $37 million and were reported in discontinued operations.
In April 2017, MetLife, Inc. and MetLife Reinsurance Company of Vermont (“MRV”) terminated the $4.3 billion committed facility, and MetLife, Inc. and MRSC terminated the $3.5 billion committed facility. Total fees associated with the terminations were $257 million and were reported in discontinued operations.
See Note 14 for information on the junior subordinated debentures in connection with the Separation.
New Financing Arrangements
In April 2017, BRCD entered into a new financing arrangement with a pool of highly rated third-party reinsurers with a total capacity of $10.0 billion. This financing arrangement consists of credit-linked notes that each have a term of 20 years.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

In June 2017, Brighthouse Holdings, LLC issued 50,000 units of 6.50% fixed rate cumulative preferred units to MetLife, Inc. and in turn MetLife, Inc. sold the preferred units to third-party investors, for net proceeds of $49 million.
In June 2017, Brighthouse Financial, Inc. issued $1.5 billion of senior notes due in June 2027 (the “2027 Senior Notes”) which bear interest at a fixed rate of 3.70%, payable semi-annually. Also in June 2017, Brighthouse Financial, Inc. issued $1.5 billion of senior notes due in June 2047 (the “2047 Senior Notes,” and together with the 2027 Senior Notes, the “Senior Notes”) which bear interest at a fixed rate of 4.70%, payable semi-annually. In connection with the issuance of the Senior Notes, MetLife, Inc. had initially guaranteed the Senior Notes on a senior unsecured basis. The guarantee was released, in accordance with its terms, upon Separation.
In June 2017, subsequent to the issuance of the Senior Notes, the borrowing capacity under Brighthouse Financial, Inc.’s three-year senior unsecured delayed draw term loan agreement (the “2016 Term Loan Agreement”) was decreased from $3.0 billion to $536 million. On July 21, 2017, concurrently with entering into a new term loan agreement described below, Brighthouse Financial, Inc. terminated the 2016 Term Loan Agreement without penalty.
In July 2017, Brighthouse Financial, Inc. entered into a new $600 million senior unsecured delayed draw term loan agreement (the “2017 Term Loan Agreement”). Under the 2017 Term Loan Agreement, Brighthouse Financial, Inc. may borrow up to a maximum of $600 million which may be used for general corporate purposes, including in connection with the Separation, of which $500 million was available prior to the Separation. The 2017 Term Loan Agreement contains certain covenants that could restrict the operations and use of funds of Brighthouse. On August 2, 2017, Brighthouse Financial, Inc. borrowed $500 million under the 2017 Term Loan Agreement in connection with the Separation.
Ongoing Transactions with Brighthouse
The Company considered all of its continuing involvement with Brighthouse in determining whether to deconsolidate and present Brighthouse results as discontinued operations, including the agreements described above and the ongoing transactions described below.
The Company entered into reinsurance, committed facility, structured settlement, and contract administrative services transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs. In addition, prior to and in connection with the Separation, the Company entered into various other agreements with Brighthouse for services necessary for both the Company and Brighthouse to conduct their activities. Intercompany transactions prior to the Separation between the Company and Brighthouse are eliminated and excluded from the consolidated statements of operations and consolidated balance sheets. Transactions between the Company and Brighthouse that continue after the Separation are included on the Company’s consolidated statements of operations and consolidated balance sheets.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

Reinsurance
The Company entered into reinsurance transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs. Information regarding the significant effects of reinsurance transactions with Brighthouse was as follows:
 
Included on Consolidated Statements of Operations
 
Excluded from Consolidated Statements of Operations
 
Year
Ended
December 31,
 
Years
Ended
December 31,
 
2017 (1)
 
2017 (2)
 
2016
 
2015
 
(In millions)
Premiums
 
 
 
 
 
 
 
Reinsurance assumed
$
183

 
$
248

 
$
462

 
$
416

Reinsurance ceded
(4
)
 
(7
)
 
(9
)
 
(8
)
Net premiums
$
179

 
$
241

 
$
453

 
$
408

Universal life and investment-type product policy fees
 
 
 
 
 
 
 
Reinsurance assumed
$
(4
)
 
$
(6
)
 
$
(2
)
 
$
2

Reinsurance ceded
(44
)
 
(55
)
 
(102
)
 
(114
)
Net universal life and investment-type product policy fees
$
(48
)
 
$
(61
)
 
$
(104
)
 
$
(112
)
Policyholder benefits and claims
 
 
 
 
 
 
 
Reinsurance assumed
$
150

 
$
196

 
$
385

 
$
330

Reinsurance ceded
(22
)
 
(16
)
 
(23
)
 
(28
)
Net policyholder benefits and claims
$
128

 
$
180

 
$
362

 
$
302

Interest credited to policyholder account balances
 
 
 
 
 
 
 
Reinsurance assumed
$
6

 
$
10

 
$
16

 
$
14

Reinsurance ceded
(30
)
 
(42
)
 
(75
)
 
(78
)
Net interest credited to policyholder account balances
$
(24
)
 
$
(32
)
 
$
(59
)
 
$
(64
)
Other expenses
 
 
 
 
 
 
 
Reinsurance assumed
$
39

 
$
10

 
$
88

 
$
76

Reinsurance ceded
7

 
(28
)
 
(29
)
 
(45
)
Net other expenses
$
46

 
$
(18
)
 
$
59

 
$
31

__________________
(1)
Includes transactions after the Separation.
(2)
Includes transactions prior to the Separation.

241

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

Information regarding the significant effects of reinsurance transactions with Brighthouse included on the consolidated balance sheets was as follows at:
 
December 31, 2017
 
Assumed
 
Ceded
 
(In millions)
Assets
 
 
 
Premiums, reinsurance and other receivables
$
167

 
$
1,793

Deferred policy acquisition costs and value of business acquired
384

 
(40
)
Total assets
$
551

 
$
1,753

Liabilities
 
 
 
Future policy benefits
$
1,734

 
$

Other policy-related balances
119

 
28

Other liabilities
1,458

 
19

Total liabilities
$
3,311

 
$
47

Investment Management
In connection with the Separation, the Company entered into investment management services agreements with Brighthouse. Each agreement has an initial term of 18 months after the date of Separation, after which period either party to the agreement is permitted to terminate upon notice to the other party. After the Separation, for the year ended December 31, 2017, the Company recognized $48 million in other revenues for services provided under the agreements. Prior to the Separation, for the year ended December 31, 2017, the Company charged Brighthouse $57 million for services provided under the agreements, which were intercompany transactions and eliminated and excluded from the consolidated statements of operations.
Debt
MRV and MetLife, Inc. have a $2.9 billion committed facility which is used as collateral for certain affiliated reinsurance liabilities. As of December 31, 2017, Brighthouse is a beneficiary of $2.4 billion of letters of credit issued under this committed facility and in consideration Brighthouse reimburses MetLife, Inc. a portion of the letter of credit fees. The Company entered into the committed facility with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
See “— Transactions Prior to the Separation — Termination of Financing Arrangements” for additional transactions with Brighthouse.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

Transition Services
In connection with the Separation, the Company entered into a transition services agreement with Brighthouse for services necessary for Brighthouse to conduct its activities. The services are expected to continue up to 36 months, with certain services potentially to be made available for several years thereafter. After the Separation, for the year ended December 31, 2017, the Company recognized $140 million as a reduction to other expenses for transitional services provided under the agreement. Prior to the Separation, for the year ended December 31, 2017, the Company charged Brighthouse $191 million for services provided under the agreement, which were intercompany transactions and eliminated and excluded from the consolidated statements of operations.
Other
The Company has existing assumed structured settlement claim obligations as an assignment company for Brighthouse. These liabilities are measured at the present value of the periodic claims to be provided and reported as other policy-related balances. The Company receives a fee for assuming these claim obligations and, as the assignee of the claim, is legally obligated to ensure periodic payments are made to the claimant. The Company purchased annuities from Brighthouse to fund these obligations and designates payments to be made directly to the claimant by Brighthouse as the annuity writer. The aggregate contract values of annuities funding structured settlement claims are recorded as an asset for which the Company has also recorded an unpaid claim obligation reported in other policy-related balances. Such aggregated contract values were $1.3 billion at December 31, 2017. The Company entered into these transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
The Company provides services necessary for Brighthouse to conduct its business, which primarily include contract administrative services for certain Brighthouse investment-type products. After the Separation, for the year ended December 31, 2017, the Company recognized revenue of $54 million for administrative services provided to Brighthouse. Prior to the Separation, during the year ended December 31, 2017, the Company provided administrative services to Brighthouse for $73 million which were intercompany transactions and eliminated and excluded from the consolidated statements of operations. The Company entered into these transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
In connection with the Separation, the Company entered into an employee matters agreement with Brighthouse to allocate obligations and responsibilities relating to employee compensation and benefit plans and other related matters. The employee matters agreement provides that MetLife will reimburse Brighthouse for certain pension benefit payments, retiree health and life benefit payments and deferred compensation payments. Included in other liabilities at December 31, 2017, is a payable to Brighthouse of $186 million related to these future payments.
At December 31, 2017, the Company had a receivable from Brighthouse of $97 million related to services provided and a payable to Brighthouse of $50 million related to services received.
Discontinued Operations
The following table presents the amounts related to the operations and loss on disposal of Brighthouse that have been reflected in discontinued operations:

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

 
 
For the Years Ended December 31,
 
 
2017 (1)
 
2016
 
2015
 
 
(In millions)
Revenues
 
 
 
 
 
 
Premiums
 
$
820

 
$
1,951

 
$
2,142

Universal life and investment-type product policy fees
 
2,201

 
3,724

 
3,936

Net investment income
 
1,783

 
3,157

 
3,038

Other revenues
 
150

 
74

 
58

Total net investment gains (losses)
 
(48
)
 
(140
)
 
(48
)
Net derivative gains (losses)
 
(1,061
)
 
(5,886
)
 
(466
)
Total revenues
 
3,845

 
2,880

 
8,660

Expenses
 
 
 
 
 
 
Policyholder benefits and claims
 
2,217

 
4,487

 
3,612

Interest credited to policyholder account balances
 
620

 
1,107

 
1,195

Policyholder dividends
 
16

 
34

 
32

Goodwill impairment
 

 
260

 

Other expenses
 
853

 
1,333

 
2,043

Total expenses
 
3,706

 
7,221

 
6,882

Income (loss) from discontinued operations before provision for income tax and loss on disposal of discontinued operations
 
139

 
(4,341
)
 
1,778

Provision for income tax expense (benefit)
 
(46
)
 
(1,607
)
 
454

Income (loss) from discontinued operations before loss on disposal of discontinued operations, net of income tax
 
185

 
(2,734
)
 
1,324

Transaction costs associated with the Separation, net of income tax
 
(216
)
 

 

Tax charges associated with the Separation
 
(955
)
 

 

Income (loss) on disposal of discontinued operations, net of income tax
 
(1,171
)
 

 

Income (loss) from discontinued operations, net of income tax
 
$
(986
)
 
$
(2,734
)
 
$
1,324

__________________
(1)
Includes transactions prior to the Separation.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

The following table presents the amounts related to the financial position of Brighthouse that have been reflected in the assets and liabilities of disposed subsidiary:
 
December 31, 2016
 
(In millions)
Assets
 
Investments:
 
Fixed maturity securities available-for-sale
$
61,326

Equity securities available-for-sale
300

Mortgage loans
9,378

Policy loans
1,517

Real estate and real estate joint ventures
150

Other limited partnership interests
1,642

Short-term investments
1,288

Other invested assets
3,881

Total investments
79,482

Cash and cash equivalents
5,226

Accrued investment income
680

Premiums, reinsurance and other receivables
10,636

Deferred policy acquisition costs and value of business acquired
7,207

Other assets
709

Separate account assets
113,043

Total assets of disposed subsidiary
$
216,983

Liabilities
 
Future policy benefits
$
33,270

Policyholder account balances
37,066

Other policy-related balances
1,356

Policyholder dividends payable
12

Payables for collateral under securities loaned and other transactions
7,390

Long-term debt
60

Collateral financing arrangements
2,797

Deferred income tax liability
2,594

Other liabilities
5,119

Separate account liabilities
113,043

Total liabilities of disposed subsidiary
$
202,707



245

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
3. Dispositions (continued)

In the consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified. The following table presents selected financial information regarding cash flows of the discontinued operations.
 
For the Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Net cash provided by (used in):
 
 
 
 
 
Operating activities
$
1,329

 
$
3,697

 
$
4,559

Investing activities
$
(2,732
)
 
$
4,674

 
$
(7,042
)
Financing activities
$
(367
)
 
$
(4,715
)
 
$
2,452

2016 Disposition
In July 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance Company (“MassMutual”) of its U.S. retail advisor force and certain assets associated with the MetLife Premier Client Group, including all of the issued and outstanding shares of MetLife’s affiliated broker-dealer, MetLife Securities, Inc. (“MSI”), a wholly-owned subsidiary of MetLife, Inc. (collectively, the “U.S. Retail Advisor Force Divestiture”) for $291 million. MassMutual assumed all of the liabilities related to such assets that arise or occur after the closing of the sale. The Company recorded a gain of $103 million ($58 million, net of income tax), in net investment gains (losses) for the year ended December 31, 2016. See Notes 10 and 17 for discussion of certain charges related to the sale.

246

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

4. Insurance
Insurance Liabilities
Insurance liabilities are comprised of future policy benefits, policyholder account balances and other policy-related balances. Information regarding insurance liabilities by segment, as well as Corporate & Other, was as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
U.S.
 
$
136,065

 
$
129,117

Asia
 
99,404

 
89,422

Latin America
 
16,758

 
14,760

EMEA
 
19,579

 
18,075

MetLife Holdings
 
103,372

 
104,271

Corporate & Other
 
829

 
(3,121
)
Total
 
$
376,007

 
$
352,524

Future policy benefits are measured as follows:
Product Type:
Measurement Assumptions:
Participating life
Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7% for domestic business and less than 1% to 11% for international business and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends for domestic business.
Nonparticipating life
Aggregate of the present value of future expected benefit payments and related expenses less the present value of future expected net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 2% to 11% for domestic business and less than 1% to 13% for international business.
Individual and group
traditional fixed annuities
after annuitization
Present value of future expected payments. Interest rate assumptions used in establishing such liabilities range from 1% to 11% for domestic business and less than 1% to 12% for international business.
Non-medical health
insurance
The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 4% to 7% (primarily related to domestic business).
Disabled lives
Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 2% to 8% for domestic business and less than 1% to 9% for international business.
Property & casualty
insurance
The amount estimated for claims that have been reported but not settled and claims incurred but not reported are based upon the Company’s historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
Participating business represented 3% and 4% of the Company’s life insurance in-force at December 31, 2017 and 2016, respectively. Participating policies represented 15%, 16% and 17% of gross traditional life insurance premiums for the years ended December 31, 2017, 2016 and 2015, respectively.
Policyholder account balances are equal to: (i) policy account values, which consist of an accumulation of gross premium payments and investment performance; (ii) credited interest, ranging from less than 1% to 13% for domestic business and less than 1% to 12% for international business, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.

247

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Guarantees
The Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. GMABs and the portions of both non-life-contingent GMWBs and GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 9. Guarantees accounted for as insurance liabilities include:
Guarantee:
 
Measurement Assumptions:
GMDBs
A return of purchase payment upon death even if the account value is reduced to zero.
 
Present value of expected death benefits in excess of the projected account balance recognizing the excess ratably over the accumulation period based on the present value of total expected assessments.
 
An enhanced death benefit may be available for an additional fee.
 
Assumptions are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk.
 
 
 
 
Investment performance and volatility assumptions are consistent with the historical experience of the appropriate underlying equity index, such as the S&P 500 Index.
 
 
 
 
Benefit assumptions are based on the average benefits payable over a range of scenarios.
GMIBs
After a specified period of time determined at the time of issuance of the variable annuity contract, a minimum accumulation of purchase payments, even if the account value is reduced to zero, that can be annuitized to receive a monthly income stream that is not less than a specified amount.
 
Present value of expected income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on present value of total expected assessments.
 
Certain contracts also provide for a guaranteed lump sum return of purchase premium in lieu of the annuitization benefit.
 
Assumptions are consistent with those used for estimating GMDB liabilities.
 
 
 
 
Calculation incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder.
GMWBs
A return of purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that cumulative withdrawals in a contract year do not exceed a certain limit.
 
Expected value of the life contingent payments and expected assessments using assumptions consistent with those used for estimating the GMDB liabilities.
 
Certain contracts include guaranteed withdrawals that are life contingent.
 
 
 
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.

248

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal and variable life contracts was as follows:
 
Annuity Contracts
 
Universal and Variable
Life Contracts
 
 
 
GMDBs
 
GMIBs
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
Total
 
(In millions)
Direct and Assumed:
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
307

 
$
463

 
$
2,711

 
$
288

 
$
3,769

Incurred guaranteed benefits (1)
68

 
62

 
43

 
18

 
191

Paid guaranteed benefits
(11
)
 
(1
)
 
(28
)
 

 
(40
)
Balance at December 31, 2015
364

 
524

 
2,726

 
306

 
3,920

Incurred guaranteed benefits (1)
102

 
78

 
291

 
25

 
496

Paid guaranteed benefits
(15
)
 
(1
)
 
(28
)
 

 
(44
)
Balance at December 31, 2016
451

 
601

 
2,989

 
331

 
4,372

Incurred guaranteed benefits (1)
91

 
121

 
233

 
16

 
461

Paid guaranteed benefits
(14
)
 
(2
)
 
(34
)
 

 
(50
)
Balance at December 31, 2017
$
528

 
$
720

 
$
3,188

 
$
347

 
$
4,783

Ceded:
 
 
 
 
 
 
 
 

Balance at January 1, 2015
$
23

 
$
6

 
$
187

 
$
201

 
$
417

Incurred guaranteed benefits
(1
)
 

 
31

 
13

 
43

Paid guaranteed benefits
(3
)
 

 

 

 
(3
)
Balance at December 31, 2015
19

 
6

 
218

 
214

 
457

Incurred guaranteed benefits

 
(1
)
 
(27
)
 
17

 
(11
)
Paid guaranteed benefits
5

 

 

 

 
5

Balance at December 31, 2016
24

 
5

 
191

 
231

 
451

Incurred guaranteed benefits
4

 
1

 
50

 
11

 
66

Paid guaranteed benefits
6

 

 

 

 
6

Balance at December 31, 2017
$
34

 
$
6

 
$
241

 
$
242

 
$
523

Net:
 
 
 
 
 
 
 
 

Balance at January 1, 2015
$
284

 
$
457

 
$
2,524

 
$
87

 
$
3,352

Incurred guaranteed benefits
69

 
62

 
12

 
5

 
148

Paid guaranteed benefits
(8
)
 
(1
)
 
(28
)
 

 
(37
)
Balance at December 31, 2015
345

 
518

 
2,508

 
92

 
3,463

Incurred guaranteed benefits
102

 
79

 
318

 
8

 
507

Paid guaranteed benefits
(20
)
 
(1
)
 
(28
)
 

 
(49
)
Balance at December 31, 2016
427

 
596

 
2,798

 
100

 
3,921

Incurred guaranteed benefits
87

 
120

 
183

 
5

 
395

Paid guaranteed benefits
(20
)
 
(2
)
 
(34
)
 

 
(56
)
Balance at December 31, 2017
$
494

 
$
714

 
$
2,947

 
$
105

 
$
4,260

__________________
(1)
Secondary guarantees include the effects of foreign currency translation of $78 million, $119 million and ($80) million at December 31, 2017, 2016 and 2015, respectively.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (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:
 
 
December 31,
 
 
2017
 
 
2016
 
 
 
In the
Event of Death
 
 
At
Annuitization
 
 
In the
Event of Death
 
 
At
Annuitization
 
 
 
(Dollars in millions)
Annuity Contracts (1):
 
 
 
 
 
 
 
 
 
 
 
 
Variable Annuity Guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
Total account value (2), (3)
 
$
66,724

 
 
$
26,223

 
 
$
66,176

 
 
$
25,335

 
Separate account value
 
$
45,431

 
 
$
24,336

 
 
$
43,359

 
 
$
23,330

 
Net amount at risk (2)
 
$
1,238

(4)
 
$
525

(5)

 
$
1,842

(4)
 
$
521

(5)
Average attained age of contractholders
 
65 years

 
 
65 years

 
 
64 years

 
 
65 years

 
Other Annuity Guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
Total account value (3)
 
N/A

 
 
$
1,424

 
 
N/A

 
 
$
1,393

 
Net amount at risk
 
N/A

 
 
$
569

(6
)
 
N/A

 
 
$
490

(6)
Average attained age of contractholders
 
N/A

 
 
50 years

 
 
N/A

 
 
50 years

 
 
 
December 31,
 
 
2017
 
2016
 
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
 
(Dollars in millions)
Universal and Variable Life Contracts (1):
 
 
 
 
 
 
 
 
Total account value (3)
 
$
9,036

 
$
3,207

 
$
8,363

 
$
3,337

Net amount at risk (7)
 
$
66,956

 
$
16,615

 
$
70,225

 
$
17,785

Average attained age of policyholders
 
56 years

 
63 years

 
55 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 variable annuity guarantees 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.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

(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.
Account balances of contracts with guarantees were invested in separate account asset classes as follows at:
 
 
December 31,
 
 
2017
 
2016 (1)
 
 
(In millions)
Fund Groupings:
 
 
 
 
Equity
 
$
23,213

 
$
21,169

Balanced
 
20,859

 
20,070

Bond
 
5,983

 
5,827

Money Market
 
252

 
218

Total
 
$
50,307

 
$
47,284

__________________
(1)
Account balances at December 31, 2016 decreased in total by $6.7 billion from those amounts previously reported to correct for the inclusion of contracts without guarantees.
Obligations Under Funding Agreements
The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain unconsolidated special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2017, 2016 and 2015, the Company issued $42.7 billion, $39.7 billion and $35.1 billion, respectively, and repaid $41.4 billion, $38.5 billion and $35.5 billion, respectively, of such funding agreements. At December 31, 2017 and 2016, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $34.2 billion and $30.8 billion, respectively.
Certain of the Company’s subsidiaries are members of regional banks in the FHLB system (“FHLBanks”). Holdings of common stock of FHLBanks, included in equity securities, were as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
FHLB of New York
 
$
733

 
$
748

FHLB of Des Moines
 
$
35

 
$
35

FHLB of Pittsburgh
 
$
11

 
$
11


251

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Such subsidiaries have also entered into funding agreements with FHLBanks and a subsidiary of the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The liability for such funding agreements is included in policyholder account balances. Information related to such funding agreements was as follows at:
 
 
Liability
 
Collateral
 
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
FHLB of New York (1)
 
$
14,445

 
$
14,445

 
$
16,605

(2)
 
$
16,828

(2)
Farmer Mac (3)
 
$
2,550

 
$
2,550

 
$
2,644

 
 
$
2,645

 
FHLB of Des Moines (1)
 
$
625

 
$
625

 
$
701

(2)
 
$
811

(2)
FHLB of Pittsburgh (1)
 
$
250

 
$
250

 
$
311

(2)
 
$
383

(2)
__________________
(1)
Represents funding agreements issued to the applicable FHLBank in exchange for cash and for which such FHLBank has been granted a lien on certain assets, some of which are in the custody of such FHLBank, including residential mortgage-backed securities (“RMBS”), to collateralize obligations under advances evidenced by funding agreements. The applicable subsidiary of the Company is permitted to withdraw any portion of the collateral in the custody of such FHLBank as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by such subsidiary, the applicable FHLBank’s recovery on the collateral is limited to the amount of such subsidiary’s liability to such FHLBank.
(2)
Advances are collateralized by mortgage-backed securities. The amount of collateral presented is at estimated fair value.
(3)
Represents funding agreements issued to a subsidiary of Farmer Mac, as well as certain SPEs that have issued debt securities for which payment of interest and principal is secured by such funding agreements, and such debt securities are also guaranteed as to payment of interest and principal by Farmer Mac. The obligations under these funding agreements are secured by a pledge of certain eligible agricultural mortgage loans and may, under certain circumstances, be secured by other qualified collateral. The amount of collateral presented is at carrying value.
Liabilities for Unpaid Claims and Claim Expenses
The following is information about incurred and paid claims development by segment as of December 31, 2017. Such amounts are presented net of reinsurance, and are not discounted. The tables present claims development and cumulative claim payments by incurral year. The development tables are only presented for significant short-duration product liabilities within each segment. Where practical, up to 10 years of history has been provided. In order to eliminate potential fluctuations related to foreign exchange rates, liabilities and payments denominated in a foreign currency have been translated using the 2017 year end spot rates for all periods presented. The information about incurred and paid claims development prior to 2016 is presented as supplementary information, as described in Note 1.

252

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

U.S.
Group Life - Term
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
 
Incurral Year
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
(Dollars in millions)
2011
 
$
6,318

 
$
6,290

 
$
6,293

 
$
6,269

 
$
6,287

 
$
6,295

 
$
6,294

 
$
1

 
207,301

2012
 
 
 
6,503

 
6,579

 
6,569

 
6,546

 
6,568

 
6,569

 
3

 
208,626

2013
 
 
 
 
 
6,637

 
6,713

 
6,719

 
6,720

 
6,730

 
15

 
210,643

2014
 
 
 
 
 
 
 
6,986

 
6,919

 
6,913

 
6,910

 
5

 
210,797

2015
 
 
 
 
 
 
 
 
 
7,040

 
7,015

 
7,014

 
12

 
211,597

2016
 
 
 
 
 
 
 
 
 
 
 
7,125

 
7,085

 
21

 
206,610

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
7,432

 
898

 
186,954

Total
 
48,034

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(46,136
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2011, net of reinsurance
 
5

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
1,903

 
 
 
 
 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2011
 
$
4,982

 
$
6,194

 
$
6,239

 
$
6,256

 
$
6,281

 
$
6,290

 
$
6,292

2012
 
 
 
5,132

 
6,472

 
6,518

 
6,532

 
6,558

 
6,565

2013
 
 
 


 
5,216

 
6,614

 
6,664

 
6,678

 
6,711

2014
 
 
 


 


 
5,428

 
6,809

 
6,858

 
6,869

2015
 
 
 


 


 


 
5,524

 
6,913

 
6,958

2016
 
 
 


 


 


 


 
5,582

 
6,980

2017
 
 
 


 


 


 


 


 
5,761

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
46,136

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
 
1
 
2
 
3
 
4
 
5
 
6
 
7
Group Life - Term
 
78.3
%
 
20.0
%
 
0.7
%
 
0.2
%
 
0.4
%
 
0.1
%
 
%

253

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Group Long-Term Disability
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
 
Incurral Year
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
(Dollars in millions)
2011
 
$
955

 
$
916

 
$
894

 
$
914

 
$
924

 
$
923

 
$
918

 
$

 
21,642

2012
 
 
 
966

 
979

 
980

 
1,014

 
1,034

 
1,037

 

 
20,085

2013
 
 
 
 
 
1,008

 
1,027

 
1,032

 
1,049

 
1,070

 

 
21,123

2014
 
 
 
 
 
 
 
1,076

 
1,077

 
1,079

 
1,101

 

 
22,838

2015
 
 
 
 
 
 
 
 
 
1,082

 
1,105

 
1,093

 
4

 
21,136

2016
 
 
 
 
 
 
 
 
 
 
 
1,131

 
1,139

 
26

 
17,585

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
1,244

 
585

 
9,258

Total
 
7,602

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(3,006
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2011, net of reinsurance
 
2,539

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
7,135

 
 
 
 
 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2011
 
$
44

 
$
217

 
$
337

 
$
411

 
$
478

 
$
537

 
$
588

2012
 
 
 
43

 
229

 
365

 
453

 
524

 
591

2013
 
 
 
 
 
43

 
234

 
382

 
475

 
551

2014
 
 
 
 
 
 
 
51

 
266

 
428

 
526

2015
 
 
 
 
 
 
 
 
 
50

 
264

 
427

2016
 
 
 
 
 
 
 
 
 
 
 
49

 
267

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
56

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
3,006

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
 
1

 
2

 
3

 
4

 
5

 
6

 
7

Group Long-Term Disability
 
4.4
%
 
18.8
%
 
13.9
%
 
8.5
%
 
7.1
%
 
6.4
%
 
5.6
%
Significant Methodologies and Assumptions
Group Life - Term and Group Long-Term Disability incurred but not paid (“IBNP”) liabilities are developed using a combination of loss ratio and development methods. Claims in the course of settlement are then subtracted from the IBNP liabilities, resulting in the IBNR liabilities. The loss ratio method is used in the period in which the claims are neither sufficient nor credible. In developing the loss ratios, any material rate increases that could change the underlying premium without affecting the estimated incurred losses are taken into account. For periods where sufficient and credible claim data exists, the development method is used based on the claim triangles which categorize claims according to both the period in which they were incurred and the period in which they were paid, adjudicated or reported. The end result is a triangle of known data that is used to develop known completion ratios and factors. Claims paid are then subtracted from the estimated ultimate incurred claims to calculate the IBNP liability.

254

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims (IBNR and pending). This is expressed as a percentage of the underlying claims liability and is based on past experience and the anticipated future expense structure.
For Group Life - Term and Group Long-Term Disability, first year incurred claims and allocated loss adjustment expenses increased in 2017 compared to the 2016 incurral year due to the growth in the size of the business.
There were no significant changes in methodologies during 2017. The assumptions used in calculating the unpaid claims and claim adjustment expenses for Group Life - Term and Group Long-Term Disability are updated annually to reflect emerging trends in claim experience.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for Group Life - Term unpaid claims and claim adjustment expenses are not discounted.
The liabilities for Group Long-Term Disability unpaid claims and claim adjustment expenses were $6.0 billion and $5.8 billion at December 31, 2017 and 2016, respectively. These amounts were discounted using interest rates ranging from 3% to 8%, based on the incurral year. The total discount applied to these liabilities was $1.3 billion at both December 31, 2017 and 2016. The amount of interest accretion recognized was $510 million, $565 million and $517 million for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts were reflected in policyholder benefits and claims.
For Group Life - Term, claims were based upon individual death claims. For Group Long-Term Disability, claim frequency was determined by the number of reported claims as identified by a unique claim number assigned to individual claimants. Claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.
The Group Long-Term Disability IBNR included in the development tables above was developed using discounted cash flows, and is presented on a discounted basis.
Property & Casualty - Auto Liability
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
(Dollars in millions)
2008
 
$
818

 
$
839

 
$
828

 
$
805

 
$
799

 
$
794

 
$
793

 
$
791

 
$
790

 
$
791

 
$

 
200,517

2009
 
 
 
862

 
877

 
853

 
826

 
823

 
817

 
815

 
815

 
814

 

 
201,579

2010
 
 
 
 
 
863

 
873

 
853

 
847

 
833

 
826

 
825

 
822

 
1

 
202,098

2011
 
 
 
 
 
 
 
863

 
876

 
869

 
855

 
846

 
843

 
843

 
2

 
202,513

2012
 
 
 
 
 
 
 
 
 
882

 
881

 
869

 
851

 
846

 
847

 
3

 
196,928

2013
 
 
 
 
 
 
 
 
 
 
 
911

 
900

 
882

 
878

 
876

 
6

 
201,297

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
897

 
910

 
913

 
910

 
12

 
203,560

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
975

 
984

 
979

 
30

 
207,485

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,012

 
1,002

 
77

 
204,497

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
957

 
161

 
173,607

Total
 
8,841

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(7,672
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
 
27

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
1,196

 
 
 
 

255

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2008
 
$
304

 
$
553

 
$
657

 
$
725

 
$
764

 
$
778

 
$
785

 
$
787

 
$
788

 
$
789

2009
 
 
 
321

 
563

 
681

 
755

 
789

 
803

 
810

 
813

 
813

2010
 
 
 
 
 
319

 
572

 
695

 
762

 
796

 
810

 
816

 
818

2011
 
 
 
 
 
 
 
324

 
590

 
711

 
777

 
810

 
825

 
831

2012
 
 
 
 
 
 
 
 
 
333

 
600

 
715

 
783

 
815

 
831

2013
 
 
 
 
 
 
 
 
 
 
 
346

 
618

 
743

 
809

 
843

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
352

 
648

 
777

 
844

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
384

 
691

 
822

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
396

 
702

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
379

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
7,672

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
 
1
 
2
 
3
 
4
 
5
 
6
 
7
 
8
 
9
 
10
Auto Liability
 
39.3
%
 
31.3
%
 
14.0
%
 
7.9
%
 
4.0
%
 
1.8
%
 
0.9
%
 
0.5
%
 
0.1
%
 
0.2
%
Property & Casualty - Home
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
(Dollars in millions)
2008
 
$
644

 
$
636

 
$
599

 
$
590

 
$
588

 
$
589

 
$
588

 
$
586

 
$
585

 
$
585

 
$

 
127,479

2009
 
 
 
506

 
523

 
510

 
507

 
503

 
501

 
498

 
497

 
497

 

 
106,616

2010
 
 
 
 
 
573

 
589

 
587

 
584

 
582

 
581

 
580

 
579

 

 
115,510

2011
 
 
 
 
 
 
 
891

 
868

 
843

 
840

 
835

 
835

 
834

 

 
166,455

2012
 
 
 
 
 
 
 
 
 
714

 
713

 
703

 
698

 
696

 
694

 
2

 
146,536

2013
 
 
 
 
 
 
 
 
 
 
 
654

 
652

 
635

 
635

 
634

 
4

 
107,525

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
707

 
702

 
704

 
705

 
7

 
113,604

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
759

 
753

 
752

 
12

 
107,073

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
740

 
743

 
20

 
106,537

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
747

 
66

 
106,915

Total
 
6,770

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(6,545
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
 
1

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
226

 
 
 
 

256

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2008
 
$
446

 
$
558

 
$
574

 
$
579

 
$
582

 
$
583

 
$
584

 
$
584

 
$
584

 
$
584

2009
 
 
 
385

 
476

 
486

 
492

 
495

 
495

 
496

 
496

 
496

2010
 
 
 
 
 
436

 
546

 
562

 
571

 
574

 
577

 
578

 
578

2011
 
 
 
 
 
 
 
690

 
804

 
819

 
825

 
827

 
830

 
832

2012
 
 
 
 
 
 
 
 
 
559

 
668

 
681

 
687

 
689

 
690

2013
 
 
 
 
 
 
 
 
 
 
 
505

 
604

 
618

 
626

 
628

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
574

 
670

 
685

 
692

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
603

 
717

 
731

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
593

 
704

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
610

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
6,545

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
 
1

 
2

 
3

 
4

 
5

 
$
6

 
7

 
8

 
9

 
10

Home
 
80.5
%
 
14.8
%
 
2.3
%
 
1.0
%
 
0.6
%
 
0.3
%
 
0.2
%
 
0.1
%
 
%
 
0.1
%
Significant Methodologies and Assumptions
The liability for unpaid claim and claim adjustment expenses for the Property & Casualty business is determined by examining the historical claims and allocated claim adjustment expenses data. This data, which is gross of salvage and subrogation, is classified by incurral year and coverage and includes paid claims data and reported liabilities. For homeowners and auto liability injury claims, the reported liabilities are set by the Company’s claims adjusters based on the individual case, and a supplemental liability is added based on the historical development of reported claims. These supplemental liabilities are estimated by coverage based on adjusted report year data triangles developed to estimate ultimate claim liability. Adjustments are made for settlement rates and average case liabilities. For auto non-injury claims, the Company holds an average statistical liability for every reported claim. This statistical liability is based on an estimated average payment that varies by coverage, report year and state. These average estimated payments are updated monthly.
For all property and casualty coverages, many actuarial methods such as adjusted loss development (adjusted for settlement rates and average case liabilities) and loss ratio methods are employed to develop a best estimate of the IBNR for each coverage type. Similar actuarial methods are used to determine the best estimate of the expected salvage and subrogation; methods that look at recoveries by age and ratios of recoveries to paid loss are compared for each coverage. A liability for unpaid allocated claim adjustment expenses is held for the future claim adjustment costs associated with the payment of incurred but not yet paid claims. This liability is calculated as a percentage of the underlying unpaid claims liability. The percentage is based on historical ratios of essential claim department expenses compared with paid losses.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for unpaid claims and claim adjustment expenses were not discounted.
The cumulative number of reported claims for auto liability coverages are counted by individual coverages (i.e. bodily injury and property damage) and, if multiple occupants are injured, then each injury is counted as a separate claim. For home coverages, each exposure is counted separately, so a house fire would, for example, have separate claim counts for the building, the contents, and additional living expenses. Claim counts include claims that do not ultimately result in a liability. Any liability established upon receipt of these claims would subsequently be reversed.

257

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Asia
Group Disability & Group Life
 
 
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
 
 
(Unaudited)
 
 
 
 
 
 
Incurral Year
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
(Dollars in millions)
2010
 
$
82

 
$
78

 
$
84

 
$
107

 
$
107

 
$
103

 
$
135

 
$
144

 
$
24

 
2,490

2011
 
 
 
64

 
67

 
88

 
88

 
94

 
124

 
132

 
24

 
2,629

2012
 
 
 
 
 
98

 
104

 
103

 
118

 
119

 
122

 
10

 
3,962

2013
 
 
 
 
 
 
 
148

 
150

 
174

 
168

 
167

 
19

 
4,448

2014
 
 
 
 
 
 
 
 
 
297

 
279

 
256

 
256

 
54

 
5,020

2015
 
 
 
 
 
 
 
 
 
 
 
280

 
267

 
271

 
78

 
4,473

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
234

 
238

 
102

 
2,314

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
303

 
215

 
1,456

Total
 
1,633

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(1,108
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2010, net of reinsurance
 
27

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
552

 
 
 
 
 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2010
 
$
20

 
$
40

 
$
53

 
$
65

 
$
79

 
$
89

 
$
114

 
$
121

2011
 
 
 
13

 
40

 
54

 
67

 
81

 
102

 
109

2012
 
 
 
 
 
30

 
65

 
85

 
99

 
106

 
112

2013
 
 
 
 
 
 
 
44

 
99

 
121

 
136

 
149

2014
 
 
 
 
 
 
 
 
 
69

 
144

 
180

 
202

2015
 
 
 
 
 
 
 
 
 
 
 
81

 
154

 
192

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
66

 
135

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
1,108

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
 
1

 
2

 
3

 
4

 
5

 
6

 
7

 
8

Group Disability & Group Life
 
23.6
%
 
25.8
%
 
13.0
%
 
9.3
%
 
8.6
%
 
8.9
%
 
11.3
%
 
5.5
%
Significant Methodologies and Assumptions
This business line consists of employer sponsored and industry sponsored Group Life and Group Disability risks.
For Group Life, the IBNR liability is determined by using the Bornhuetter-Ferguson Method, with factors derived by examining the experience of historical claims. A pending liability is also calculated for claims that have been reported but have not been paid. A claim eligibility ratio based on past experience is applied to the face amount of individual claims.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

For Group Disability, the IBNR liability is calculated by applying a percentage to premiums in-force based on the expected delay as evidenced by the experience in the portfolio. This is then allocated back into different incurral years based on an assumed run-off. A claims in course of payment liability is also calculated for claims that have been admitted and are in the course of payment. The assumptions employed are based on economic conditions and industry experience, as adjusted for the Company’s own experience.
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims. This is expressed as a percentage of the underlying claims liability and is based on past experience and the future expense structure.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
The liabilities for unpaid claims and claim adjustment expenses were $756 million and $627 million at December 31, 2017 and 2016, respectively. These amounts were discounted using interest rates ranging from 3% to 7%, based on the incurral year. The total discount applied to these liabilities was $57 million and $42 million at December 31, 2017 and 2016, respectively. The amount of interest accretion recognized was $26 million, $22 million and $20 million for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts were reflected in policyholder benefits and claims.
The Company tracks claim frequency by the number of reported claims as identified by a unique claim number assigned to individual claimants. Claim counts include claims that do not ultimately result in a liability. A liability is only established for those claims that are expected to result in a liability, based on historical factors.
Latin America
Protection Life
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
(Dollars in millions)
2008
 
$
208

 
$
277

 
$
281

 
$
282

 
$
283

 
$
283

 
$
283

 
$
283

 
$
283

 
$
284

 
$

 
31,642

2009
 
 
 
236

 
319

 
324

 
325

 
325

 
325

 
326

 
326

 
327

 

 
31,322

2010
 
 
 
 
 
259

 
333

 
340

 
341

 
342

 
342

 
342

 
343

 

 
33,386

2011
 
 
 
 
 
 
 
150

 
229

 
236

 
237

 
238

 
238

 
235

 

 
28,103

2012
 
 
 
 
 
 
 
 
 
159

 
215

 
221

 
222

 
223

 
221

 

 
29,244

2013
 
 
 
 
 
 
 
 
 
 
 
176

 
246

 
253

 
254

 
253

 

 
33,170

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
252

 
381

 
392

 
361

 
1

 
41,566

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
330

 
470

 
440

 
2

 
47,111

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
359

 
456

 
14

 
40,972

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
372

 
117

 
25,103

Total
 
3,292

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(3,024
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
 
12

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
280

 
 
 
 

259

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2008
 
$
205

 
$
271

 
$
276

 
$
277

 
$
277

 
$
277

 
$
277

 
$
278

 
$
278

 
$
281

2009
 
 
 
234

 
311

 
316

 
317

 
317

 
317

 
317

 
317

 
321

2010
 
 
 
 
 
239

 
311

 
318

 
319

 
319

 
319

 
320

 
322

2011
 
 
 
 
 
 
 
147

 
225

 
231

 
232

 
232

 
232

 
234

2012
 
 
 
 
 
 
 
 
 
157

 
212

 
217

 
218

 
219

 
219

2013
 
 
 
 
 
 
 
 
 
 
 
172

 
238

 
243

 
244

 
244

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
226

 
336

 
342

 
346

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
271

 
379

 
404

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
245

 
437

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
216

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
3,024

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
 
 
Years
 
1

 
2

 
3

 
4

 
5

 
6

 
7

 
8

 
9

 
10

Protection Life
 
65.1
%
 
27.8
%
 
2.3
%
 
0.5
%
 
0.1
%
 
%
 
0.2
%
 
0.2
%
 
0.6
%
 
1.3
%
Protection Health
 
 
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
 
At December 31, 2017
 
 
For the Years Ended December 31,
 
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
 
Cumulative
Number of
Reported
Claims
 
 
(Unaudited)
 
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
(Dollars in millions)
2008
 
$
133

 
$
149

 
$
151

 
$
151

 
$
151

 
$
152

 
$
152

 
$
152

 
$
152

 
$
154

 
$

 
89,217

2009
 
 
 
153

 
171

 
173

 
173

 
174

 
174

 
174

 
174

 
177

 

 
92,530

2010
 
 
 
 
 
180

 
201

 
202

 
203

 
204

 
204

 
204

 
207

 

 
96,276

2011
 
 
 
 
 
 
 
216

 
240

 
242

 
243

 
243

 
243

 
240

 

 
105,965

2012
 
 
 
 
 
 
 
 
 
209

 
235

 
237

 
237

 
238

 
236

 

 
99,498

2013
 
 
 
 
 
 
 
 
 
 
 
226

 
255

 
257

 
258

 
255

 
1

 
103,110

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
235

 
261

 
263

 
261

 
2

 
96,260

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
202

 
229

 
231

 
3

 
84,678

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
265

 
305

 
7

 
101,478

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
383

 
48

 
101,116

Total
 
2,449

 
 
 
 
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
(2,365
)
 
 
 
 
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
 
3

 
 
 
 
Total unpaid claims and claim adjustment expenses, net of reinsurance
 
$
87

 
 
 
 

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

 
 
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
 
 
For the Years Ended December 31,
 
 
(Unaudited)
 
 
 
 
Incurral Year
 
2008
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
(In millions)
2008
 
$
133

 
$
149

 
$
151

 
$
151

 
$
151

 
$
152

 
$
152

 
$
152

 
$
152

 
$
154

2009
 
 
 
153

 
171

 
173

 
173

 
174

 
174

 
174

 
174

 
177

2010
 
 
 
 
 
180

 
201

 
202

 
203

 
203

 
204

 
204

 
207

2011
 
 
 
 
 
 
 
216

 
240

 
242

 
243

 
243

 
243

 
240

2012
 
 
 
 
 
 
 
 
 
209

 
235

 
237

 
237

 
238

 
236

2013
 
 
 
 
 
 
 
 
 
 
 
226

 
255

 
257

 
258

 
255

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
233

 
259

 
262

 
258

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
202

 
229

 
228

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
249

 
298

2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
312

Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
 
$
2,365

Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
 
 
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
 
 
Years
 
1

 
2

 
3

 
4

 
5

 
6

 
7

 
8

 
9

 
10

Protection Health
 
86.7
%
 
11.2
%
 
0.6
%
 
0.1
%
 
%
 
%
 
(0.3)%
 
0.5
%
 
0.8
%
 
1.4
%
Significant Methodologies and Assumptions
The Latin America segment establishes liabilities for unpaid losses, which are equal to the accumulation of unpaid reported claims, plus an estimate for claims incurred but not reported.
In general terms, for both the Protection Life and Protection Health products, the methodology for IBNR is a weighted loss ratio combined with the Bornhuetter-Ferguson Method. The factors are derived by examining the experience of historical claims. In the initial months, the credibility is higher on premiums and lower on claims. As the premiums are earned, the credibility grows for the factors. For one major medical Protection Health product, a different methodology is employed, which estimates the IBNR based on a percentage of policy cancellations and the accrued premium.
For Protection Health products, claim duration can be very long due to the multiple incidences over time that may occur for a single claim. The number of claims reported per year is based on the original claim occurrence date for each individual claim. Any subsequent claims that are considered part of the original claim occurrence are not counted as a new claim. For Protection Life products, claims are based upon individual death claims.
During 2017, there was an increase in first year incurred claims and allocated loss adjustment expenses as compared to 2016 due to an increase in claims duration experience for one product and due to an overall increase in sales of certain plan sponsored and individual protection health products.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for unpaid claims and claim adjustment expenses were not discounted.
For Protection Life and Protection Health products, claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses
The reconciliation of the net incurred and paid claims development tables to the liability for unpaid claims and claims adjustment expenses on the consolidated balance sheet was as follows at:
 
 
December 31, 2017
 
 
(In millions)
Short-Duration:
 
 
 
Unpaid claims and allocated claims adjustment expenses, net of reinsurance:
 
 
 
U.S.:
 
 
 
Group Life - Term
 
$
1,903

 
Group Long-Term Disability
 
7,135

 
Property & Casualty - Auto
 
1,196

 
Property & Casualty - Home
 
226

 
Total
 
 
$
10,460

Asia - Group Disability & Group Life
 
 
552

Latin America:
 
 
 
Protection Life
 
280

 
Protection Health
 
87

 
Total
 
 
367

Other insurance lines - all segments combined
 
 
970

Total unpaid claims and allocated claims adjustment expenses, net of reinsurance
 
 
12,349

 
 
 
 
Reinsurance recoverables on unpaid claims:
 
 
 
U.S.:
 
 
 
Group Life - Term
 
16

 
Group Long-Term Disability
 
95

 
Property & Casualty - Auto
 
73

 
Property & Casualty - Home
 
5

 
Total
 
 
189

Asia - Group Disability & Group Life
 
 
261

Latin America:
 
 
 
Protection Life
 
4

 
Protection Health
 
4

 
Total
 
 
8

Other insurance lines - all segments combined
 
 
203

Total reinsurance recoverable on unpaid claims
 
 
661

Total unpaid claims and allocated claims adjustment expense
 
 
13,010

Unallocated claims adjustment expenses
 
 
107

Discounting
 
 
(1,328
)
Liability for unpaid claims and claim adjustment liabilities - short-duration
 
 
11,789

Liability for unpaid claims and claim adjustment liabilities - all long-duration lines
 
 
5,305

Total liability for unpaid claims and claim adjustment expense (included in future policy benefits and other policy-related balances)
 
 
$
17,094


262

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016 (1)
 
2015 (2)
 
 
(In millions)
Balance at December 31 of prior period
 
$
16,157

 
$
9,669

 
$
9,525

Less: Reinsurance recoverables
 
1,968

 
476

 
454

Net balance at December 31 of prior period
 
14,189

 
9,193

 
9,071

Cumulative adjustment (3)
 

 
4,819

 

Net balance at January 1,
 
14,189

 
14,012

 
9,071

Incurred related to:
 
 
 
 
 
 
Current year
 
24,370

 
24,011

 
9,533

Prior years (4)
 
133

 
382

 
(78
)
Total incurred
 
24,503

 
24,393

 
9,455

Paid related to:
 
 
 
 
 
 
Current year
 
(18,525
)
 
(18,696
)
 
(6,759
)
Prior years
 
(5,271
)
 
(5,520
)
 
(2,574
)
Total paid
 
(23,796
)
 
(24,216
)
 
(9,333
)
Net balance at December 31,
 
14,896

 
14,189

 
9,193

Add: Reinsurance recoverables
 
2,198

 
1,968

 
476

Balance at December 31,
 
$
17,094

 
$
16,157

 
$
9,669

__________________

(1)
In addition to the revisions discussed in Note 1, at December 31, 2016, the Net balance decreased by $736 million and the Reinsurance recoverables increased by $742 million from those amounts previously reported primarily to correct for the improper classification of reinsurance recoverables.
(2)
Limited to property & casualty, group accident and non-medical health policies and contracts.
(3)
Reflects the accumulated adjustment, net of reinsurance, upon implementation of the new short-duration contracts guidance which clarified the requirement to include claim information for long-duration contracts. The accumulated adjustment primarily reflects unpaid claim liabilities, net of reinsurance, for long-duration contracts as of the beginning of the period presented. Prior periods have not been restated. See Note 1.
(4)
During 2017, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment expenses associated with prior years increased due to events incurred in prior years but reported during current year. During 2016, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment expenses associated with prior years increased due to the implementation of new guidance related to short-duration contracts. During 2015, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment expenses associated with prior years decreased due to a reduction in prior year automobile bodily injury and homeowners’ severity.
Separate Accounts
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $148.2 billion and $134.5 billion at December 31, 2017 and 2016, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $56.8 billion and $61.1 billion at December 31, 2017 and 2016, respectively. The latter category consisted primarily of guaranteed interest contracts. The average interest rate credited on these contracts was 2.34% and 2.35% at December 31, 2017 and 2016, respectively.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)

For the years ended December 31, 2017, 2016 and 2015, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts.

264

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
See Note 1 for a description of capitalized acquisition costs.
Nonparticipating and Non-Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts (term insurance, nonparticipating whole life insurance, traditional group life insurance, non-medical health insurance, and accident & health insurance) over the appropriate premium paying period in proportion to the actual and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include provisions for adverse deviation, and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes.
Participating, Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected future gross margins. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The future gross margins are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. For participating contracts within the closed block (dividend-paying traditional contracts) future gross margins are also dependent upon changes in the policyholder dividend obligation. See Note 7. Of these factors, the Company anticipates that investment returns, expenses, persistency and other factor changes, as well as policyholder dividend scales, are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross margins exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also updates the actual amount of business in-force, which impacts expected future gross margins. When expected future gross margins are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross margins are above the previously estimated expected future gross margins. Each period, the Company also reviews the estimated gross margins for each block of business to determine the recoverability of DAC and VOBA balances.
Fixed and Variable Universal Life Contracts and Fixed and Variable Deferred Annuity Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses and persistency are reasonably likely to significantly impact the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances.
Credit Insurance, Property & Casualty Insurance and Other Short-Duration Contracts
The Company amortizes DAC for these contracts, which is primarily composed of commissions and certain underwriting expenses, in proportion to actual and future earned premium over the applicable contract term.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)

Factors Impacting Amortization
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. Returns that are higher than the Company’s long-term expectation produce higher account balances, which increases the Company’s future fee expectations and decreases future benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company’s long-term expectation. The Company’s practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. The Company monitors these events and only changes the assumption when its long-term expectation changes.
The Company also periodically reviews other long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, policyholder behavior and expenses to administer business. Management annually updates assumptions used in the calculation of estimated gross margins and profits which may have significantly changed. 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.
Periodically, the Company modifies product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If such modification, referred to as an internal replacement, substantially changes the contract, the associated DAC or VOBA is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed.
Amortization of DAC and VOBA is attributed to net investment gains (losses) and net derivative gains (losses), and to other expenses for the amount of gross margins or profits originating from transactions other than investment gains and losses. Unrealized investment gains and losses represent the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)

Information regarding DAC and VOBA was as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
DAC:
 
 
 
 
 
Balance at January 1,
$
13,830

 
$
13,464

 
$
13,024

Capitalizations
3,002

 
3,152

 
3,319

Amortization related to:
 
 
 
 
 
Net investment gains (losses) and net derivative gains (losses)
60

 
229

 
(150
)
Other expenses
(2,426
)
 
(2,555
)
 
(2,590
)
Total amortization
(2,366
)
 
(2,326
)
 
(2,740
)
Unrealized investment gains (losses)
(525
)
 
(171
)
 
443

Effect of foreign currency translation and other
848

 
(289
)
 
(582
)
Balance at December 31,
14,789

 
13,830

 
13,464

VOBA:
 
 
 
 
 
Balance at January 1,
3,760

 
3,966

 
4,705

Amortization related to:
 
 
 
 
 
Net investment gains (losses) and net derivative gains (losses)

 
(3
)
 
(1
)
Other expenses
(315
)
 
(389
)
 
(443
)
Total amortization
(315
)
 
(392
)
 
(444
)
Unrealized investment gains (losses)
(4
)
 
8

 
5

Effect of foreign currency translation and other
189

 
178

 
(300
)
Balance at December 31,
3,630

 
3,760

 
3,966

Total DAC and VOBA:
 
 
 
 
 
Balance at December 31,
$
18,419

 
$
17,590

 
$
17,430

Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows at:
 
December 31,
 
2017
 
2016
 
(In millions)
U.S.
$
614

 
$
616

Asia
9,261

 
8,707

Latin America
2,050

 
1,808

EMEA
1,673

 
1,472

MetLife Holdings
4,797

 
5,246

Corporate & Other
24

 
(259
)
Total
$
18,419

 
$
17,590


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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)

Information regarding other intangibles was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
DSI:
 
 
 
 
 
 
Balance at January 1,
 
$
241

 
$
242

 
$
224

Capitalization
 
16

 
22

 
28

Amortization
 
(29
)
 
(23
)
 
(30
)
Unrealized investment gains (losses)
 
(6
)
 

 
20

Effect of foreign currency translation
 
(2
)
 

 

Balance at December 31,
 
$
220

 
$
241

 
$
242

VODA and VOCRA:
 
 
 
 
 
 
Balance at January 1,
 
$
509

 
$
583

 
$
692

Amortization
 
(51
)
 
(57
)
 
(56
)
Effect of foreign currency translation
 
1

 
(17
)
 
(53
)
Balance at December 31,
 
$
459

 
$
509

 
$
583

Accumulated amortization
 
$
345

 
$
294

 
$
237

Negative VOBA:
 
 
 
 
 
 
Balance at January 1,
 
$
935

 
$
1,193

 
$
1,596

Amortization
 
(140
)
 
(269
)
 
(361
)
Effect of foreign currency translation and other
 
32

 
11

 
(42
)
Balance at December 31,
 
$
827

 
$
935

 
$
1,193

Accumulated amortization
 
$
3,174

 
$
3,034

 
$
2,765

The estimated future amortization expense (credit) to be reported in other expenses for the next five years was as follows:
 
 
VOBA
 
VODA and VOCRA
 
Negative VOBA
 
 
(In millions)
2018
 
$
293

 
$
47

 
$
(60
)
2019
 
$
272

 
$
43

 
$
(40
)
2020
 
$
248

 
$
40

 
$
(41
)
2021
 
$
222

 
$
36

 
$
(40
)
2022
 
$
208

 
$
33

 
$
(38
)
6. Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by third parties. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 8.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
6. Reinsurance (continued)

U.S.
For its Group Benefits business, the Company generally retains most of the risk and only cedes particular risk on certain client arrangements. The majority of the Company’s reinsurance activity within this business relates to client agreements for employer sponsored captive programs, risk-sharing agreements and multinational pooling.
The Company, through its Property & Casualty business, purchases reinsurance to manage its exposure to large losses (primarily catastrophe losses) and to protect statutory surplus. The Company cedes losses and premiums based upon the exposure of the policies subject to reinsurance. To manage exposure to large property & casualty losses, the Company purchases property catastrophe, casualty and property per risk excess of loss reinsurance protection.
The Company’s Retirement and Income Solutions business has periodically engaged in reinsurance activities, on an opportunistic basis. There were no such transactions during the periods presented.
Asia, Latin America and EMEA
For certain of its life insurance products, the Company currently reinsures risks in excess of $5 million to external reinsurers on a yearly renewable term basis. The Company may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements. For selected large corporate clients, the Company reinsures group employee benefits or credit insurance business with various client-affiliated reinsurance companies, covering policies issued to the employees or customers of the clients. Additionally, the Company cedes and assumes risk with other insurance companies when either company requires a business partner with the appropriate local licensing to issue certain types of policies in certain jurisdictions. In these cases, the assuming company typically underwrites the risks, develops the products and assumes most or all of the risk. The Company also has reinsurance agreements in-force that reinsure a portion of the living and death benefit guarantees issued in connection with variable annuity products. Under these agreements, the Company pays reinsurance fees associated with the guarantees collected from policyholders, and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
MetLife Holdings
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. For the periods presented, the Company reinsured 90% of the mortality risk in excess of $2 million for most products. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. On a case by case basis, the Company may retain up to $20 million per life and reinsure 100% of amounts in excess of the amount the Company retains. The Company also assumes portions of the risk associated with certain whole life policies issued by a former affiliate and reinsures certain term life policies and universal life policies with secondary death benefit guarantees to such former affiliate. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time.
For its other products, the Company has a reinsurance agreement in-force to reinsure the living and death benefit guarantees issued in connection with certain variable annuity products from our former operating joint venture in Japan. Under this agreement, the Company receives reinsurance fees associated with the guarantees collected from policyholders, and provides reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. For the U.S. and EMEA, the Company purchases catastrophe coverage to insure risks issued within territories that the Company believes are subject to the greatest catastrophic risks. For all other segments, the Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.

269

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
6. Reinsurance (continued)

Reinsurance Recoverables
The Company reinsures its business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at December 31, 2017 and 2016, were not significant.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $3.5 billion and $3.4 billion of unsecured reinsurance recoverable balances at December 31, 2017 and 2016, respectively.
At December 31, 2017, the Company had $7.2 billion of net ceded reinsurance recoverables. Of this total, $4.4 billion, or 61%, were with the Company’s five largest ceded reinsurers, including $1.5 billion of net ceded reinsurance recoverables which were unsecured. At December 31, 2016, the Company had $5.3 billion of net ceded reinsurance recoverables. Of this total, $3.0 billion, or 57%, were with the Company’s five largest ceded reinsurers, including $1.8 billion of net ceded reinsurance recoverables which were unsecured.
The Company has reinsured with an unaffiliated third-party reinsurer, 59.25% of the closed block through a modified coinsurance agreement. The Company accounts for this agreement under the deposit method of accounting. The Company, having the right of offset, has offset the modified coinsurance deposit with the deposit recoverable.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
6. Reinsurance (continued)

The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Premiums
 
 
 
 
 
 
Direct premiums
 
$
39,595

 
$
37,975

 
$
37,044

Reinsurance assumed
 
1,773

 
1,363

 
1,382

Reinsurance ceded
 
(2,376
)
 
(2,136
)
 
(2,023
)
Net premiums
 
$
38,992

 
$
37,202

 
$
36,403

Universal life and investment-type product policy fees
 
 
 
 
 
 
Direct universal life and investment-type product policy fees
 
$
5,978

 
$
5,884

 
$
5,952

Reinsurance assumed
 
83

 
96

 
105

Reinsurance ceded
 
(551
)
 
(497
)
 
(487
)
Net universal life and investment-type product policy fees
 
$
5,510

 
$
5,483

 
$
5,570

Policyholder benefits and claims
 
 
 
 
 
 
Direct policyholder benefits and claims
 
$
39,354

 
$
37,186

 
$
36,143

Reinsurance assumed
 
1,388

 
1,085

 
984

Reinsurance ceded
 
(2,429
)
 
(1,913
)
 
(1,983
)
Net policyholder benefits and claims
 
$
38,313

 
$
36,358

 
$
35,144

Other expenses
 
 
 
 
 
 
Direct other expenses
 
$
13,610

 
$
13,958

 
$
14,934

Reinsurance assumed
 
246

 
169

 
146

Reinsurance ceded
 
(235
)
 
(378
)
 
(303
)
Net other expenses
 
$
13,621

 
$
13,749

 
$
14,777

The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
Direct
 
Assumed
 
Ceded
 
Total
Balance
Sheet
 
Direct
 
Assumed
 
Ceded
 
Total
Balance
Sheet
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums, reinsurance and other receivables
 
$
6,300

 
$
866

 
$
11,257

 
$
18,423

 
$
5,927

 
$
543

 
$
8,975

 
$
15,445

Deferred policy acquisition costs and value of business acquired
 
18,350

 
398

 
(329
)
 
18,419

 
17,878

 
16

 
(304
)
 
17,590

Total assets
 
$
24,650

 
$
1,264

 
$
10,928

 
$
36,842

 
$
23,805

 
$
559

 
$
8,671

 
$
33,035

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Future policy benefits
 
$
174,694

 
$
3,280

 
$

 
$
177,974

 
$
165,121

 
$
1,515

 
$

 
$
166,636

Policyholder account balances
 
182,226

 
293

 
(1
)
 
182,518

 
171,961

 
527

 
(2
)
 
172,486

Other policy-related balances
 
14,962

 
520

 
33

 
15,515

 
13,071

 
324

 
7

 
13,402

Other liabilities
 
17,077

 
1,896

 
5,009

 
23,982

 
18,815

 
405

 
4,515

 
23,735

Total liabilities
 
$
388,959

 
$
5,989

 
$
5,041

 
$
399,989

 
$
368,968

 
$
2,771

 
$
4,520

 
$
376,259


271

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
6. Reinsurance (continued)

Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance were $2.8 billion and $2.9 billion at December 31, 2017 and 2016, respectively. The deposit liabilities on reinsurance were $1.4 billion and $31 million at December 31, 2017 and 2016, respectively.
7. 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. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience.
The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years from the Demutualization Date.
The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the Demutualization Date. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the Demutualization Date (adjusted to eliminate the impact of related amounts in AOCI) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block are greater than the expected cumulative earnings of the closed block, the Company will pay the excess to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings.
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.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
7. Closed Block (continued)

Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Closed Block Liabilities
 
 
 
 
Future policy benefits
 
$
40,463

 
$
40,834

Other policy-related balances
 
222

 
257

Policyholder dividends payable
 
437

 
443

Policyholder dividend obligation
 
2,121

 
1,931

Current income tax payable
 

 
4

Other liabilities
 
212

 
196

Total closed block liabilities
 
43,455

 
43,665

Assets Designated to the Closed Block
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value
 
27,904

 
27,220

Equity securities available-for-sale, at estimated fair value
 
70

 
100

Mortgage loans
 
5,878

 
5,935

Policy loans
 
4,548

 
4,553

Real estate and real estate joint ventures
 
613

 
655

Other invested assets
 
731

 
1,246

Total investments
 
39,744

 
39,709

Accrued investment income
 
477

 
467

Premiums, reinsurance and other receivables; cash and cash equivalents
 
14

 
86

Current income tax recoverable
 
35

 

Deferred income tax assets
 
36

 
177

Total assets designated to the closed block
 
40,306

 
40,439

Excess of closed block liabilities over assets designated to the closed block
 
3,149

 
3,226

Amounts included in AOCI:
 
 
 
 
Unrealized investment gains (losses), net of income tax
 
1,863

 
1,517

Unrealized gains (losses) on derivatives, net of income tax
 
(7
)
 
95

Allocated to policyholder dividend obligation, net of income tax
 
(1,379
)
 
(1,255
)
Total amounts included in AOCI
 
477

 
357

Maximum future earnings to be recognized from closed block assets and liabilities
 
$
3,626

 
$
3,583

Information regarding the closed block policyholder dividend obligation was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Balance at January 1,
 
$
1,931

 
$
1,783

 
$
3,155

Change in unrealized investment and derivative gains (losses)
 
190

 
148

 
(1,372
)
Balance at December 31,
 
$
2,121

 
$
1,931

 
$
1,783


273

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
7. Closed Block (continued)

Information regarding the closed block revenues and expenses was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Revenues
 
 
 
 
 
 
Premiums
 
$
1,736

 
$
1,804

 
$
1,850

Net investment income
 
1,818

 
1,902

 
1,982

Net investment gains (losses)
 
1

 
(10
)
 
(23
)
Net derivative gains (losses)
 
(32
)
 
25

 
27

Total revenues
 
3,523

 
3,721

 
3,836

Expenses
 
 
 
 
 
 
Policyholder benefits and claims
 
2,453

 
2,563

 
2,564

Policyholder dividends
 
976

 
953

 
1,015

Other expenses
 
125

 
133

 
143

Total expenses
 
3,554

 
3,649

 
3,722

Revenues, net of expenses before provision for income tax expense (benefit)
 
(31
)
 
72

 
114

Provision for income tax expense (benefit)
 
12

 
24

 
41

Revenues, net of expenses and provision for income tax expense (benefit)
 
$
(43
)
 
$
48

 
$
73

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 Reorganization. MLIC also charges the closed block for expenses of maintaining the policies included in the closed block.
8. Investments
See Note 10 for information about the fair value hierarchy for investments and the related valuation methodologies.
Investment Risks and Uncertainties
Investments are exposed to the following primary sources of risk: credit, interest rate, liquidity, market valuation, currency and real estate risk. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of impairments, the recognition of income on certain investments and the potential consolidation of VIEs. The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the amounts presented within the consolidated financial statements.
The determination of valuation allowances and impairments is highly subjective and is based upon periodic evaluations and assessments of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.
The recognition of income on certain investments (e.g. structured securities, including mortgage-backed securities, asset-backed securities (“ABS”), certain structured investment transactions and FVO securities) is dependent upon certain factors such as prepayments and defaults, and changes in such factors could result in changes in amounts to be earned.
Fixed Maturity and Equity Securities AFS
Fixed Maturity and Equity Securities AFS by Sector
The following table presents the fixed maturity and equity securities AFS by sector. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities and non-redeemable preferred stock is reported within equity securities. Included within fixed maturity securities are structured securities including RMBS, ABS and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Securities”).

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

 
December 31, 2017
 
December 31, 2016
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 
 
Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
 
(In millions)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
76,005

 
$
7,007

 
$
351

 
$

 
$
82,661

 
$
73,280

 
$
6,027

 
$
764

 
$

 
$
78,543

Foreign government
55,351

 
6,495

 
312

 

 
61,534

 
49,864

 
6,485

 
373

 

 
55,976

Foreign corporate
52,409

 
3,836

 
676

 

 
55,569

 
49,308

 
2,926

 
1,572

 
(1
)
 
50,663

U.S. government and agency
43,446

 
4,227

 
279

 

 
47,394

 
41,294

 
3,682

 
543

 

 
44,433

RMBS
27,846

 
1,145

 
233

 
(42
)
 
28,800

 
28,393

 
1,039

 
410

 
(10
)
 
29,032

State and political subdivision
10,752

 
1,717

 
13

 
1

 
12,455

 
10,977

 
1,340

 
85

 
1

 
12,231

ABS
12,213

 
116

 
39

 
(1
)
 
12,291

 
11,266

 
90

 
128

 
3

 
11,225

CMBS
8,047

 
222

 
42

 

 
8,227

 
7,294

 
237

 
71

 

 
7,460

Total fixed maturity securities
$
286,069

 
$
24,765

 
$
1,945

 
$
(42
)
 
$
308,931

 
$
271,676

 
$
21,826

 
$
3,946

 
$
(7
)
 
$
289,563

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
$
1,687

 
$
364

 
$
16

 
$

 
$
2,035

 
$
1,827

 
$
464

 
$
13

 
$

 
$
2,278

Non-redeemable preferred stock
453

 
29

 
4

 

 
478

 
637

 
19

 
40

 

 
616

Total equity securities
$
2,140

 
$
393

 
$
20

 
$

 
$
2,513

 
$
2,464

 
$
483

 
$
53

 
$

 
$
2,894

__________________
(1)
Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”
The Company held non-income producing fixed maturity securities with an estimated fair value of $6 million and $1 million with unrealized gains (losses) of ($4) million and ($3) million at December 31, 2017 and 2016, respectively.
Methodology for Amortization of Premium and Accretion of Discount on Structured Securities
Amortization of premium and accretion of discount on Structured Securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Securities are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive Structured Securities and certain prepayment-sensitive securities, the effective yield is recalculated on a prospective basis. For all other Structured Securities, the effective yield is recalculated on a retrospective basis.
Maturities of Fixed Maturity Securities
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at December 31, 2017:
 
Due in One Year or Less
 
Due After One Year Through Five Years
 
Due After Five Years Through Ten Years
 
Due After Ten Years
 
Structured Securities
 
Total Fixed Maturity Securities
 
(In millions)
Amortized cost
$
11,378

 
$
62,647

 
$
61,043

 
$
102,895

 
$
48,106

 
$
286,069

Estimated fair value
$
11,437

 
$
65,423

 
$
64,499

 
$
118,254

 
$
49,318

 
$
308,931

Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Continuous Gross Unrealized Losses for Fixed Maturity and Equity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity and equity securities AFS in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position at:
 
December 31, 2017

December 31, 2016
 
Less than 12 Months

Equal to or Greater than 12 Months

Less than 12 Months

Equal to or Greater than 12 Months
 
Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses
 
(Dollars in millions)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
5,604

 
$
92

 
$
4,115

 
$
259

 
$
11,471

 
$
466

 
$
2,938

 
$
298

Foreign government
4,234

 
83

 
3,251

 
229

 
5,955

 
260

 
918

 
113

Foreign corporate
4,422

 
99

 
6,802

 
577

 
10,147

 
573

 
5,493

 
998

U.S. government and agency
18,273

 
93

 
3,560

 
186

 
9,104

 
523

 
141

 
20

RMBS
6,359

 
50

 
4,159

 
141

 
9,449

 
291

 
1,800

 
109

State and political subdivision
182

 
2

 
346

 
12

 
1,747

 
80

 
56

 
6

ABS
1,695

 
7

 
729

 
31

 
2,224

 
28

 
2,328

 
103

CMBS
1,174

 
9

 
413

 
33

 
998

 
22

 
564

 
49

Total fixed maturity securities
$
41,943

 
$
435

 
$
23,375

 
$
1,468

 
$
51,095

 
$
2,243

 
$
14,238

 
$
1,696

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
$
126

 
$
16

 
$
4

 
$

 
$
105

 
$
13

 
$
11

 
$

Non-redeemable preferred stock
42

 
1

 
41

 
3

 
139

 
7

 
125

 
33

Total equity securities
$
168

 
$
17

 
$
45

 
$
3

 
$
244

 
$
20

 
$
136

 
$
33

Total number of securities in an unrealized loss position
2,651

 
 
 
1,965

 
 
 
3,580

 
 
 
1,307

 
 
Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
Evaluation and Measurement Methodologies
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the estimated fair value has been below cost or amortized cost; (ii) the potential for impairments when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments where the issuer, series of issuers or industry has suffered a catastrophic loss or has exhausted natural resources; (vi) with respect to fixed maturity securities, whether the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost recovers; (vii) with respect to Structured Securities, changes in forecasted cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security; (viii) the potential for impairments due to weakening of foreign currencies on non-functional currency denominated fixed maturity securities that are near maturity; and (ix) other subjective factors, including concentrations and information obtained from regulators and rating agencies.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

The methodology and significant inputs used to determine the amount of credit loss on fixed maturity securities are as follows:
The Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows. The discount rate is generally the effective interest rate of the security prior to impairment.
When determining collectability and the period over which value is expected to recover, the Company applies considerations utilized in its overall impairment evaluation process which incorporates information regarding the specific security, fundamentals of the industry and geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from management’s best estimates of likely scenario-based outcomes after giving consideration to a variety of variables that include, but are not limited to: payment terms of the security; the likelihood that the issuer can service the interest and principal payments; the quality and amount of any credit enhancements; the security’s position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; and changes to the rating of the security or the issuer by rating agencies.
Additional considerations are made when assessing the unique features that apply to certain Structured Securities including, but not limited to: the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying loans or assets backing a particular security, and the payment priority within the tranche structure of the security.
When determining the amount of the credit loss for U.S. and foreign corporate securities, foreign government securities and state and political subdivision securities, the estimated fair value is considered the recovery value when available information does not indicate that another value is more appropriate. When information is identified that indicates a recovery value other than estimated fair value, management considers in the determination of recovery value the same considerations utilized in its overall impairment evaluation process as described above, as well as any private and public sector programs to restructure such securities.
With respect to securities that have attributes of debt and equity (“perpetual hybrid securities”), consideration is given in the OTTI analysis as to whether there has been any deterioration in the credit of the issuer and the likelihood of recovery in value of the securities that are in a severe and extended unrealized loss position. Consideration is also given as to whether any perpetual hybrid securities with an unrealized loss, regardless of credit rating, have deferred any dividend payments. When an OTTI loss has occurred, the OTTI loss is the entire difference between the perpetual hybrid security’s cost and its estimated fair value with a corresponding charge to earnings.
The cost or amortized cost of fixed maturity and equity securities is adjusted for OTTI in the period in which the determination is made. The Company does not change the revised cost basis for subsequent recoveries in value.
In periods subsequent to the recognition of OTTI on a fixed maturity security, the Company accounts for the impaired security as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted over the remaining term of the fixed maturity security in a prospective manner based on the amount and timing of estimated future cash flows.
Current Period Evaluation
Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at December 31, 2017. Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, collateral valuation, interest rates and credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
Gross unrealized losses on fixed maturity securities decreased $2.0 billion during the year ended December 31, 2017 to $1.9 billion. The decrease in gross unrealized losses for the year ended December 31, 2017, was primarily attributable to narrowing credit spreads and strengthening foreign currencies on non-functional currency denominated fixed maturity securities.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

At December 31, 2017, $117 million of the total $1.9 billion of gross unrealized losses were from 31 fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.
Gross unrealized losses on equity securities decreased $33 million during the year ended December 31, 2017 to $20 million.
Investment Grade Fixed Maturity Securities
Of the $117 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $73 million, or 62%, were related to gross unrealized losses on 12 investment grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities
Of the $117 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $44 million, or 38%, were related to gross unrealized losses on 19 below investment grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related to U.S. and foreign corporate securities (primarily industrial and utility securities) and non-agency RMBS (primarily alternative residential mortgage loans) and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty including concerns over lower oil prices in the energy sector and valuations of residential real estate supporting non-agency RMBS. Management evaluates U.S. and foreign corporate securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuers and evaluates non-agency RMBS based on actual and projected cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security and the payment priority within the tranche structure of the security.
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
 
Commercial
 
$
44,375

 
64.6
 %
 
$
41,512

 
63.7
 %
Agricultural
 
13,014

 
18.9

 
12,564

 
19.3

Residential
 
11,136

 
16.2

 
10,829

 
16.6

Subtotal (1)
 
68,525

 
99.7

 
64,905

 
99.6

Valuation allowances
 
(314
)
 
(0.5
)
 
(304
)
 
(0.5
)
Subtotal mortgage loans, net
 
68,211

 
99.2

 
64,601

 
99.1

Residential — FVO
 
520

 
0.8

 
566

 
0.9

Total mortgage loans, net
 
$
68,731

 
100.0
 %
 
$
65,167

 
100.0
 %
__________________
(1)
Purchases of mortgage loans, primarily residential, were $3.1 billion and $2.9 billion for the years ended December 31, 2017 and 2016, respectively.
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential — FVO is presented in Note 10. The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Mortgage Loans, Valuation Allowance and Impaired Loans by Portfolio Segment
Mortgage loans by portfolio segment, by method of evaluation of credit loss, impaired mortgage loans including those modified in a troubled debt restructuring, and the related valuation allowances, were as follows at and for the years ended:
 
Evaluated Individually for Credit Losses
 
Evaluated Collectively for Credit Losses
 
Impaired Loans
 
Impaired Loans with a Valuation Allowance
 
Impaired Loans without a Valuation Allowance
 
 
 
 
 
 
 
 
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Valuation
Allowances
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Recorded
Investment
 
Valuation
Allowances
 
Carrying
Value
 
Average
Recorded
Investment
 
(In millions)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$

 
$

 
$

 
$

 
$

 
$
44,375

 
$
214

 
$

 
$
5

Agricultural
22

 
21

 
2

 
27

 
27

 
12,966

 
39

 
46

 
32

Residential

 

 

 
358

 
324

 
10,812

 
59

 
324

 
285

Total
$
22

 
$
21

 
$
2

 
$
385

 
$
351

 
$
68,153

 
$
312

 
$
370

 
$
322

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$

 
$

 
$

 
$
12

 
$
12

 
$
41,500

 
$
202

 
$
12

 
$
90

Agricultural
11

 
10

 
1

 
27

 
27

 
12,527

 
38

 
36

 
49

Residential

 

 

 
265

 
241

 
10,588

 
63

 
241

 
188

Total
$
11

 
$
10

 
$
1

 
$
304

 
$
280

 
$
64,615

 
$
303

 
$
289

 
$
327

The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $127 million, $60 million and $84 million, respectively, for the year ended December 31, 2015.
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
 
Commercial
 
Agricultural
 
Residential
 
Total
 
(In millions)
Balance at January 1, 2015
$
202

 
$
35

 
$
42

 
$
279

Provision (release)
5

 
2

 
30

 
37

Charge-offs, net of recoveries
(19
)
 

 
(16
)
 
(35
)
Balance at December 31, 2015
188

 
37

 
56

 
281

Provision (release) (1)
157

 
3

 
23

 
183

Charge-offs, net of recoveries (1)
(143
)
 
(1
)
 
(16
)
 
(160
)
Balance at December 31, 2016
202

 
39

 
63

 
304

Provision (release) 
12

 
4

 
8

 
24

Charge-offs, net of recoveries 

 
(2
)
 
(12
)
 
(14
)
Balance at December 31, 2017
$
214

 
$
41

 
$
59

 
$
314

__________________
(1)
In connection with an acquisition in 2010, certain impaired commercial mortgage loans were acquired and accordingly, were not originated by the Company. Such commercial mortgage loans have been accounted for as purchased credit impaired (“PCI”) commercial mortgage loans. Decreases in cash flows expected to be collected on PCI commercial mortgage loans can result in provisions for losses on mortgage loans. For the year ended December 31, 2016, in connection with the maturity of an acquired PCI commercial mortgage loan, an increase to the commercial mortgage loan valuation allowance of $143 million was recorded and charged-off upon maturity. The Company has recovered a substantial portion of the loss on the loan incurred through an indemnification agreement entered into in connection with the acquisition in 2010.

279

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Valuation Allowance Methodology
Mortgage loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the loan agreement. Specific valuation allowances are established using the same methodology for all three portfolio segments as the excess carrying value of a loan over either (i) the present value of expected future cash flows discounted at the loan’s original effective interest rate, (ii) the estimated fair value of the loan’s underlying collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or (iii) the loan’s observable market price. A common evaluation framework is used for establishing non-specific valuation allowances for all loan portfolio segments; however, a separate non-specific valuation allowance is calculated and maintained for each loan portfolio segment that is based on inputs unique to each loan portfolio segment. Non-specific valuation allowances are established for pools of loans with similar risk characteristics where a property-specific or market-specific risk has not been identified, but for which the Company expects to incur a credit loss. These evaluations are based upon several loan portfolio segment-specific factors, including the Company’s experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations are revised as conditions change and new information becomes available.
Commercial and Agricultural Mortgage Loan Portfolio Segments
The Company typically uses several years of historical experience in establishing non-specific valuation allowances which capture multiple economic cycles. For evaluations of commercial mortgage loans, in addition to historical experience, management considers factors that include the impact of a rapid change to the economy, which may not be reflected in the loan portfolio, and recent loss and recovery trend experience as compared to historical loss and recovery experience. For evaluations of agricultural mortgage loans, in addition to historical experience, management considers factors that include increased stress in certain sectors, which may be evidenced by higher delinquency rates, or a change in the number of higher risk loans. On a quarterly basis, management incorporates the impact of these current market events and conditions on historical experience in determining the non-specific valuation allowance established for commercial and agricultural mortgage loans.
All commercial mortgage loans are reviewed on an ongoing basis which 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, loan-to-value ratios, debt service coverage ratios, 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 loan-to-value ratios and lower debt service coverage ratios. All agricultural mortgage loans are monitored on an ongoing basis. The monitoring process for agricultural mortgage loans is generally similar to the commercial mortgage loan monitoring process, with a focus on higher risk loans, including reviews on a geographic and property-type basis. Higher risk loans are reviewed individually on an ongoing basis for potential credit loss and specific valuation allowances are established using the methodology described above. Quarterly, the remaining loans are reviewed on a pool basis by aggregating groups of loans that have similar risk characteristics for potential credit loss, and non-specific valuation allowances are established as described above using inputs that are unique to each segment of the loan portfolio.
For commercial mortgage loans, the primary credit quality indicator is the debt service coverage ratio, which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss. The Company also reviews the loan-to-value ratio of its commercial mortgage loan portfolio. Loan-to-value ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt service coverage ratio and the values utilized in calculating the ratio are updated annually on a rolling basis, with a portion of the portfolio updated each quarter. In addition, the loan-to-value ratio is routinely updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
For agricultural mortgage loans, the Company’s primary credit quality indicator is the loan-to-value ratio. The values utilized in calculating this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.

280

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Residential Mortgage Loan Portfolio Segment
The Company’s residential mortgage loan portfolio is comprised primarily of closed end, amortizing residential mortgage loans. For evaluations of residential mortgage loans, the key inputs of expected frequency and expected loss reflect current market conditions, with expected frequency adjusted, when appropriate, for differences from market conditions and the Company’s historical experience. In contrast to the commercial and agricultural mortgage loan portfolios, residential mortgage loans are smaller-balance homogeneous loans that are collectively evaluated for impairment. Non-specific valuation allowances are established using the evaluation framework described above for pools of loans with similar risk characteristics from inputs that are unique to the residential segment of the loan portfolio. Loan specific valuation allowances are only established on residential mortgage loans when they have been restructured and are established using the methodology described above for all loan portfolio segments.
For residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in nonaccrual status which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Credit Quality of Commercial Mortgage Loans
The credit quality of commercial mortgage loans was as follows at:
 
Recorded Investment
 
Estimated
Fair
Value
 
% of
Total
 
Debt Service Coverage Ratios
 
Total
 
% of
Total
 
 
> 1.20x
 
1.00x - 1.20x
 
< 1.00x
 
 
(Dollars in millions)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
37,073

 
$
1,483

 
$
201

 
$
38,757

 
87.4
%
 
$
39,528

 
87.7
%
65% to 75%
4,183

 
98

 
119

 
4,400

 
9.9

 
4,408

 
9.8

76% to 80%
235

 
210

 
57

 
502

 
1.1

 
476

 
1.0

Greater than 80%
401

 
168

 
147

 
716

 
1.6

 
672

 
1.5

Total
$
41,892

 
$
1,959

 
$
524

 
$
44,375

 
100.0
%
 
$
45,084

 
100.0
%
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
$
36,067

 
$
1,077

 
$
707

 
$
37,851

 
91.2
%
 
$
38,237

 
91.5
%
65% to 75%
3,044

 

 
202

 
3,246

 
7.8

 
3,185

 
7.6

76% to 80%
195

 

 

 
195

 
0.5

 
182

 
0.4

Greater than 80%
118

 
27

 
75

 
220

 
0.5

 
213

 
0.5

Total
$
39,424

 
$
1,104

 
$
984

 
$
41,512

 
100.0
%
 
$
41,817

 
100.0
%

281

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
 
December 31,
 
2017
 
2016
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
Less than 65%
$
12,347

 
94.9
%
 
$
12,023

 
95.7
%
65% to 75%
618

 
4.7

 
436

 
3.5

76% to 80%
40

 
0.3

 
17

 
0.1

Greater than 80%
9

 
0.1

 
88

 
0.7

Total
$
13,014

 
100.0
%
 
$
12,564

 
100.0
%
The estimated fair value of agricultural mortgage loans was $13.1 billion and $12.7 billion at December 31, 2017 and 2016, respectively.
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
December 31,
 
2017
 
2016
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
Performing
$
10,622

 
95.4
%
 
$
10,448

 
96.5
%
Nonperforming
514

 
4.6

 
381

 
3.5

Total
$
11,136

 
100.0
%
 
$
10,829

 
100.0
%
The estimated fair value of residential mortgage loans was $11.6 billion and $11.2 billion at December 31, 2017 and 2016, respectively.
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both December 31, 2017 and 2016. The Company defines delinquency consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. The past due and nonaccrual mortgage loans at recorded investment, prior to valuation allowances, by portfolio segment, were as follows at:
 
Past Due
 
Greater than 90 Days Past Due and Still
Accruing Interest
 
Nonaccrual
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
(In millions)
Commercial
$

 
$
3

 
$

 
$
3

 
$

 
$

Agricultural
134

 
127

 
125

 
104

 
36

 
23

Residential
514

 
381

 
33

 
37

 
481

 
344

Total
$
648

 
$
511

 
$
158

 
$
144

 
$
517

 
$
367


282

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Mortgage Loans Modified in a Troubled Debt Restructuring
The Company may grant concessions related to borrowers experiencing financial difficulties, which are classified as troubled debt restructurings. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates, and/or a reduction of accrued interest. The amount, timing and extent of the concessions granted are considered in determining any impairment or changes in the specific valuation allowance recorded with the restructuring. Through the continuous monitoring process, a specific valuation allowance may have been recorded prior to the quarter when the mortgage loan is modified in a troubled debt restructuring.
For the year ended December 31, 2017, the Company had 500 residential mortgage loans modified in a troubled debt restructuring with carrying value after specific valuation allowance of $120 million and $108 million pre-modification and post-modification, respectively. For the year ended December 31, 2016, the Company had 557 residential mortgage loans modified in a troubled debt restructuring with carrying value after specific valuation allowance of $136 million and $122 million pre-modification and post-modification, respectively. For the years ended December 31, 2017 and 2016, the Company did not have a significant amount of agricultural mortgage loans and no commercial mortgage loans modified in a troubled debt restructuring.
For both the years ended December 31, 2017 and 2016, the Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring with subsequent payment default.
Other Invested Assets
Other invested assets is comprised primarily of freestanding derivatives with positive estimated fair values (see Note 9), tax credit and renewable energy partnerships and leveraged and direct financing leases.
Tax Credit Partnerships
The carrying value of tax credit partnerships was $1.8 billion and $1.7 billion at December 31, 2017 and 2016, respectively. Losses from tax credit partnerships included within net investment income were $259 million, $167 million, and $163 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Leveraged and Direct Financing Leases
Investment in leveraged and direct financing leases consisted of the following at:
 
December 31,
 
2017
 
2016
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
(In millions)
Rental receivables, net
$
912

 
$
2,303

 
$
1,172

 
$
1,683

Estimated residual values
838

 
42

 
952

 
71

Subtotal
1,750

 
2,345

 
2,124

 
1,754

Unearned income
(472
)
 
(1,022
)
 
(603
)
 
(639
)
Investment in leases, net of non-recourse debt
$
1,278

 
$
1,323

 
$
1,521

 
$
1,115

Rental receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 15 years but in certain circumstances can be over 25 years, while the payment periods for direct financing leases range from one to 20 years. For rental receivables, the primary credit quality indicator is whether the rental receivable is performing or nonperforming, which is assessed monthly. The Company generally defines nonperforming rental receivables as those that are 90 days or more past due. At both December 31, 2017 and 2016, all leveraged lease receivables were performing and over 99% of direct financing rental receivables were performing.
The deferred income tax liability related to leveraged leases was $934 million and $1.4 billion at December 31, 2017 and 2016, respectively.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Cash Equivalents
The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $6.2 billion and $7.4 billion at December 31, 2017 and 2016, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity and equity securities AFS and the effect on DAC, VOBA, DSI, future policy benefits and the policyholder dividend obligation that would result from the realization of the unrealized gains (losses) are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses) included in AOCI were as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Fixed maturity securities
 
$
22,645

 
$
20,330

 
$
18,158

Fixed maturity securities with noncredit OTTI losses included in AOCI
 
41

 
8

 
(76
)
Total fixed maturity securities
 
22,686

 
20,338

 
18,082

Equity securities
 
421

 
485

 
422

Derivatives
 
1,453

 
2,923

 
2,350

Other
 
46

 
23

 
287

Subtotal
 
24,606

 
23,769

 
21,141

Amounts allocated from:
 
 
 
 
 
 
Future policy benefits
 
(77
)
 
(1,114
)
 
(163
)
DAC and VOBA related to noncredit OTTI losses recognized in AOCI
 

 
(3
)
 

DAC, VOBA and DSI
 
(1,768
)
 
(1,430
)
 
(1,273
)
Policyholder dividend obligation
 
(2,121
)
 
(1,931
)
 
(1,783
)
Subtotal
 
(3,966
)
 
(4,478
)
 
(3,219
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
 
(12
)
 
(1
)
 
27

Deferred income tax benefit (expense)
 
(6,958
)
 
(6,634
)
 
(6,149
)
Net unrealized investment gains (losses)
 
13,670

 
12,656

 
11,800

Net unrealized investment gains (losses) attributable to noncontrolling interests
 
(8
)
 
(6
)
 
(31
)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
 
$
13,662

 
$
12,650

 
$
11,769

Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax basis, $1,250 million and $1,554 million for the years ended December 31, 2016 and 2015, respectively, related to assets and liabilities of a disposed subsidiary.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

The changes in net unrealized investment gains (losses) were as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Balance at January 1,
 
$
12,650

 
$
11,769

 
$
16,300

Fixed maturity securities on which noncredit OTTI losses have been recognized
 
33

 
84

 
36

Unrealized investment gains (losses) during the year
 
804

 
2,544

 
(11,668
)
Unrealized investment gains (losses) relating to:
 
 
 
 
 
 
Future policy benefits
 
1,037

 
(951
)
 
2,723

DAC and VOBA related to noncredit OTTI losses recognized in AOCI
 
3

 
(3
)
 
4

DAC, VOBA and DSI
 
(338
)
 
(157
)
 
673

Policyholder dividend obligation
 
(190
)
 
(148
)
 
1,372

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
 
(11
)
 
(28
)
 
(15
)
Deferred income tax benefit (expense)
 
(324
)
 
(485
)
 
2,342

Net unrealized investment gains (losses)
 
13,664

 
12,625

 
11,767

Net unrealized investment gains (losses) attributable to noncontrolling interests
 
(2
)
 
25

 
2

Balance at December 31,
 
$
13,662

 
$
12,650

 
$
11,769

Change in net unrealized investment gains (losses)
 
$
1,014

 
$
856

 
$
(4,533
)
Change in net unrealized investment gains (losses) attributable to noncontrolling interests
 
(2
)
 
25

 
2

Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
 
$
1,012

 
$
881

 
$
(4,531
)
Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax basis, ($304) million and ($1,128) million for the years ended December 31, 2016 and 2015, respectively, related to assets and liabilities of a disposed subsidiary.
Concentrations of Credit Risk
Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, were in fixed income securities of the Japanese government and its agencies with an estimated fair value of $27.5 billion and $24.7 billion at December 31, 2017 and 2016, respectively, and in fixed income securities of the South Korean government and its agencies with an estimated fair value of $6.5 billion at December 31, 2017. At December 31, 2016, the investments in South Korean government and agency fixed income securities were less than 10% of the Company’s equity.
Securities Lending
Elements of the securities lending program are presented below at:
 
December 31,
 
2017
 
2016
 
(In millions)
Securities on loan: (1)
 
 
 
Amortized cost
$
17,801

 
$
18,798

Estimated fair value
$
19,028

 
$
19,753

Cash collateral received from counterparties (2)
$
19,417

 
$
20,114

Security collateral received from counterparties (3)
$
19

 
$
20

Reinvestment portfolio — estimated fair value
$
19,508

 
$
20,133

__________________
(1)
Included within fixed maturity securities.
(2)
Included within payables for collateral under securities loaned and other transactions.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

(3)
Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.
The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
 
December 31, 2017
 
December 31, 2016
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Remaining Tenor of Securities Lending Agreements
 
 
 
Open (1)
 
1 Month
or Less
 
Over
 1 to 6
Months
 
Total
 
Open (1)
 
1 Month
or Less
 
Over
1 to 6
Months
 
Total
 
(In millions)
Cash collateral liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
3,753

 
$
6,031

 
$
8,607

 
$
18,391

 
$
4,480

 
$
6,496

 
$
8,383

 
$
19,359

Foreign government

 
192

 
834

 
1,026

 

 
569

 
143

 
712

U.S. corporate

 

 

 

 

 
43

 

 
43

Total
$
3,753

 
$
6,223

 
$
9,441

 
$
19,417

 
$
4,480

 
$
7,108

 
$
8,526

 
$
20,114

__________________
(1)
The related loaned security could be returned to the Company on the next business day, which would require the Company to immediately return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2017 was $3.7 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, U.S. government and agency securities, ABS, U.S. corporate securities) and short-term investments with 59% invested in agency RMBS, U.S. government and agency securities, short-term investments, cash equivalents or held in cash. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.
Repurchase Agreements
Elements of the short-term repurchase agreements are presented below at:
 
 
December 31, 2017
 
December 31, 2016
 
 
(In millions)
Securities on loan: (1)
 
 
 
 
Amortized cost
 
$
994

 
$
98

Estimated fair value
 
$
1,141

 
$
113

Cash collateral received from counterparties (2)
 
$
1,102

 
$
102

Reinvestment portfolio — estimated fair value
 
$
1,102

 
$
100

__________________
(1)
Included within fixed maturity securities, short-term investments and cash equivalents.
(2)
Included within payables for collateral under securities loaned and other transactions and other liabilities.

286

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
 
 
December 31, 2017
 
December 31, 2016
 
 
Remaining Tenor of
Repurchase Agreements
 
 
 
Remaining Tenor of
Repurchase Agreements
 
 
 
 
1 Month
or Less
 
Over
1 to 6 
Months
 
Total
 
1 Month
or Less
 
Over
1 to 6
Months
 
Total
 
 
(In millions)
Cash collateral liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
1,005

 
$

 
$
1,005

 
$
5

 
$

 
$
5

All other corporate and government
 
44

 
53

 
97

 
46

 
51

 
97

Total
 
$
1,049

 
$
53

 
$
1,102

 
$
51

 
$
51

 
$
102

The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including U.S. government and agency securities, agency RMBS, ABS), short-term investments and cash equivalents, with 63% invested in U.S. government and agency securities, agency RMBS, short-term investments, cash equivalents or held in cash. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.
FHLB Boston Advance Agreements
At December 31, 2017, a subsidiary of the Company had pledged state and political subdivision fixed maturity securities with an estimated fair value of $564 million as collateral and received $300 million in cash advances under short-term advance agreements with the FHLB Boston. The liability to return the cash advances is included within payables for collateral under securities loaned and other transactions and the remaining tenor of all liabilities under these agreements was one to six months at December 31, 2017. The estimated fair value of the reinvestment portfolio acquired with the cash advances was $300 million at December 31, 2017 and consisted primarily of U.S. government and agency fixed maturity securities. At December 31, 2017, the reinvestment portfolio also included a $12 million, at estimated fair value, required investment in FHLB Boston common stock. The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary. No such transactions were outstanding at December 31, 2016.
Invested Assets on Deposit, Held in Trust and Pledged as Collateral
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans, which are presented at carrying value at:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Invested assets on deposit (regulatory deposits)
 
$
1,879

 
$
1,925

Invested assets held in trust (collateral financing arrangement and reinsurance agreements)
 
2,490

 
2,057

Invested assets pledged as collateral (1)
 
24,174

 
23,882

Total invested assets on deposit, held in trust and pledged as collateral
 
$
28,543

 
$
27,864

__________________
(1)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 4), derivative transactions (see Note 9), secured debt (see Note 12), and a collateral financing arrangement (see Note 13).
See “— Securities Lending,” “— Repurchase Agreements” and “— FHLB Boston Advance Agreements” for information regarding securities on loan and Note 7 for information regarding investments designated to the closed block.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Purchased Credit Impaired Investments
Investments acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as PCI investments. For each investment, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. If, subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.
The Company’s PCI investments were as follows at:
 
December 31,
 
 
2017
 
2016
 
 
Fixed Maturity Securities
 
 
(In millions)
 
Outstanding principal and interest balance (1)
$
4,763

 
$
5,624

 
Carrying value (2)
$
3,954

 
$
4,427

 
__________________
(1)
Represents the contractually required payments, which include contractual principal, whether or not currently due, and accrued interest.
(2)
Estimated fair value plus accrued interest.
The following table presents information about PCI investments acquired during the periods indicated:
 
Years Ended December 31,
 
 
2017
 
2016
 
 
Fixed Maturity Securities
 
 
(In millions)
Contractually required payments (including interest)
$
95

 
$
1,464

 
Cash flows expected to be collected (1)
$
73

 
$
1,338

 
Fair value of investments acquired
$
67

 
$
984

 
__________________
(1)
Represents undiscounted principal and interest cash flow expectations, at the date of acquisition.
The following table presents activity for the accretable yield on PCI investments:
 
Years Ended December 31,
 
 
2017
 
2016
 
 
Fixed Maturity Securities
 
 
(In millions)
Accretable yield, January 1,
$
1,733

 
$
1,780

 
Investments purchased
6

 
354

 
Accretion recognized in earnings
(281
)
 
(269
)
 
Disposals
(42
)
 
(2
)
 
Reclassification (to) from nonaccretable difference
104

 
(130
)
 
Accretable yield, December 31,
$
1,520

 
$
1,733

 

288

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Collectively Significant Equity Method Investments
The Company holds investments in real estate joint ventures, real estate funds and other limited partnership interests consisting of leveraged buy-out funds, hedge funds, private equity funds, joint ventures and other funds. The portion of these investments accounted for under the equity method had a carrying value of $13.8 billion at December 31, 2017. The Company’s maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $4.8 billion at December 31, 2017. Except for certain real estate joint ventures, the Company’s investments in real estate funds and other limited partnership interests are generally of a passive nature in that the Company does not participate in the management of the entities.
As described in Note 1, the Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income. Aggregate net investment income from these equity method investments exceeded 10% of the Company’s consolidated pre-tax income (loss) from continuing operations for two of the three most recent annual periods: 2017 and 2016. The Company is providing the following aggregated summarized financial data for such equity method investments, for the most recent annual periods, in order to provide comparative information. This aggregated summarized financial data does not represent the Company’s proportionate share of the assets, liabilities, or earnings of such entities.
The aggregated summarized financial data presented below reflects the latest available financial information and is as of, and for, the years ended December 31, 2017, 2016 and 2015. Aggregate total assets of these entities totaled $505.6 billion at December 31, 2017 and $436.9 billion at December 31, 2016 (which includes $9.6 billion related to Brighthouse). Aggregate total liabilities of these entities totaled $68.9 billion at December 31, 2017 and $56.4 billion at December 31, 2016 (which includes $177 million related to Brighthouse). Aggregate net income (loss) of these entities totaled $37.9 billion, $26.8 billion and $25.8 billion for the years ended December 31, 2017, 2016 and 2015, respectively, with $270 million and $1.1 billion related to Brighthouse for the years ended December 31, 2016 and 2015, respectively. Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income, including recurring investment income and realized and unrealized investment gains (losses).
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to investment related VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at December 31, 2017 and 2016.
 
December 31,
 
2017
 
2016
 
Total
Assets
 
Total
Liabilities
 
Total
Assets
 
Total
Liabilities
 
(In millions)
Renewable energy partnership (1)
$
116

 
$
3

 
$

 
$

Securitization entities (assets (primarily FVO securities) and liabilities (primarily debt)) (2)
7

 
6

 
9

 
12

Other investments (3)
25

 

 
50

 

Total
$
148

 
$
9

 
$
59

 
$
12

__________________

289

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

(1)
Assets of the renewable energy partnership, primarily consisting of other invested assets, were consolidated in earlier periods as the two investors are subsidiaries of MLIC and Brighthouse, respectively. As a result of the Separation and a reassessment in 2017, the renewable energy partnership was determined to be a consolidated VIE.
(2)
The Company consolidates entities that are structured as collateralized debt obligations. The assets of these entities can only be used to settle their respective liabilities, and under no circumstances is the Company liable for any principal or interest shortfalls should any arise.
(3)
Other investments is primarily comprised of other invested assets.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
 
December 31,
 
2017
 
2016
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
(In millions)
Fixed maturity securities AFS:
 
 
 
 
 
 
 
Structured Securities (2)
$
47,614

 
$
47,614

 
$
46,773

 
$
46,773

U.S. and foreign corporate
1,560

 
1,560

 
1,940

 
1,940

Other limited partnership interests
4,834

 
8,543

 
4,714

 
8,990

Other invested assets
2,291

 
2,625

 
2,206

 
2,777

Other (3)
82

 
87

 
199

 
215

Total
$
56,381

 
$
60,429

 
$
55,832

 
$
60,695

__________________
(1)
The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax credits guaranteed by third parties of $117 million and $150 million at December 31, 2017 and 2016, respectively. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
(2)
For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
(3)
Other is primarily comprised of real estate joint ventures and a joint venture related loan.
As described in Note 20, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs during each of the years ended December 31, 2017, 2016 and 2015.

290

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

During 2017, the Company securitized certain residential mortgage loans and acquired an interest in the related RMBS issued. While the Company has a variable interest in the issuer of the securities, it is not the primary beneficiary of the issuer of the securities since it does not have any rights to remove the servicer or veto rights over the servicer’s actions. The carrying value and the estimated fair value of mortgage loans sold during 2017 were $319 million and $339 million, respectively, resulting in a gain of $20 million during the year ended December 31, 2017, which was included within net investment gains (losses). The estimated fair value of RMBS acquired in connection with the securitization was $52 million. Included in the carrying amount and maximum exposure to loss for Structured Securities presented above at December 31, 2017 were $51 million of such investments. See Note 10 for information on how the estimated fair value of mortgage loans and RMBS is determined, the valuation approaches and key inputs, their placement in the fair value hierarchy, and for certain RMBS, quantitative information about the significant unobservable inputs and the sensitivity of their estimated fair value to changes in those inputs.

Net Investment Income
The components of net investment income were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Investment income:
 
 
 
 
 
Fixed maturity securities
$
11,497

 
$
11,721

 
$
11,809

Equity securities
129

 
121

 
124

FVO securities — FVO general account securities (1)
68

 
37

 
21

Mortgage loans
3,082

 
2,858

 
2,772

Policy loans
517

 
511

 
525

Real estate and real estate joint ventures
646

 
652

 
872

Other limited partnership interests
798

 
478

 
535

Cash, cash equivalents and short-term investments
228

 
153

 
140

Operating joint ventures
28

 
33

 
25

Other
192

 
248

 
200

Subtotal
17,185

 
16,812

 
17,023

Less: Investment expenses
1,122

 
972

 
1,082

Subtotal, net
16,063

 
15,840

 
15,941

FVO securities — FVO contractholder-directed unit-linked investments (1)
1,300

 
950

 
264

Net investment income
$
17,363

 
$
16,790

 
$
16,205

__________________
(1)
Changes in estimated fair value subsequent to purchase for securities still held as of the end of the respective periods included in net investment income were principally from FVO contractholder-directed unit-linked investments, and were $662 million, $427 million and ($456) million for the years ended December 31, 2017, 2016, and 2015, respectively.
FVO securities are primarily comprised of contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify as separate accounts. The remainder is comprised of FVO Brighthouse Common Stock (see Note 3), FVO general account securities and FVO securities held by consolidated securitization entities (“CSEs”). The Company previously maintained a trading securities portfolio, principally invested in fixed maturity securities. During 2016, the Company reinvested this portfolio into other asset classes and at December 31, 2016, the Company no longer held any Actively traded securities.
See “— Variable Interest Entities” for discussion of CSEs.

291

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

Net Investment Gains (Losses)
Components of Net Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Total gains (losses) on fixed maturity securities:
 
 
 
 
 
Total OTTI losses recognized — by sector and industry:
 
 
 
 
 
U.S. and foreign corporate securities — by industry:
 
 
 
 
 
Consumer
$
(4
)
 
$

 
$
(20
)
Industrial

 
(63
)
 
(2
)
Utility

 
(21
)
 
(15
)
Communications

 
(3
)
 

Total U.S. and foreign corporate securities
(4
)
 
(87
)
 
(37
)
ABS
(3
)
 
(2
)
 

RMBS

 
(18
)
 
(16
)
State and political subdivision
(3
)
 

 
(6
)
OTTI losses on fixed maturity securities recognized in earnings
(10
)
 
(107
)
 
(59
)
Fixed maturity securities — net gains (losses) on sales and disposals (1)
328

 
251

 
318

Total gains (losses) on fixed maturity securities
318

 
144

 
259

Total gains (losses) on equity securities:
 
 
 
 
 
Total OTTI losses recognized — by sector:
 
 
 
 
 
Common stock
(24
)
 
(75
)
 
(36
)
Non-redeemable preferred stock
(1
)
 

 
(1
)
OTTI losses on equity securities recognized in earnings
(25
)
 
(75
)
 
(37
)
Equity securities — net gains (losses) on sales and disposals
117

 
19

 
43

Total gains (losses) on equity securities
92

 
(56
)
 
6

FVO securities — FVO general account securities

 

 

Mortgage loans (2)
14

 
(231
)
 
(93
)
Real estate and real estate joint ventures
603

 
182

 
433

Other limited partnership interests
(59
)
 
(64
)
 
(66
)
Other
(113
)
 
(130
)
 
1

Subtotal
855

 
(155
)
 
540

FVO CSEs:
 
 
 
 
 
Securities

 
1

 

Long-term debt — related to securities
(1
)
 

 

Non-investment portfolio gains (losses) (3) (4) (5) (6)
(1,162
)
 
471

 
69

Subtotal
(1,163
)
 
472

 
69

Total net investment gains (losses)
$
(308
)
 
$
317

 
$
609

__________________
(1)
Fixed maturity securities net gains (losses) on sales and disposals for the year ended December 31, 2017 includes $276 million in previously deferred gains on prior period transfers of securities to Brighthouse, as such gains are no longer eliminated in consolidation after the Separation. See Note 3.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)

(2)
Mortgage loans gains (losses) for the year ended December 31, 2017 include $47 million of previously deferred gains on prior period transfers of mortgage loans to Brighthouse as such gains are no longer eliminated in consolidation after the Separation. See Note 3.
(3)
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a loss of $1,016 million which represents a mark-to-market loss attributable to the FVO Brighthouse Common Stock held by the Company at Separation. See Note 3.
(4)
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a loss of $95 million which represents the change in estimated fair value of FVO Brighthouse Common Stock held by the Company from the date of Separation to December 31, 2017. See Note 3.
(5)
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a $98 million loss due to the disposition of MetLife Afore. See Note 3.
(6)
Non-investment portfolio gains (losses) for the year ended December 31, 2016 includes a gain of $102 million in connection with the U.S. Retail Advisor Force Divestiture. See Note 3.
See “— Variable Interest Entities” for discussion of CSEs.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($6) million, $225 million and $57 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Sales or Disposals and Impairments of Fixed Maturity and Equity Securities
Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) were as shown in the table below.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
Fixed Maturity Securities
 
Equity Securities
 
(In millions)
Proceeds
$
56,509

 
$
86,179

 
$
82,871

 
$
1,255

 
$
278

 
$
278

Gross investment gains
$
753

 
$
1,048

 
$
1,144

 
$
131

 
$
36

 
$
73

Gross investment losses
(425
)
 
(797
)
 
(826
)
 
(14
)
 
(17
)
 
(30
)
OTTI losses
(10
)
 
(107
)
 
(59
)
 
(25
)
 
(75
)
 
(37
)
Net investment gains (losses)
$
318

 
$
144

 
$
259

 
$
92

 
$
(56
)
 
$
6

Credit Loss Rollforward
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held for which a portion of the OTTI loss was recognized in OCI:
 
Years Ended December 31,
 
2017
 
2016
 
(In millions)
Balance at January 1,
$
187

 
$
211

Additions:
 
 
 
Initial impairments — credit loss OTTI on securities not previously impaired

 
1

Additional impairments — credit loss OTTI on securities previously impaired

 
18

Reductions:
 
 
 
Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI
(48
)
 
(43
)
Securities impaired to net present value of expected future cash flows

 
(1
)
Increase in cash flows — accretion of previous credit loss OTTI
(1
)
 
1

Balance at December 31,
$
138

 
$
187


293

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

9. Derivatives
Accounting for Derivatives
See Note 1 for a description of the Company’s accounting policies for derivatives and Note 10 for information about the fair value hierarchy for derivatives.
Derivative Strategies
The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company uses credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the cash markets.
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.
The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. government and agency, or other fixed maturity security. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and the London Interbank Offered Rate (“LIBOR”), calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.
A synthetic guaranteed interest contract (“GIC”) is a contract that simulates the performance of a traditional GIC through the use of financial instruments. Under a synthetic GIC, the policyholder owns the underlying assets. The Company guarantees a rate return on those assets for a premium. Synthetic GICs are not designated as hedging instruments.
Foreign Currency Exchange Rate Derivatives
The Company uses foreign currency exchange rate derivatives, including foreign currency swaps, foreign currency forwards, currency options and exchange-traded currency futures, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. The Company also uses foreign currency derivatives to hedge the foreign currency exchange rate risk associated with certain of its net investments in foreign operations.
In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow and nonqualifying hedging relationships.
In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company utilizes foreign currency forwards in fair value, net investment in foreign operations and nonqualifying hedging relationships.
The Company enters into currency options that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the foreign currency exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related to the Company’s international subsidiaries. The Company utilizes currency options in net investment in foreign operations and nonqualifying hedging relationships.
To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities, and to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded currency futures in nonqualifying hedging relationships.
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. (“ISDA”) deems that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.

295

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency securities, or other fixed maturity securities. These credit default swaps are not designated as hedging instruments.
The Company also entered into certain purchased and written credit default swaps held in relation to trading portfolios for the purpose of generating profits on short-term differences in price. These credit default swaps were not designated as hedging instruments. As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the underlying equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. The Company utilizes equity index options in nonqualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. The Company utilizes equity variance swaps in nonqualifying hedging relationships.
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.
In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and LIBOR, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.

296

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

Primary Risks Managed by Derivatives
The following table presents the primary underlying risk exposure, gross notional amount, and estimated fair value of the Company’s derivatives, excluding embedded derivatives, held at:
 
Primary Underlying Risk Exposure
 
December 31,
 
2017
 
2016
 
 
 
Estimated Fair Value
 
 
 
Estimated Fair Value
 
Gross
Notional
Amount
 
Assets
 
Liabilities
 
Gross
Notional
Amount
 
Assets
 
Liabilities
 
 
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
$
3,843

 
$
2,289

 
$
3

 
$
5,021

 
$
2,221

 
$
6

Foreign currency swaps
Foreign currency exchange rate
 
1,116

 
50

 
18

 
1,221

 
34

 
224

Foreign currency forwards
Foreign currency exchange rate
 
3,253

 
2

 
37

 
1,085

 

 
54

Subtotal
 
8,212

 
2,341

 
58

 
7,327

 
2,255

 
284

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
3,584

 
235

 
4

 
2,040

 
325

 
34

Interest rate forwards
Interest rate
 
3,332

 

 
128

 
4,032

 

 
370

Foreign currency swaps
Foreign currency exchange rate
 
32,152

 
1,142

 
1,665

 
26,680

 
1,877

 
2,054

Subtotal
 
39,068

 
1,377

 
1,797

 
32,752

 
2,202

 
2,458

Foreign operations hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forwards
Foreign currency exchange rate
 
332

 
2

 
5

 
1,394

 
47

 
5

Currency options
Foreign currency exchange rate
 
9,408

 
44

 
163

 
8,878

 
148

 
45

Subtotal
 
9,740

 
46

 
168

 
10,272

 
195

 
50

Total qualifying hedges
 
57,020

 
3,764

 
2,023

 
50,351

 
4,652

 
2,792

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
60,485

 
2,203

 
576

 
53,349

 
4,089

 
1,641

Interest rate floors
Interest rate
 
7,201

 
92

 

 
12,101

 
181

 
7

Interest rate caps
Interest rate
 
53,079

 
78

 
2

 
78,358

 
112

 
2

Interest rate futures
Interest rate
 
4,366

 
2

 
4

 
4,793

 
3

 
12

Interest rate options
Interest rate
 
12,009

 
656

 
11

 
5,334

 
628

 
1

Interest rate forwards
Interest rate
 
217

 

 
42

 
613

 

 
25

Interest rate total return swaps
Interest rate
 
1,048

 
8

 
2

 
1,549

 
2

 
127

Synthetic GICs
Interest rate
 
11,318

 

 

 
5,566

 

 

Foreign currency swaps
Foreign currency exchange rate
 
9,902

 
693

 
506

 
11,651

 
1,445

 
462

Foreign currency forwards
Foreign currency exchange rate
 
12,238

 
79

 
190

 
15,422

 
117

 
977

Currency futures
Foreign currency exchange rate
 
846

 
2

 

 
915

 

 

Currency options
Foreign currency exchange rate
 
3,123

 
55

 
6

 
3,615

 
195

 
17

Credit default swaps — purchased
Credit
 
2,020

 
7

 
43

 
2,001

 
14

 
40

Credit default swaps — written
Credit
 
11,375

 
271

 

 
10,732

 
161

 
9

Equity futures
Equity market
 
4,005

 
18

 
4

 
4,457

 
30

 
3

Equity index options
Equity market
 
19,886

 
569

 
690

 
16,527

 
426

 
523

Equity variance swaps
Equity market
 
4,661

 
54

 
199

 
8,263

 
83

 
240

Equity total return swaps
Equity market
 
1,117

 

 
41

 
1,046

 
1

 
43

Total non-designated or nonqualifying derivatives
 
218,896

 
4,787

 
2,316

 
236,292

 
7,487

 
4,129

Total
 
$
275,916

 
$
8,551

 
$
4,339

 
$
286,643

 
$
12,139

 
$
6,921


297

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 2017 and 2016. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
Net Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Freestanding derivatives and hedging gains (losses) (1)
$
(1,389
)
 
$
(509
)
 
$
429

Embedded derivatives gains (losses)
799

 
(181
)
 
200

Total net derivative gains (losses)
$
(590
)
 
$
(690
)
 
$
629

__________________
(1)
Includes foreign currency transaction gains (losses) on hedged items in cash flow and nonqualifying hedging relationships, which are not presented elsewhere in this note.
The following table presents earned income on derivatives:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Qualifying hedges:
 
 
 
 
 
Net investment income
$
299

 
$
267

 
$
206

Interest credited to policyholder account balances
(64
)
 
(1
)
 
27

Other expenses
(10
)
 
(12
)
 
(6
)
Nonqualifying hedges:
 
 
 
 
 
Net investment income

 
(1
)
 
(6
)
Net derivative gains (losses)
551

 
705

 
663

Policyholder benefits and claims
9

 
7

 
2

Total
$
785

 
$
965

 
$
886


298

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

Nonqualifying Derivatives and Derivatives for Purposes Other Than Hedging
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or not qualifying as hedging instruments:
 
Net
Derivative
Gains (Losses)
 
Net
Investment
Income (1)
 
Policyholder
Benefits and
Claims (2)
 
(In millions)
Year Ended December 31, 2017
 
 
 
 
 
Interest rate derivatives
$
(549
)
 
$
1

 
$
(1
)
Foreign currency exchange rate derivatives
(742
)
 

 
5

Credit derivatives — purchased
(24
)
 

 

Credit derivatives — written
145

 

 

Equity derivatives
(1,046
)
 
(9
)
 
(252
)
Total
$
(2,216
)
 
$
(8
)
 
$
(248
)
Year Ended December 31, 2016
 
 
 
 
 
Interest rate derivatives
$
(990
)
 
$

 
$
46

Foreign currency exchange rate derivatives
882

 

 
(18
)
Credit derivatives — purchased
(40
)
 

 

Credit derivatives — written
71

 

 

Equity derivatives
(681
)
 
(16
)
 
(138
)
Total
$
(758
)
 
$
(16
)
 
$
(110
)
Year Ended December 31, 2015
 
 
 
 
 
Interest rate derivatives
$
(354
)
 
$

 
$

Foreign currency exchange rate derivatives
502

 

 

Credit derivatives — purchased
7

 
(3
)
 

Credit derivatives — written
(69
)
 

 

Equity derivatives
(340
)
 
(10
)
 

Total
$
(254
)
 
$
(13
)
 
$

__________________
(1)
Changes in estimated fair value related to economic hedges of equity method investments in joint ventures, derivatives held in relation to trading portfolios and derivatives held within contractholder-directed unit-linked investments. As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
(2)
Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated investments.

299

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The following table presents the amount of such net derivative gains (losses):
Derivatives in Fair Value
Hedging Relationships
 
Hedged Items in Fair Value
Hedging Relationships
 
Net Derivative
Gains (Losses)
Recognized
for Derivatives
 
Net Derivative
Gains (Losses)
Recognized for
Hedged Items
 
Ineffectiveness
Recognized in
Net Derivative
Gains (Losses)
 
 
 
 
(In millions)
Year Ended December 31, 2017
 
 
 
 
 
 
Interest rate swaps:
 
Fixed maturity securities
 
$
4

 
$
(4
)
 
$

 
 
Policyholder liabilities (1)
 
(69
)
 
134

 
65

Foreign currency swaps:
 
Foreign-denominated fixed maturity securities
 
(27
)
 
29

 
2

 
 
Foreign-denominated policyholder account balances (2)
 
65

 
(44
)
 
21

Foreign currency forwards:
 
Foreign-denominated fixed maturity securities
 
13

 
(11
)
 
2

Total
 
$
(14
)
 
$
104

 
$
90

Year Ended December 31, 2016
 
 
 
 
 
 
Interest rate swaps:
 
Fixed maturity securities
 
$
7

 
$
(9
)
 
$
(2
)
 
 
Policyholder liabilities (1)
 
(108
)
 
90

 
(18
)
Foreign currency swaps:
 
Foreign-denominated fixed maturity securities
 
13

 
(12
)
 
1

 
 
Foreign-denominated policyholder account balances (2)
 
(95
)
 
92

 
(3
)
Foreign currency forwards:
 
Foreign-denominated fixed maturity securities
 
127

 
(119
)
 
8

Total
 
$
(56
)
 
$
42

 
$
(14
)
Year Ended December 31, 2015
 
 
 
 
 
 
Interest rate swaps:
 
Fixed maturity securities
 
$
4

 
$
(1
)
 
$
3

 
 
Policyholder liabilities (1)
 
(4
)
 
(6
)
 
(10
)
Foreign currency swaps:
 
Foreign-denominated fixed maturity securities
 
15

 
(7
)
 
8

 
 
Foreign-denominated policyholder account balances (2)
 
(240
)
 
232

 
(8
)
Foreign currency forwards:
 
Foreign-denominated fixed maturity securities
 
(75
)
 
68

 
(7
)
Total
 
$
(300
)
 
$
286

 
$
(14
)
__________________
(1)
Fixed rate liabilities reported in policyholder account balances or future policy benefits.
(2)
Fixed rate or floating rate liabilities.
For the Company’s foreign currency forwards, the change in the estimated fair value of the derivative related to the changes in the difference between the spot price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For the years ended December 31, 2017, 2016 and 2015, the component of the change in estimated fair value of derivatives that was excluded from the assessment of hedge effectiveness was ($40) million, ($23) million and ($11) million, respectively.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed rate investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed rate borrowings.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into net derivative gains (losses). These amounts were $13 million, $12 million and $8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
At both December 31, 2017 and 2016, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed five years.
At December 31, 2017 and 2016, the balance in AOCI associated with cash flow hedges was $1.5 billion and $2.9 billion, respectively. Upon the Separation, the Company recorded a reduction of $414 million of deferred gains within AOCI. For the years ended December 31, 2016, and 2015, the amounts of deferred gains (losses) in AOCI from Brighthouse were $71 million and $102 million, respectively. For the years ended December 31, 2017, 2016, and 2015, the amounts of income reclassified from AOCI into income (loss) from discontinued operations were $16 million, $45 million and $7 million, respectively.
The following table presents the effects of derivatives in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of equity. The table excludes the effects of Brighthouse derivatives prior to the Separation.
Derivatives in Cash Flow
Hedging Relationships
 
Amount of Gains
(Losses)Deferred in
AOCI on Derivatives
 
Amount and Location
of Gains (Losses)
Reclassified from
AOCI into Income (Loss)
 
Amount and Location
of Gains (Losses)
Recognized in Income
(Loss) on Derivatives
 
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion)
 
 
 
 
Net Derivative
Gains (Losses)
 
Net Investment
Income
 
Other
Expenses
 
Net Derivative
Gains (Losses)
 
 
(In millions)
Year Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
78

 
$
24

 
$
16

 
$

 
$
18

Interest rate forwards
 
210

 
(11
)
 
2

 
1

 
(2
)
Foreign currency swaps
 
(335
)
 
974

 

 
2

 
(4
)
Credit forwards
 

 
1

 

 

 

Total
 
$
(47
)
 
$
988

 
$
18

 
$
3

 
$
12

Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
50

 
$
56

 
$
12

 
$

 
$
(1
)
Interest rate forwards
 
(366
)
 
(1
)
 
4

 
1

 

Foreign currency swaps
 
589

 
(350
)
 
(2
)
 
2

 
1

Credit forwards
 

 
3

 
1

 

 

Total
 
$
273

 
$
(292
)
 
$
15

 
$
3

 
$

Year Ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
76

 
$
84

 
$
11

 
$

 
$
2

Interest rate forwards
 
(3
)
 
4

 
3

 
2

 

Foreign currency swaps
 
(194
)
 
(720
)
 
(1
)
 
1

 
9

Credit forwards
 

 
1

 

 

 

Total
 
$
(121
)
 
$
(631
)
 
$
13

 
$
3

 
$
11

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2017, the Company expected to reclassify ($101) million of deferred net gains (losses) on derivatives in AOCI, included in the table above, to earnings within the next 12 months.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency exchange rate derivatives, which may include foreign currency forwards and currency options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on these derivatives based upon the change in forward rates.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.
The following table presents the effects of derivatives in net investment hedging relationships on the consolidated statements of operations and the consolidated statements of equity:
Derivatives in Net Investment Hedging Relationships (1), (2)
 
Amount of Gains (Losses) Deferred in AOCI
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
 
(In millions)
Foreign currency forwards
 
$
(155
)
 
$
(267
)
 
$
255

Currency options
 
(290
)
 
(35
)
 
(138
)
Total
 
$
(445
)
 
$
(302
)
 
$
117

__________________
(1)
During the years ended December 31, 2017, 2016 and 2015, there were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from AOCI into earnings.
(2)
There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2017 and 2016, the cumulative foreign currency translation gain (loss) recorded in AOCI related to hedges of net investments in foreign operations was $309 million and $754 million, respectively.
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the nonqualifying derivatives and derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $11.4 billion and $10.7 billion at December 31, 2017 and 2016, respectively. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps. At December 31, 2017 and 2016, the Company would have received $271 million and $152 million, respectively, to terminate all of these contracts.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
 
 
December 31,
 
 
2017
 
2016
Rating Agency Designation of Referenced
Credit Obligations (1)
 
Estimated
Fair Value
of Credit
Default
Swaps
 
Maximum
Amount of
Future
Payments under
Credit Default
Swaps
 
Weighted
Average
Years to
Maturity (2)
 
Estimated
Fair Value
of Credit
Default
Swaps
 
Maximum
Amount of
Future
Payments under
Credit Default
Swaps
 
Weighted
Average
Years to
Maturity (2)
 
 
(Dollars in millions)
Aaa/Aa/A
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
$
7

 
$
375

 
2.6

 
$
6

 
$
449

 
3.1

Credit default swaps referencing indices
 
44

 
2,268

 
2.7

 
34

 
2,335

 
3.6

Subtotal
 
51

 
2,643

 
2.7

 
40

 
2,784

 
3.5

Baa
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
7

 
605

 
1.8

 
5

 
751

 
2.5

Credit default swaps referencing indices
 
183

 
7,662

 
5.0

 
88

 
6,711

 
5.0

Subtotal
 
190

 
8,267

 
4.8

 
93

 
7,462

 
4.8

Ba
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
1

 
115

 
3.4

 
(2
)
 
135

 
4.1

Credit default swaps referencing indices
 

 

 

 

 

 

Subtotal
 
1

 
115

 
3.4

 
(2
)
 
135

 
4.1

B
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
2

 
20

 
3.5

 
1

 
70

 
1.8

Credit default swaps referencing indices
 
27

 
330

 
5.0

 
20

 
281

 
5.0

Subtotal
 
29

 
350

 
4.9

 
21

 
351

 
4.3

Total
 
$
271

 
$
11,375

 
4.3

 
$
152

 
$
10,732

 
4.4

__________________
(1)
The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2)
The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
(3)
Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or state and political subdivisions.
The Company has also entered into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table above. As a result, the maximum amount of potential future recoveries available to offset the $11.4 billion and $10.7 billion from the table above were $27 million and $30 million at December 31, 2017 and 2016, respectively.
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties and establishing and monitoring exposure limits. The Company’s OTC-bilateral derivative transactions are governed by ISDA Master Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, the Company is permitted to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions. Substantially all of the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its OTC-bilateral derivatives.
The Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivatives.
See Note 10 for a description of the impact of credit risk on the valuation of derivatives.
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
 
 
December 31,
 
 
2017
 
2016
Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement (1)
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
(In millions)
Gross estimated fair value of derivatives:
 
 
 
 
 
 
 
 
OTC-bilateral (1)
 
$
7,955

 
$
4,059

 
$
9,976

 
$
5,721

OTC-cleared (1), (6)
 
649

 
223

 
2,275

 
1,142

Exchange-traded
 
22

 
8

 
33

 
15

Total gross estimated fair value of derivatives (1)
 
8,626

 
4,290

 
12,284

 
6,878

Amounts offset on the consolidated balance sheets
 

 

 

 

Estimated fair value of derivatives presented on the consolidated balance sheets (1), (6)
 
8,626

 
4,290

 
12,284

 
6,878

Gross amounts not offset on the consolidated balance sheets:
 
 
 
 
 
 
 
 
Gross estimated fair value of derivatives: (2)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(2,528
)
 
(2,528
)
 
(3,787
)
 
(3,787
)
OTC-cleared
 
(35
)
 
(35
)
 
(903
)
 
(903
)
Exchange-traded
 
(1
)
 
(1
)
 
(5
)
 
(5
)
Cash collateral: (3), (4)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(4,169
)
 

 
(4,244
)
 
(84
)
OTC-cleared
 
(584
)
 
(179
)
 
(1,335
)
 
(234
)
Exchange-traded
 

 
(5
)
 

 
(9
)
Securities collateral: (5)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(1,004
)
 
(1,474
)
 
(1,640
)
 
(1,818
)
OTC-cleared
 

 
(9
)
 

 

Exchange-traded
 

 
(2
)
 

 

Net amount after application of master netting agreements and collateral
 
$
305

 
$
57

 
$
370

 
$
38

__________________
(1)
At December 31, 2017 and 2016, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $75 million and $145 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of ($49) million and ($43) million, respectively.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

(2)
Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
(3)
Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives is included in cash and cash equivalents, short-term investments or in fixed maturity securities, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.
(4)
The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 2017 and 2016, the Company received excess cash collateral of $253 million and $164 million, respectively, and provided excess cash collateral of $272 million and $461 million, respectively, which is not included in the table above due to the foregoing limitation.
(5)
Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2017, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At December 31, 2017 and 2016, the Company received excess securities collateral with an estimated fair value of $108 million and $82 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 2017 and 2016, the Company provided excess securities collateral with an estimated fair value of $305 million and $189 million, respectively, for its OTC-bilateral derivatives, $522 million and $544 million, respectively, for its OTC-cleared derivatives, and $89 million and $116 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
(6)
Effective January 3, 2017, the CME amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. See Note 1 for further information on the CME amendments.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. A small number of these arrangements also include credit-contingent provisions that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of MetLife, Inc. and/or the counterparty. In addition, substantially all of the Company’s netting agreements for derivatives contain provisions that require both the Company and the counterparty to maintain a specific investment grade credit rating from each of Moody’s and S&P. If a party’s credit or financial strength rating, as applicable, were to fall below that specific investment grade credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged. The table also presents the incremental collateral that MetLife, Inc. would be required to provide if there was a one-notch downgrade in MetLife, Inc.’s senior unsecured debt rating at the reporting date or if the Company’s credit or financial strength rating, as applicable, at the reporting date sustained a downgrade to a level that triggered full overnight collateralization or termination of the derivative position. OTC-bilateral derivatives that are not subject to collateral agreements are excluded from this table.
 
 
December 31,
 
 
2017
 
2016
 
 
Derivatives Subject to Credit-Contingent Provisions
 
Derivatives Not Subject to Credit-Contingent Provisions
 
Total
 
Derivatives Subject to Credit-Contingent Provisions
 
Derivatives Not Subject to Credit-Contingent Provisions
 
Total
 
 
(In millions)
Estimated Fair Value of Derivatives in a Net Liability Position (1)
 
$
1,508

 
$
24

 
$
1,532

 
$
1,909

 
$
25

 
$
1,934

Estimated Fair Value of Collateral Provided:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
$
1,675

 
$
26

 
$
1,701

 
$
1,965

 
$
31

 
$
1,996

Cash
 
$

 
$

 
$

 
$
91

 
$

 
$
91

Estimated Fair Value of Incremental Collateral Provided Upon:
 
 
 
 
 
 
 
 
 
 
 
 
One-notch downgrade in the Company’s credit or financial strength rating, as applicable
 
$
15

 
$

 
$
15

 
$
6

 
$

 
$
6

Downgrade in the Company’s credit or financial strength rating, as applicable, to a level that triggers full overnight collateralization or termination of the derivative position
 
$
20

 
$

 
$
20

 
$
9

 
$

 
$
9

__________________
(1)
After taking into consideration the existence of netting agreements.
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives. These host contracts principally include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; ceded reinsurance of guaranteed minimum benefits related to certain GMIBs; assumed reinsurance of guaranteed minimum benefits related to GMWBs and GMABs; funding agreements with equity or bond indexed crediting rates; funds withheld on ceded reinsurance; fixed annuities with equity-indexed returns; and certain debt and equity securities.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)

The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:
 
 
 
 
December 31,
 
 
Balance Sheet Location
 
2017
 
2016
 
 
 
 
(In millions)
Embedded derivatives within asset host contracts:
 
 
 
 
 
 
Ceded guaranteed minimum benefits
 
Premiums, reinsurance and other receivables
 
$
144

 
$
143

Options embedded in debt or equity securities
 
Investments
 
(132
)
 
(88
)
Embedded derivatives within asset host contracts
 
$
12

 
$
55

Embedded derivatives within liability host contracts:
 
 
 
 
Direct guaranteed minimum benefits
 
Policyholder account balances
 
$
32

 
$
361

Assumed guaranteed minimum benefits
 
Policyholder account balances
 
291

 
523

Funds withheld on ceded reinsurance
 
Other liabilities
 
25

 
(30
)
Fixed annuities with equity indexed returns
 
Policyholder account balances
 
70

 
18

Embedded derivatives within liability host contracts
 
$
418

 
$
872

The following table presents changes in estimated fair value related to embedded derivatives:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Net derivative gains (losses) (1)
 
$
799

 
$
(181
)
 
$
200

__________________
(1)
The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were ($190) million, $156 million and $52 million for the years ended December 31, 2017, 2016 and 2015, respectively.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

10. Fair Value
When developing estimated fair values, the Company considers three broad valuation approaches: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation approach to use, given what is being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows: 
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities.
Level 2
Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. The Company’s ability to sell securities, or the price ultimately realized for these securities, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities.
Considerable judgment is often required in interpreting market data to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

 
 
December 31, 2017
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. corporate
 
$

 
$
78,171

 
$
4,490

 
$
82,661

Foreign government
 

 
61,325

 
209

 
61,534

Foreign corporate
 

 
48,840

 
6,729

 
55,569

U.S. government and agency
 
26,052

 
21,342

 

 
47,394

RMBS
 

 
25,339

 
3,461

 
28,800

State and political subdivision
 

 
12,455

 

 
12,455

ABS
 

 
11,204

 
1,087

 
12,291

CMBS
 

 
7,934

 
293

 
8,227

Total fixed maturity securities
 
26,052

 
266,610

 
16,269

 
308,931

Equity securities
 
1,104

 
981

 
428

 
2,513

FVO securities (1)
 
14,028

 
2,355

 
362

 
16,745

Short-term investments (2)
 
3,001

 
1,252

 
33

 
4,286

Residential mortgage loans — FVO
 

 

 
520

 
520

Other investments
 
81

 
84

 

 
165

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 
2

 
5,553

 
8

 
5,563

Foreign currency exchange rate
 
2

 
1,954

 
113

 
2,069

Credit
 

 
240

 
38

 
278

Equity market
 
18

 
548

 
75

 
641

Total derivative assets
 
22

 
8,295

 
234

 
8,551

Embedded derivatives within asset host contracts (4)
 

 

 
144

 
144

Separate account assets (5)
 
89,916

 
114,124

 
961

 
205,001

Total assets
 
$
134,204

 
$
393,701

 
$
18,951

 
$
546,856

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
4

 
$
638

 
$
130

 
$
772

Foreign currency exchange rate
 

 
2,553

 
37

 
2,590

Credit
 

 
43

 

 
43

Equity market
 
4

 
731

 
199

 
934

Total derivative liabilities
 
8

 
3,965

 
366

 
4,339

Embedded derivatives within liability host contracts (4)
 

 

 
418

 
418

Separate account liabilities (5)
 

 
7

 
2

 
9

Total liabilities
 
$
8

 
$
3,972

 
$
786

 
$
4,766


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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

 
 
December 31, 2016
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. corporate
 
$

 
$
72,811

 
$
5,732

 
$
78,543

Foreign government
 

 
55,687

 
289

 
55,976

Foreign corporate
 

 
44,858

 
5,805

 
50,663

U.S. government and agency
 
24,943

 
19,490

 

 
44,433

RMBS
 

 
25,194

 
3,838

 
29,032

State and political subdivision
 

 
12,221

 
10

 
12,231

ABS
 

 
10,196

 
1,029

 
11,225

CMBS
 

 
7,112

 
348

 
7,460

Total fixed maturity securities
 
24,943

 
247,569

 
17,051

 
289,563

Equity securities
 
1,334

 
1,092

 
468

 
2,894

FVO securities (1)
 
11,123

 
2,513

 
287

 
13,923

Short-term investments (2)
 
4,091

 
1,868

 
46

 
6,005

Residential mortgage loans — FVO
 

 

 
566

 
566

Other investments
 
86

 
71

 

 
157

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 
3

 
7,556

 
2

 
7,561

Foreign currency exchange rate
 

 
3,783

 
80

 
3,863

Credit
 

 
145

 
30

 
175

Equity market
 
30

 
390

 
120

 
540

Total derivative assets
 
33

 
11,874

 
232

 
12,139

Embedded derivatives within asset host contracts (4)
 

 

 
143

 
143

Separate account assets (5)
 
82,818

 
111,612

 
1,148

 
195,578

Total assets
 
$
124,428

 
$
376,599

 
$
19,941

 
$
520,968

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
12

 
$
1,713

 
$
500

 
$
2,225

Foreign currency exchange rate
 

 
3,784

 
54

 
3,838

Credit
 

 
49

 

 
49

Equity market
 
3

 
566

 
240

 
809

Total derivative liabilities
 
15

 
6,112

 
794

 
6,921

Embedded derivatives within liability host contracts (4)
 

 

 
872

 
872

Separate account liabilities (5)
 

 
16

 
7

 
23

Total liabilities
 
$
15

 
$
6,128

 
$
1,673

 
$
7,816

__________________
(1)
FVO securities were comprised of over 85% FVO contractholder-directed unit-linked investments at both December 31, 2017 and 2016.
(2)
Short-term investments as presented in the tables above differ from the amounts presented on the consolidated balance sheets because certain short-term investments are not measured at estimated fair value on a recurring basis.
(3)
Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

(4)
Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities on the consolidated balance sheets. At December 31, 2017 and 2016, debt and equity securities also included embedded derivatives of ($132) million and ($88) million, respectively.
(5)
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets. Separate account liabilities presented in the tables above represent derivative liabilities.
The following describes the valuation methodologies used to measure assets and liabilities at fair value. The description includes the valuation techniques and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Investments
Valuation Controls and Procedures
On behalf of the Company’s Chief Investment Officer and Chief Financial Officer, a pricing and valuation committee that is independent of the trading and investing functions and comprised of senior management, provides oversight of control systems and valuation policies for securities, mortgage loans and derivatives. On a quarterly basis, this committee reviews and approves new transaction types and markets, ensures that observable market prices and market-based parameters are used for valuation, wherever possible, and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. This committee also provides oversight of the selection of independent third party pricing providers and the controls and procedures to evaluate third party pricing. Periodically, the Chief Accounting Officer reports to the Audit Committee of MetLife, Inc.’s Board of Directors regarding compliance with fair value accounting standards.
The Company reviews its valuation methodologies on an ongoing basis and revises 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 standards 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. The Company ensures that prices received from independent brokers, also referred to herein as “consensus pricing,” represent a reasonable estimate of fair value by considering such pricing relative to the Company’s knowledge of the current market dynamics and current pricing for similar financial instruments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio. For example, fixed maturity securities priced using independent non-binding broker quotations represent less than 1% of the total estimated fair value of fixed maturity securities and 3% of the total estimated fair value of Level 3 fixed maturity securities at December 31, 2017.
The Company also applies 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, which reflect internal estimates of liquidity and nonperformance risks, 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 of liquidity and nonperformance risks 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.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Securities, Short-term Investments and Other Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management’s judgment.
When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, giving priority to observable inputs. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. When observable inputs are not available, the market standard valuation methodologies rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs can be based in large part on management’s judgment or estimation and cannot be supported by reference to market activity. Even though these inputs are unobservable, management believes they are consistent with what other market participants would use when pricing such securities and are considered appropriate given the circumstances.
The estimated fair value of investments in certain separate accounts included in FVO contractholder-directed unit-linked investments, FVO securities and other investments is determined on a basis consistent with the methodologies described herein for securities.
The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable inputs.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Instrument
 
Level 2
Observable Inputs

Level 3
Unobservable Inputs

Fixed maturity securities
U.S. corporate and Foreign corporate securities
 
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market approach.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
illiquidity premium
 
benchmark yields; spreads off benchmark yields; new issuances; issuer rating
delta spread adjustments to reflect specific credit-related issues
 
trades of identical or comparable securities; duration
credit spreads
 
Privately-placed securities are valued using the additional key inputs:
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
 
market yield curve; call provisions
 
 
 
observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer

independent non-binding broker quotations
 
 
delta spread adjustments to reflect specific credit-related issues
 
 
Foreign government, U.S. government and agency and State and political subdivision securities
 
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market approach.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
independent non-binding broker quotations
 
benchmark U.S. Treasury yield or other yields
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
the spread off the U.S. Treasury yield curve for the identical security
 
 
issuer ratings and issuer spreads; broker-dealer quotes
credit spreads
 
comparable securities that are actively traded
 
 
Structured Securities
 
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market and income approaches.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
credit spreads
 
spreads for actively traded securities; spreads off benchmark yields
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
expected prepayment speeds and volumes
 
 
current and forecasted loss severity; ratings; geographic region
independent non-binding broker quotations
 
weighted average coupon and weighted average maturity
 
 
 
average delinquency rates; debt-service coverage ratios
 
 
 
issuance-specific information, including, but not limited to:
 
 
 
 
collateral type; structure of the security; vintage of the loans
 
 
 
 
payment terms of the underlying assets
 
 
 
 
payment priority within the tranche; deal performance
 
 

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Equity securities
 
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market and income approaches.
 
Key Input:
Key Inputs:
 
quoted prices in markets that are not considered active
credit ratings; issuance structures
 
 
 
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
 
 
independent non-binding broker quotations
FVO securities, Short-term investments, and Other investments
 
Contractholder-directed unit-linked investments include mutual fund interests without readily determinable fair values given prices are not published publicly. Valuation of these mutual funds is based upon quoted prices or reported NAV provided by the fund managers, which were based on observable inputs.
FVO securities and short-term investments are of a similar nature and class to the fixed maturity and equity securities described above; accordingly, the valuation approaches and unobservable inputs used in their valuation are also similar to those described above.
 
All other investments are of a similar nature and class to the fixed maturity and equity securities described above; accordingly, the valuation approaches and observable inputs used in their valuation are also similar to those described above.
 
 
Residential mortgage loans — FVO
 
N/A
Valuation Approaches: Principally the market approach.
 
 
 
 
Valuation Techniques and Key Inputs: These investments are based primarily on matrix pricing or other similar techniques that utilize inputs from mortgage servicers that are unobservable or cannot be derived principally from, or corroborated by, observable market data.
Separate account assets and Separate account liabilities (1)
Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly
 
Key Input:
N/A
 
quoted prices or reported NAV provided by the fund managers
 
 
Other limited partnership interests
 

N/A
Valued giving consideration to the underlying holdings of the partnerships and by applying a premium or discount, if appropriate.
 
 
 
Key Inputs:
 
 
 
liquidity; bid/ask spreads; performance record of the fund manager
 
 
 
other relevant variables that may impact the exit value of the particular partnership interest
__________________
(1)
Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. Fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents are similar in nature to the instruments described under “— Securities, Short-term Investments and Other Investments” and “— Derivatives — Freestanding Derivatives.”

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. The valuation controls and procedures for derivatives are described in “— Investments.”
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what other market participants would use when pricing such instruments.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Freestanding Derivatives
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2 measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
Instrument
 
Interest Rate
 
Foreign Currency
Exchange Rate
 
Credit
 
Equity Market
Inputs common to Level 2 and Level 3 by instrument type
swap yield curves
swap yield curves
swap yield curves
swap yield curves
basis curves
basis curves
credit curves
spot equity index levels
interest rate volatility (1)
currency spot rates
recovery rates
dividend yield curves
 
 
 
cross currency basis curves
 
 
equity volatility (1)
 
 
 
currency volatility (1)
 
 
 
 
Level 3
swap yield curves (2)
swap yield curves (2)
swap yield curves (2)
dividend yield curves (2)
 
basis curves (2)
basis curves (2)
credit curves (2)
equity volatility (1), (2)
 
repurchase rates

cross currency basis curves (2)
credit spreads
correlation between model inputs (1)
 
 
 
currency correlation
repurchase rates
 
 
 
 
 
currency volatility (1)
independent non-binding broker quotations
 
 
__________________
(1)
Option-based only.
(2)
Extrapolation beyond the observable limits of the curve(s).
Embedded Derivatives
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees, equity or bond indexed crediting rates within certain funding agreements and annuity contracts, and those related to funds withheld on ceded reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The Company’s actuarial department calculates the fair value of these embedded derivatives, which are estimated as the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income.
The Company ceded the risk associated with certain of the GMIBs previously described. These reinsurance agreements contain embedded derivatives which are included within premiums, reinsurance and other receivables on the consolidated balance sheets with changes in estimated fair value reported in net derivative gains (losses) or policyholder benefits and claims depending on the statement of operations classification of the direct risk. 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 the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance is determined based on the change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the funds withheld liability. The estimated fair value of the underlying assets is determined as described in “— Investments — Securities, Short-term Investments and Other Investments.” The estimated fair value of these embedded derivatives is included, along with their funds withheld hosts, in other liabilities on the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses). Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
The estimated fair value of the embedded equity and bond indexed derivatives contained in certain funding agreements is determined using market standard swap valuation models and observable market inputs, including a nonperformance risk adjustment. The estimated fair value of these embedded derivatives are included, along with their funding agreements host, within policyholder account balances with changes in estimated fair value recorded in net derivative gains (losses). Changes in equity and bond indices, interest rates and the Company’s credit standing may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
The Company issues certain annuity contracts which allow the policyholder to participate in returns from equity indices. These equity indexed features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The estimated fair value of the embedded equity indexed derivatives, based on the present value of future equity returns to the policyholder using actuarial and present value assumptions including expectations concerning policyholder behavior, is calculated by the Company’s actuarial department. The calculation is based on in-force business and uses standard capital market techniques, such as Black-Scholes, to calculate the value of the portion of the embedded derivative for which the terms are set. The portion of the embedded derivative covering the period beyond where terms are set is calculated as the present value of amounts expected to be spent to provide equity indexed returns in those periods. The valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which utilize significant inputs that may include swap yield curves, currency exchange rates and implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield curves and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Reinsurance ceded on certain guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. The valuation techniques and significant market standard unobservable inputs used in their valuation are similar to those described above in “— Direct and assumed guaranteed minimum benefits” and also include counterparty credit spreads.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity. Transfers into or out of any level are assumed to occur at the beginning of the period.
Transfers between Levels 1 and 2:
There were no transfers between Levels 1 and 2 for assets and liabilities measured at estimated fair value and still held at December 31, 2017. Transfers between Levels 1 and 2 for assets and liabilities measured at estimated fair value and still held at December 31, 2016, were not significant.
Transfers into or out of Level 3:
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
 
 
 
 
 
 
 
December 31, 2017
 
December 31, 2016
 
Impact of
Increase in Input
on Estimated
Fair Value (2)
 
Valuation Techniques
 
Significant
Unobservable Inputs
 
Range
 
Weighted
Average (1)
 
Range
 
Weighted
Average (1)
 
Fixed maturity securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate and foreign corporate
Matrix pricing
 
Offered quotes (4)
 
83
-
142
 
110
 
18
-
138
 
106
 
Increase
 
Market pricing
 
Quoted prices (4)
 
10
-
443
 
121
 
6
-
700
 
116
 
Increase
 
Consensus pricing
 
Offered quotes (4)
 
97
-
104
 
101
 
37
-
120
 
102
 
Increase
RMBS
Market pricing
 
Quoted prices (4)
 
-
126
 
94
 
19
-
137
 
91
 
Increase (5)
ABS
Market pricing
 
Quoted prices (4)
 
5
-
117
 
100
 
5
-
106
 
99
 
Increase (5)
 
Consensus pricing
 
Offered quotes (4)
 
100
-
103
 
100
 
96
-
102
 
100
 
Increase (5)
Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
Present value techniques
 
Swap yield (6)
 
200
-
300
 
 
 
200
-
300
 
 
 
Increase (7)
 
 
 
 
Repurchase rates (8)
 
(5)
-
5
 
 
 
(44)
-
18
 
 
 
Decrease (7)
Foreign currency exchange rate
Present value techniques
 
Swap yield (6)
 
(14)
-
309
 
 
 
50
-
328
 
 
 
Increase (7)
Credit
Present value techniques
 
Credit spreads (9)
 
-
 
 
 
97
-
98
 
 
 
Decrease (7)
 
Consensus pricing
 
Offered quotes (10)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity market
Present value techniques or option pricing models
 
Volatility (11)
 
11%
-
31%
 
 
 
12%
-
32%
 
 
 
Increase (7)
 
 
 
 
Correlation (12)
 
10%
-
30%
 
 
 
40%
-
40%
 
 
 
 
Embedded derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct, assumed and ceded guaranteed minimum benefits
Option pricing techniques
 
Mortality rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ages 0 - 40
 
0%
-
0.21%
 
 
 
0%
-
0.21%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 41 - 60
 
0.03%
-
0.75%
 
 
 
0.01%
-
0.78%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 61 - 115
 
0.15%
-
100%
 
 
 
0.04%
-
100%
 
 
 
Decrease (13)
 
 
 
 
Lapse rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Durations 1 - 10
 
0.25%
-
100%
 
 
 
0.25%
-
100%
 
 
 
Decrease (14)
 
 
 
 
 
Durations 11 - 20
 
2%
-
100%
 
 
 
2%
-
100%
 
 
 
Decrease (14)
 
 
 
 
 
Durations 21 - 116
 
1.25%
-
100%
 
 
 
1.25%
-
100%
 
 
 
Decrease (14)
 
 
 
 
Utilization rates
 
0%
-
25%
 
 
 
0%
-
25%
 
 
 
Increase (15)
 
 
 
 
Withdrawal rates
 
0%
-
20%
 
 
 
0%
-
20%
 
 
 
(16)
 
 
 
 
Long-term equity volatilities
 
8.25%
-
33%
 
 
 
9.95%
-
33%
 
 
 
Increase (17)
 
 
 
 
Nonperformance risk spread
 
0.02%
-
1.32%
 
 
 
0.04%
-
1.70%
 
 
 
Decrease (18)
__________________
(1)
The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.
(2)
The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.
(3)
Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.
(4)
Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par.
(5)
Changes in the assumptions used for the probability of default are accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

(6)
Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(7)
Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
(8)
Ranges represent different repurchase rates utilized as components within the valuation methodology and are presented in basis points.
(9)
Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps.
(10)
At both December 31, 2017 and 2016, independent non-binding broker quotations were used in the determination of less than 1% of the total net derivative estimated fair value.
(11)
Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(12)
Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase (decrease) the significance of the change in valuations.
(13)
Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(14)
Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(15)
The utilization rate assumption estimates the percentage of contractholders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(16)
The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(17)
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(18)
Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

The following is a summary of the valuation techniques and significant unobservable inputs used in the fair value measurement of assets and liabilities classified within Level 3 that are not included in the preceding table. Generally, all other classes of securities classified within Level 3, including those within separate account assets, and embedded derivatives within funds withheld related to certain ceded reinsurance, use the same valuation techniques and significant unobservable inputs as previously described for Level 3 securities. This includes matrix pricing and discounted cash flow methodologies, inputs such as quoted prices for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2, as well as independent non-binding broker quotations. The residential mortgage loans — FVO are valued using independent non-binding broker quotations and internal models including matrix pricing and discounted cash flow methodologies using current interest rates. The sensitivity of the estimated fair value to changes in the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in the preceding table. The valuation techniques and significant unobservable inputs used in the fair value measurement for the more significant assets measured at estimated fair value on a nonrecurring basis and determined using significant unobservable inputs (Level 3) are summarized in “— Nonrecurring Fair Value Measurements.”

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Fixed Maturity Securities
 
 
 
 
 
 
Corporate (1)
 
Foreign
Government
 
Structured
Securities
 
State and
Political
Subdivision
 
Equity
Securities
 
FVO
Securities
 
 
(In millions)
Balance, January 1, 2016
 
$
10,311

 
$
829

 
$
5,121

 
$
34

 
$
334

 
$
270

Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 
5

 
12

 
103

 
1

 
(24
)
 
2

Total realized/unrealized gains (losses) included in AOCI
 
59

 
(42
)
 
56

 
2

 
19

 

Purchases (4)
 
2,754

 
44

 
2,221

 

 
23

 
99

Sales (4)
 
(996
)
 
(45
)
 
(1,483
)
 

 
(15
)
 
(35
)
Issuances (4)
 

 

 

 

 

 

Settlements (4)
 

 

 

 

 

 

Transfers into Level 3 (5)
 
969

 
3

 
25

 
7

 
327

 
18

Transfers out of Level 3 (5)
 
(1,565
)
 
(512
)
 
(828
)
 
(34
)
 
(196
)
 
(67
)
Balance, December 31, 2016
 
11,537

 
289

 
5,215

 
10

 
468

 
287

Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 
3

 
4

 
94

 

 

 
22

Total realized/unrealized gains (losses) included in AOCI
 
708

 

 
133

 

 
19

 

Purchases (4)
 
3,830

 
30

 
1,376

 

 
25

 
292

Sales (4)
 
(1,763
)
 
(53
)
 
(1,598
)
 

 
(51
)
 
(141
)
Issuances (4)
 

 

 

 

 

 

Settlements (4)
 

 

 

 

 

 

Transfers into Level 3 (5)
 
72

 
5

 
70

 

 
1

 
8

Transfers out of Level 3 (5)
 
(3,168
)
 
(66
)
 
(449
)
 
(10
)
 
(34
)
 
(106
)
Balance, December 31, 2017
 
$
11,219

 
$
209

 
$
4,841

 
$

 
$
428

 
$
362

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2015: (6)
 
$
13

 
$
12

 
$
103

 
$

 
$

 
$
(27
)
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2016: (6)
 
$
6

 
$
12

 
$
103

 
$
1

 
$
(29
)
 
$
3

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2017: (6)
 
$
1

 
$
4

 
$
84

 
$

 
$
(17
)
 
$
19

Gains (Losses) Data for the year ended December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 
$
53

 
$
13

 
$
103

 
$

 
$
11

 
$
(30
)
Total realized/unrealized gains (losses) included in AOCI
 
$
(637
)
 
$
(23
)
 
$
(77
)
 
$
1

 
$
(54
)
 
$


322

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Short-term
Investments
 
Residential Mortgage
Loans - FVO
 
Net
Derivatives (7)
 
Net Embedded
Derivatives (8)
 
Separate
Accounts (9)
 
 
(In millions)
Balance, January 1, 2016
 
$
244

 
$
314

 
$
(179
)
 
$
(178
)
 
$
1,558

Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 
1

 
8

 
(31
)
 
(214
)
 
(2
)
Total realized/unrealized gains (losses) included in AOCI
 
4

 

 
(367
)
 
(20
)
 

Purchases (4)
 
50

 
297

 
28

 

 
375

Sales (4)
 
(50
)
 
(11
)
 

 

 
(512
)
Issuances (4)
 

 

 

 

 
62

Settlements (4)
 

 
(42
)
 
(13
)
 
(317
)
 
(51
)
Transfers into Level 3 (5)
 

 

 

 

 
19

Transfers out of Level 3 (5)
 
(203
)
 

 

 

 
(308
)
Balance, December 31, 2016
 
46

 
566

 
(562
)
 
(729
)
 
1,141

Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 

 
40

 
87

 
823

 
(8
)
Total realized/unrealized gains (losses) included in AOCI
 

 

 
216

 
(46
)
 

Purchases (4)
 
32

 
175

 

 

 
187

Sales (4)
 
(1
)
 
(179
)
 

 

 
(80
)
Issuances (4)
 

 

 
(7
)
 

 
1

Settlements (4)
 

 
(82
)
 
134

 
(322
)
 
(93
)
Transfers into Level 3 (5)
 

 

 

 

 
35

Transfers out of Level 3 (5)
 
(44
)
 

 

 

 
(224
)
Balance, December 31, 2017
 
$
33

 
$
520

 
$
(132
)
 
$
(274
)
 
$
959

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2015: (6)
 
$

 
$
20

 
$
(170
)
 
$
216

 
$

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2016: (6)
 
$
1

 
$
8

 
$
(56
)
 
$
(242
)
 
$

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2017: (6)
 
$

 
$
27

 
$
53

 
$
793

 
$

Gains (Losses) Data for the year ended December 31, 2015:
 
 
 
 
 
 
 
 
 
 
Total realized/unrealized gains (losses) included in net income (loss) (2) (3)
 
$
1

 
$
20

 
$
(149
)
 
$
155

 
$
14

Total realized/unrealized gains (losses) included in AOCI
 
$
(1
)
 
$

 
$
(2
)
 
$
1

 
$

__________________
(1)
Comprised of U.S. and foreign corporate securities.
(2)
Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities are included in net investment gains (losses), while changes in estimated fair value of residential mortgage loans — FVO are included in net investment income. Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivatives gains (losses).
(3)
Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
(4)
Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.
(5)
Gains and losses in net income (loss) and OCI are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

(6)
Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(7)
Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
(8)
Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
(9)
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses). Separate account assets and liabilities are presented net for the purposes of the rollforward.
Fair Value Option
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The following table presents information for residential mortgage loans which are accounted for under the FVO and were initially measured at fair value.
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Unpaid principal balance
 
$
650

 
$
794

Difference between estimated fair value and unpaid principal balance
 
(130
)
 
(228
)
Carrying value at estimated fair value
 
$
520

 
$
566

Loans in nonaccrual status
 
$
198

 
$
214

Loans more than 90 days past due
 
$
94

 
$
137

Loans in nonaccrual status or more than 90 days past due, or both — difference between aggregate estimated fair value and unpaid principal balance
 
$
(102
)
 
$
(150
)
Nonrecurring Fair Value Measurements
The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods and still held at the reporting dates (for example, when there is evidence of impairment). The estimated fair values for these assets were determined using significant unobservable inputs (Level 3).
 
At December 31,
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
Carrying Value After Measurement
 
Gains (Losses)
 
(In millions)
Other limited partnership interests (1)
$
58

 
$
96

 
$
57

 
$
(65
)
 
$
(64
)
 
$
(31
)
Other assets (2)
$

 
$

 
$

 
$
10

 
$
(30
)
 
$

__________________
(1)
For these cost method investments, estimated fair value is determined from information provided on the financial statements of the underlying entities including NAV data. These investments include private equity and debt funds that typically invest primarily in various strategies including domestic and international leveraged buyout funds; power, energy, timber and infrastructure development funds; venture capital funds; and below investment grade debt and mezzanine debt funds. Distributions will be generated from investment gains, from operating income from the underlying investments of the funds and from liquidation of the underlying assets of the funds. The Company estimates that the underlying assets of the funds will be liquidated over the next two to 10 years. Unfunded commitments for these investments at both December 31, 2017 and 2016 were not significant.
(2)
As discussed in Note 3, during the year ended December 31, 2016, the Company recognized an impairment of computer software in connection with the U.S. Retail Advisor Force Divestiture.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are not included in the three level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair value of the excluded financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
 
 
December 31, 2017
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
68,211

 
$

 
$

 
$
69,797

 
$
69,797

Policy loans
 
$
9,669

 
$

 
$
336

 
$
11,176

 
$
11,512

Other limited partnership interests
 
$
219

 
$

 
$

 
$
216

 
$
216

Other invested assets
 
$
443

 
$

 
$

 
$
443

 
$
443

Premiums, reinsurance and other receivables
 
$
4,155

 
$

 
$
1,283

 
$
3,056

 
$
4,339

Other assets
 
$
285

 
$

 
$
189

 
$
139

 
$
328

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
114,355

 
$

 
$

 
$
116,534

 
$
116,534

Long-term debt
 
$
15,675

 
$

 
$
17,773

 
$

 
$
17,773

Collateral financing arrangement
 
$
1,121

 
$

 
$

 
$
894

 
$
894

Junior subordinated debt securities
 
$
3,144

 
$

 
$
4,319

 
$

 
$
4,319

Other liabilities
 
$
3,208

 
$

 
$
1,496

 
$
2,345

 
$
3,841

Separate account liabilities
 
$
124,011

 
$

 
$
124,011

 
$

 
$
124,011


325

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

 
 
December 31, 2016
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
64,601

 
$

 
$

 
$
65,742

 
$
65,742

Policy loans
 
$
9,511

 
$

 
$
335

 
$
10,921

 
$
11,256

Other limited partnership interests
 
$
340

 
$

 
$

 
$
371

 
$
371

Other invested assets
 
$
497

 
$
145

 
$

 
$
352

 
$
497

Premiums, reinsurance and other receivables
 
$
4,088

 
$

 
$
1,152

 
$
3,127

 
$
4,279

Other assets
 
$
237

 
$

 
$
198

 
$
71

 
$
269

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
108,255

 
$

 
$

 
$
110,359

 
$
110,359

Long-term debt
 
$
16,422

 
$

 
$
17,972

 
$

 
$
17,972

Collateral financing arrangement
 
$
1,274

 
$

 
$

 
$
978

 
$
978

Junior subordinated debt securities
 
$
3,169

 
$

 
$
3,982

 
$

 
$
3,982

Other liabilities
 
$
1,767

 
$

 
$
1,493

 
$
275

 
$
1,768

Separate account liabilities
 
$
118,385

 
$

 
$
118,385

 
$

 
$
118,385

The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial instruments are summarized as follows:
Mortgage Loans
The estimated fair value of mortgage loans is primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk, or is determined from pricing for similar loans.
Policy Loans
Policy loans with fixed interest rates are classified within Level 3. The estimated fair values for these loans are determined using a discounted cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed by applying a weighted-average interest rate to the outstanding principal balance of the respective group of policy loans and an estimated average maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk, as these loans are fully collateralized by the cash surrender value of the underlying insurance policy. Policy loans with variable interest rates are classified within Level 2 and the estimated fair value approximates carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a material change in estimated fair value due to changes in market interest rates.
Other Limited Partnership Interests
The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as provided on the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such adjustments.
Other Invested Assets
These other invested assets are principally comprised of various interest-bearing assets held in foreign subsidiaries. For the various interest-bearing assets held in foreign subsidiaries, the Company evaluates the specific facts and circumstances of each instrument to determine the appropriate estimated fair values. These estimated fair values were not materially different from the recognized carrying values.

326

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables are principally comprised of certain amounts recoverable under reinsurance agreements, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivatives and amounts receivable for securities sold but not yet settled.
Amounts recoverable under ceded reinsurance agreements, which the Company has determined do not transfer significant risk such that they are accounted for using the deposit method of accounting, have been classified as Level 3. The valuation is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using interest rates determined to reflect the appropriate credit standing of the assuming counterparty.
The amounts on deposit for derivative settlements, classified within Level 2, essentially represent the equivalent of demand deposit balances and amounts due for securities sold are generally received over short periods such that the estimated fair value approximates carrying value.
Other Assets
These other assets are principally comprised of a receivable for cash paid to an unaffiliated financial institution under the MetLife Reinsurance Company of Charleston (“MRC”) collateral financing arrangement described in Note 13. The estimated fair value of the receivable for the cash paid to the unaffiliated financial institution under the MRC collateral financing arrangement is determined by discounting the expected future cash flows using a discount rate that reflects the credit rating of the unaffiliated financial institution.
Policyholder Account Balances
These policyholder account balances include investment contracts which primarily include certain funding agreements, fixed deferred annuities, modified guaranteed annuities, fixed term payout annuities and total control accounts (“TCA”). The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates adding a spread to reflect the nonperformance risk in the liability.
Long-term Debt, Collateral Financing Arrangement and Junior Subordinated Debt Securities
The estimated fair values of long-term debt, a collateral financing arrangement and junior subordinated debt securities are principally determined using market standard valuation methodologies.
Valuations of instruments classified as Level 2 are based primarily on quoted prices in markets that are not active or using matrix pricing that use standard market observable inputs such as quoted prices in markets that are not active and observable yields and spreads in the market. Instruments valued using discounted cash flow methodologies use standard market observable inputs including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues.
Valuations of instruments classified as Level 3 are based primarily on discounted cash flow methodologies that utilize unobservable discount rates that can vary significantly based upon the specific terms of each individual arrangement. The determination of the estimated fair value of a collateral financing arrangement incorporates valuations obtained from the counterparty to the arrangement as part of the collateral management process.
Other Liabilities
Other liabilities consist primarily of interest payable, amounts due for securities purchased but not yet settled, funds withheld amounts payable, which are contractually withheld by the Company in accordance with the terms of the reinsurance agreements, and amounts payable under certain assumed reinsurance agreements, which are recorded using the deposit method of accounting. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which are not materially different from the carrying values, with the exception of certain deposit type reinsurance payables. For such payables, the estimated fair value is determined as the present value of expected future cash flows, which are discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty.

327

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)

Separate Account Liabilities
Separate account liabilities represent those balances due to policyholders under contracts that are classified as investment contracts.
Separate account liabilities classified as investment contracts primarily represent variable annuities with no significant mortality risk to the Company such that the death benefit is equal to the account balance, funding agreements related to group life contracts and certain contracts that provide for benefit funding.
Since separate account liabilities are fully funded by cash flows from the separate account assets which are recognized at estimated fair value as described in the section “— Recurring Fair Value Measurements,” the value of those assets approximates the estimated fair value of the related separate account liabilities. The valuation techniques and inputs for separate account liabilities are similar to those described for separate account assets.
11. Goodwill
Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but 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. The goodwill impairment process requires a comparison of the estimated fair value of a reporting unit to its carrying value. The Company tests goodwill for impairment by either performing a qualitative assessment or a two-step quantitative test. The qualitative assessment is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company may elect not to perform the qualitative assessment for some or all of its reporting units and perform a two-step quantitative impairment test. In performing the two-step quantitative impairment test, the Company may determine the fair values of its reporting units by applying a market multiple, discounted cash flow, and/or an actuarial based valuation approach.
The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected adjusted earnings of the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, adjusted earnings projections, capital market assumptions and discount rates. The actuarial-based valuation approach, such as embedded value, estimates the net worth of the reporting unit and the value of existing and new business. The actuarial based approaches require judgments and assumptions about the level of economic capital required to support the mix of business, long-term growth rates, the account value of in-force business, projections of new and renewal business, as well as margins on such business, the level of interest rates, credit spreads, equity market levels, and the discount rate that the Company believes is appropriate for the respective reporting unit.
When testing goodwill for impairment, the Company also considers its market capitalization in relation to the aggregate estimated fair value of its reporting units. The Company applies significant judgment when determining the estimated fair value of its reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of its 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 will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the Company’s reporting units could result in goodwill impairments in future periods which could materially adversely affect the Company’s results of operations or financial position.
The Company performed its annual goodwill impairment tests of its reporting units using a qualitative assessment and/or quantitative assessments under the market multiple, discounted cash flow and/or actuarial-based valuation approaches and concluded that the estimated fair values of all such reporting units were in excess of their carrying values and, therefore, goodwill was not impaired.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
11. Goodwill (continued)

Information regarding goodwill by segment, as well as Corporate & Other, was as follows:
 
U.S.
 
Asia (1)
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
(In millions)
Balance at January 1, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
1,451

 
$
4,615

 
$
1,385

 
$
1,232

 
$
1,567

 
$
42

 
$
10,292

Accumulated impairment (2)

 

 

 

 
(680
)
 

 
(680
)
Total goodwill, net
1,451

 
4,615

 
1,385

 
1,232

 
887

 
42

 
9,612

Effect of foreign currency translation and other

 
(107
)
 
(199
)
 
(89
)
 

 

 
(395
)
Balance at December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 

Goodwill
1,451

 
4,508

 
1,186

 
1,143

 
1,567

 
42

 
9,897

Accumulated impairment

 

 

 

 
(680
)
 

 
(680
)
Total goodwill, net
1,451

 
4,508

 
1,186

 
1,143

 
887

 
42

 
9,217

Dispositions (3)

 

 

 

 

 
(42
)
 
(42
)
Effect of foreign currency translation and other

 
88

 
40

 
(83
)
 

 

 
45

Balance at December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 

Goodwill
1,451

 
4,596

 
1,226

 
1,060

 
1,567

 

 
9,900

Accumulated impairment

 

 

 

 
(680
)
 

 
(680
)
Total goodwill, net
1,451

 
4,596

 
1,226

 
1,060

 
887

 

 
9,220

Acquisition

 

 

 

 

 
103

 
103

Dispositions (4)

 

 
(16
)
 

 

 

 
(16
)
Effect of foreign currency translation and other

 
77

 
96

 
110

 

 

 
283

Balance at December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 


Goodwill
1,451

 
4,673

 
1,306

 
1,170

 
1,567

 
103

 
10,270

Accumulated impairment

 

 

 

 
(680
)
 

 
(680
)
Total goodwill, net
$
1,451

 
$
4,673

 
$
1,306

 
$
1,170

 
$
887

 
$
103

 
$
9,590

__________________
(1)
Includes goodwill of $4.5 billion, $4.4 billion and $4.3 billion from the Japan operations at December 31, 2017, 2016 and 2015, respectively.
(2)
The $680 million accumulated impairment in the MetLife Holdings segment relates to the retail annuities business impaired in 2012 that was not part of the separation of Brighthouse. See Note 3.
(3)
In connection with the U.S. Retail Advisor Force Divestiture, goodwill in Corporate & Other was reduced by $42 million for the year ended December 31, 2016. See Note 3.
(4)
In connection with the disposition of Mexico Afore, goodwill was reduced by $16 million for the year ended December 31, 2017. See Note 3.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

12. Long-term and Short-term Debt
Long-term and short-term debt outstanding, excluding debt relating to CSEs, was as follows:
 
 
 
 
 
 
 

 
 
 
December 31,
 
Interest Rates (1)
 
 
 
2017
 
2016
 
Range
 
Weighted
Average
Maturity
Face
Value
 
Unamortized
Discount and Issuance Costs
 
Carrying
Value
 
Face
Value
 
Unamortized
Discount and Issuance Costs
 
Carrying
Value
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Senior notes
3.00
%
-
7.72%
 
4.84%
 
2018
-
2046
 
$
14,685

 
$
(86
)
 
$
14,599

 
$
15,597

 
$
(92
)
 
$
15,505

Surplus notes
7.63
%
-
7.88%
 
7.79%
 
2024
-
2025
 
507

 
(5
)
 
502

 
507

 
(6
)
 
501

Other notes (2)
2.20
%
-
7.29%
 
4.56%
 
2018
-
2058
 
578

 
$
(4
)
 
574

 
420

 
(5
)
 
415

Capital lease obligations
 
 
 
 
 
 
 
 
 
 
5

 

 
5

 
8

 

 
8

Total long-term debt
 
 
 
 
 
 
 
 
 
 
15,775

 
(95
)
 
15,680

 
16,532

 
(103
)
 
16,429

Total short-term debt
 
 
 
 
 
 
 
 
 
 
477

 

 
477

 
242

 

 
242

Total
 
 
 
 
 
 
 
 
 
 
$
16,252

 
$
(95
)
 
$
16,157

 
$
16,774

 
$
(103
)
 
$
16,671

__________________
(1)
Range of interest rates and weighted average interest rates are for the year ended December 31, 2017.
(2)
During 2017, an affiliate issued $139 million of long-term debt to a third party.
The aggregate maturities of long-term debt at December 31, 2017 for the next five years and thereafter are $1.1 billion in 2018, $1.0 billion in 2019, $540 million in 2020, $999 million in 2021, $846 million in 2022 and $11.2 billion thereafter.
Capital lease obligations are collateralized and rank highest in priority, followed by unsecured senior notes and other notes, followed by subordinated debt which consists of junior subordinated debt securities (see Note 14). Payments of interest and principal on the Company’s surplus notes, which are subordinate to all other obligations of the operating company issuing the notes and are senior to obligations of MetLife, Inc., may be made only with the prior approval of the insurance department of the state of domicile of the notes issuer. The Company’s collateral financing arrangement (see Note 13) is supported by surplus notes of a subsidiary and, accordingly, has priority consistent with surplus notes.
Certain of the Company’s debt instruments and committed facilities, as well as its unsecured revolving credit facility, contain various administrative, reporting, legal and financial covenants. The Company believes it was in compliance with all applicable covenants at December 31, 2017.
Senior Notes
In November 2015, MetLife, Inc. issued $500 million of senior notes due in November 2025 which bear interest at a fixed rate of 3.60%, payable semi-annually. Also in November 2015, MetLife, Inc. issued $750 million of senior notes due in May 2046 which bear interest at a fixed rate of 4.60%, payable semi-annually. In connection with the issuances, MetLife, Inc. incurred $10 million of issuance costs which have been capitalized and are being amortized over the terms of the senior notes.
In March 2015, MetLife, Inc. issued $500 million of senior notes due in March 2025 which bear interest at a fixed rate of 3.00%, payable semi-annually. Also in March 2015, MetLife, Inc. issued $1.0 billion of senior notes due in March 2045 which bear interest at a fixed rate of 4.05%, payable semi-annually. In connection with the issuances, MetLife, Inc. incurred $12 million of issuance costs which have been capitalized and are being amortized over the terms of the senior notes.
Term Loans
MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of MLIC, borrowed $350 million in December 2015 under a five-year credit agreement included within other notes in the table above. In November 2017, this agreement was amended to extend the maturity to November 2022, change the amount MPEH may borrow on a revolving basis to $75 million from $100 million, and change the interest rate to a variable rate of three-month LIBOR plus 3.25%, payable quarterly, from a variable rate of three-month LIBOR plus 3.70%. In connection with the initial borrowing in 2015, $6 million of costs were incurred, and additional costs of $1 million were incurred in connection with the 2017 amendment, which have been capitalized and are being amortized over the term of the loans. MPEH has pledged invested assets to secure the loans; however, these loans are non-recourse to MLIC and MetLife, Inc.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)

Short-term Debt
Short-term debt with maturities of one year or less was as follows:
 
 
December 31,
 
 
2017
 
2016
 
 
(Dollars in millions)
Commercial paper
 
$
100

 
$
100

Short-term borrowings (1)
 
377

 
142

Total short-term debt
 
$
477

 
$
242

Average daily balance
 
$
280

 
$
135

Average days outstanding
 
27 days

 
21 days

__________________
(1)
Includes $374 million and $133 million at December 31, 2017 and 2016, respectively, of short-term debt related to repurchase agreements, secured by assets of subsidiaries.
During the years ended December 31, 2017, 2016 and 2015, the weighted average interest rate on short-term debt was 2.41%, 1.32% and 0.15%, respectively.
Interest Expense
Interest expense included in other expenses was $841 million, $874 million and $890 million for the years ended December 31, 2017, 2016 and 2015, respectively. Such amounts do not include interest expense on long-term debt related to CSEs, the collateral financing arrangement, or junior subordinated debt securities. See Notes 13 and 14.
Credit and Committed Facilities
At December 31, 2017, the Company maintained a $3.0 billion unsecured revolving credit facility (the “Credit Facility”) and certain committed facilities (the “Committed Facilities”) aggregating $3.7 billion. When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
Credit Facility
The Company’s Credit Facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the issuance of letters of credit. Total fees associated with the Credit Facility were $13 million, $15 million and $13 million for the years ended December 31, 2017, 2016 and 2015, respectively, and were included in other expenses. Information on the Credit Facility at December 31, 2017 was as follows:
Borrower(s)
 
Expiration
 
Maximum
Capacity
 
Letters of
Credit
Issued
 
Drawdowns
 
Unused
Commitments
 
 
 
 
(In millions)
MetLife, Inc. and MetLife Funding, Inc.
 
December 2021 (1)
 
$
3,000

(1) 
 
$
130

 
$

 
$
2,870

__________________
(1)
All borrowings under the Credit Facility must be repaid by December 20, 2021, except that letters of credit outstanding upon termination may remain outstanding until December 20, 2022.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)

Committed Facilities
Letters of credit issued under the Committed Facilities are used for collateral for certain of the Company’s affiliated reinsurance liabilities. Total fees associated with the Committed Facilities, included in other expenses, were $21 million, $27 million and $29 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total fees associated with the Committed Facilities, included in income (loss) from discontinued operations, net of income tax, were $305 million, $69 million and $61 million for the years ended December 31, 2017, 2016 and 2015, respectively. See Note 3 for fees associated with termination of financing arrangements included within 2017 amounts. Information on the Committed Facilities at December 31, 2017 was as follows:
Account Party/Borrower(s)
 
Expiration
 
Maximum Capacity
 
Letters of
Credit
Issued
 
Drawdowns
 
Unused
Commitments
 
 
 
 
(In millions)
MetLife, Inc.
 
June 2018 (1)
 
$
395

 
$
395

 
$

 
$

MetLife Reinsurance Company of Vermont and MetLife, Inc.
 
December 2024 (2), (3)
 
400

 
380

 

 
20

MetLife Reinsurance Company of Vermont and MetLife, Inc.
 
December 2037 (2), (4)
 
2,896

 
2,354

 

 
542

Total
 
 
 
$
3,691

 
$
3,129

 
$

 
$
562

__________________
(1)
Capacity decreases in March 2018 and June 2018 to $200 million and $0, respectively.
(2)
MetLife, Inc. is a guarantor under the applicable facility.
(3)
Capacity decreases in June 2022, December 2022, June 2023, December 2023 and December 2024 to $380 million, $360 million, $310 million, $260 million and $0, respectively.
(4)
Capacity at December 31, 2017 of $2.6 billion increases periodically to a maximum of $2.9 billion in 2024, decreases periodically commencing in 2025 to $2.0 billion in 2037, and decreases to $0 at expiration in December 2037. Unused commitment of $542 million is based on maximum capacity. As of December 31, 2017, Brighthouse is a beneficiary of $2.4 billion of letters of credit issued under this committed facility. See Note 3.
In addition to the Committed Facilities, see also “— Term Loans” for information about the undrawn line of credit facility in the amount of $75 million.
13. Collateral Financing Arrangement
Information related to the collateral financing arrangement associated with the closed block (see Note 7) was as follows at:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Surplus notes outstanding (1)
 
$
1,121

 
$
1,274

Receivable from unaffiliated financial institution (1)
 
$
146

 
$
166

Pledged collateral (2)
 
$
97

 
$
160

Assets held in trust (2)
 
$
1,248

 
$
1,211

__________________
(1)
Carrying value.
(2)
Estimated fair value.
Interest expense on the collateral financing arrangement was $30 million, $24 million and $20 million for the years ended December 31, 2017, 2016 and 2015, respectively, which is included in other expenses.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
13. Collateral Financing Arrangement (continued)

In December 2007, MLIC reinsured a portion of its closed block liabilities to MRC, a wholly-owned subsidiary of MetLife, Inc. In connection with this transaction, MRC issued, to investors placed by an unaffiliated financial institution, $2.5 billion in aggregate principal amount of 35-year surplus notes to provide statutory reserve support for the assumed closed block liabilities. Interest on the surplus notes accrues at an annual rate of three-month LIBOR plus 0.55%, payable quarterly. The ability of MRC to make interest and principal payments on the surplus notes is contingent upon South Carolina regulatory approval.
Simultaneously with the issuance of the surplus notes, MetLife, Inc. entered into an agreement with the unaffiliated financial institution, under which MetLife, Inc. is entitled to the interest paid by MRC on the surplus notes of three-month LIBOR plus 0.55% in exchange for the payment of three-month LIBOR plus 1.12%, payable quarterly on such amount as adjusted, as described below. MetLife, Inc. may also be required to pledge collateral or make payments to the unaffiliated financial institution related to any decline in the estimated fair value of the surplus notes. Any such payments are accounted for as a receivable and included in other assets on the Company’s consolidated balance sheets and do not reduce the principal amount outstanding of the surplus notes. Such payments, however, reduce the amount of interest payments due from MetLife, Inc. under the agreement. Any payment received from the unaffiliated financial institution reduces the receivable by an amount equal to such payment and also increases the amount of interest payments due from MetLife, Inc. under the agreement. In addition, the unaffiliated financial institution may be required to pledge collateral to MetLife, Inc. related to any increase in the estimated fair value of the surplus notes. MetLife, Inc. may also be required to make a payment to the unaffiliated financial institution in connection with any early termination of this agreement.
During 2017, 2016 and 2015 following regulatory approval, MRC repurchased $153 million, $68 million and $57 million, respectively, in aggregate principal amount of the surplus notes. Cumulatively, since December 2007, MRC repurchased $1.4 billion in aggregate principal amount of the surplus notes as of December 31, 2017. Payments made by the Company in 2017, 2016 and 2015 associated with the repurchases were exclusive of accrued interest on the surplus notes. In connection with the repurchases during 2017, 2016 and 2015, the Company received payments in the aggregate amount of $20 million, $8 million and $8 million, respectively, from the unaffiliated financial institution, which reduced the amount receivable from the unaffiliated financial institution by the same amounts. No other payments related to an increase or decrease in the estimated fair value of the surplus notes were made by MetLife, Inc. or received from the unaffiliated financial institution during 2017, 2016 or 2015.
A majority of the proceeds from the offering of the surplus notes was placed in a trust, which is consolidated by the Company, to support MRC’s statutory obligations associated with the assumed closed block liabilities. During the years ended December 31, 2017, 2016 and 2015, MRC transferred $3 million, $1 million and $30 million, respectively, out of the trust to its general account. The assets are principally invested in fixed maturity securities and are presented as such within the Company’s consolidated balance sheets, with the related income included within net investment income on the Company’s consolidated statements of operations.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

14. Junior Subordinated Debt Securities
Outstanding Junior Subordinated Debt Securities
Outstanding junior subordinated debt securities and exchangeable surplus trust securities which are exchangeable for junior subordinated debt securities prior to redemption or repayment, were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
Issuer
 
Issue
Date
 
Interest
Rate (1)
 
Scheduled
Redemption
Date
 
Interest Rate
Subsequent to
Scheduled
Redemption
Date (2)
 
Final
Maturity
 
Face
Value
 
Unamortized
Discount
and Issuance Costs
 
Carrying
Value
 
Face
Value
 
Unamortized
Discount
and Issuance Costs
 
Carrying
Value
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
MetLife, Inc.
 
December 2006
 
6.400%
 
December 2036
 
LIBOR + 2.205%
 
December 2066
 
$
1,250

 
$
(21
)
 
$
1,229

 
$
1,250

 
$
(11
)
 
$
1,239

MetLife Capital Trust IV (3)
 
December 2007
 
7.875%
 
December 2037
 
LIBOR + 3.960%
 
December 2067
 
700

 
(17
)
 
683

 
700

 
(10
)
 
690

MetLife, Inc. (4)
 
April 2008
 
9.250%
 
April 2038
 
LIBOR + 5.540%
 
April 2068
 
750

 
(11
)
 
739

 
750

 
(6
)
 
744

MetLife, Inc.
 
July 2009
 
10.750%
 
August 2039
 
LIBOR + 7.548%
 
August 2069
 
500

 
(7
)
 
493

 
500

 
(4
)
 
496

 
 
 
 
 
 
 
 
 
 
 
 
$
3,200

 
$
(56
)
 
$
3,144

 
$
3,200

 
$
(31
)
 
$
3,169

_________________
(1)
Prior to the scheduled redemption date, interest is payable semiannually in arrears.
(2)
In the event the securities are not redeemed on or before the scheduled redemption date, interest will accrue after such date at an annual rate of three-month LIBOR plus the indicated margin, payable quarterly in arrears.
(3)
MetLife Capital Trust IV is a VIE which is consolidated on the financial statements of the Company. The securities issued by this entity are exchangeable surplus trust securities, which are exchangeable for a like amount of MetLife, Inc.’s junior subordinated debt securities on the scheduled redemption date, mandatorily under certain circumstances, and at any time upon MetLife, Inc. exercising its option to redeem the securities.
(4)
On February 10, 2017, in connection with the Separation, MetLife, Inc. exchanged $750 million aggregate principal amount of its 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068 for $750 million aggregate liquidation preference of the 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital Trust X (the “Trust”). As a result of the exchange, MetLife, Inc. became the sole beneficial owner of the Trust, a special purpose entity which issued the exchangeable surplus trust securities to third-party investors. On March 23, 2017, MetLife, Inc. dissolved the Trust.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
14. Junior Subordinated Debt Securities (continued)

In connection with each of the securities described above, MetLife, Inc. may redeem or may cause the redemption of the securities (i) in whole or in part, at any time on or after the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption or, if greater, a make-whole price. MetLife, Inc. also has the right to, and in certain circumstances the requirement to, defer interest payments on the securities for a period up to 10 years. Interest compounds during such periods of deferral. If interest is deferred for more than five consecutive years, MetLife, Inc. is required to use proceeds from the sale of its common stock or warrants on common stock to satisfy this interest payment obligation. In connection with each of the securities described above, MetLife, Inc. entered into a separate replacement capital covenant (“RCC”). As part of each RCC, MetLife, Inc. agreed that it will not repay, redeem, or purchase the securities on or before a date 10 years prior to the final maturity date of each issuance, unless, subject to certain limitations, it has received cash proceeds during a specified period from the sale of specified replacement securities. Each RCC will terminate upon the occurrence of certain events, including an acceleration of the applicable securities due to the occurrence of an event of default. The RCCs are not intended for the benefit of holders of the securities and may not be enforced by them. Rather, each RCC is for the benefit of the holders of a designated series of MetLife, Inc.’s other indebtedness (the “Covered Debt”). Initially, the Covered Debt for each of the securities described above was MetLife, Inc.’s 5.700% senior notes due 2035 (the “5.700% Senior Notes”). As a result of the issuance of MetLife, Inc.’s 10.750% Fixed-to-Floating Rate Junior Subordinated Debentures due 2069 (the “10.750% JSDs”), the 10.750% JSDs became the Covered Debt with respect to, and in accordance with, the terms of the RCC relating to MetLife, Inc.’s 6.40% Fixed-to-Floating Rate Junior Subordinated Debentures due 2066. The 5.700% Senior Notes continue to be the Covered Debt with respect to, and in accordance with, the terms of the RCCs relating to each of MetLife Capital Trust IV’s 7.875% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, MetLife, Inc.’s 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures and the 10.750% JSDs. MetLife, Inc. also entered into a replacement capital obligation which will commence during the six month period prior to the scheduled redemption date of each of the securities described above and under which MetLife, Inc. must use reasonable commercial efforts to raise replacement capital to permit repayment of the securities through the issuance of certain qualifying capital securities.
Interest expense on outstanding junior subordinated debt securities was $258 million for each of the years ended December 31, 2017, 2016 and 2015, which is included in other expenses.
15. Equity
Preferred Stock
Preferred stock authorized, issued and outstanding was as follows at both December 31, 2017 and 2016:
Series

Shares
Authorized

Shares
Issued

Shares
Outstanding
Floating Rate Non-Cumulative Preferred Stock, Series A

27,600,000

 
24,000,000

 
24,000,000

5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C

1,500,000

 
1,500,000

 
1,500,000

Series A Junior Participating Preferred Stock

10,000,000

 

 

Not designated

160,900,000

 

 

Total

200,000,000


25,500,000


25,500,000

As discussed below, MetLife, Inc. repurchased or redeemed and canceled the 6.50% Non-Cumulative Preferred Stock, Series B (the “Series B preferred stock”) in 2015. On November 3, 2015, MetLife, Inc. filed a Certificate of Elimination (the “Certificate of Elimination”) of 6.50% Non-Cumulative Preferred Stock, Series B with the Secretary of State of the State of Delaware to eliminate all references to the Series B preferred stock in MetLife, Inc.’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), including the related Certificate of Designations. As a result of the filing of the Certificate of Elimination, MetLife, Inc.’s Certificate of Incorporation was amended to eliminate all references therein to the Series B preferred stock, and the shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $0.01 per share, of MetLife, Inc., without designation as to series.
In June 2015, MetLife, Inc. issued 1,500,000 shares of 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the "Series C preferred stock"), with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate proceeds of $1.5 billion. In connection with the offering of the Series C preferred stock, MetLife, Inc. incurred $17 million of issuance costs which have been recorded as a reduction of additional paid-in capital.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

In June 2015, MetLife, Inc. conducted a tender offer for up to 59,850,000 of its 60,000,000 shares of Series B preferred stock, liquidation preference $25 per share, at a purchase price of $25 per share, plus an amount equal to accrued, unpaid and undeclared dividends from, and including, June 15, 2015 to, but excluding, June 29, 2015, the settlement date of the tender offer. In June 2015, MetLife, Inc. also delivered a notice of redemption to the holders of the Series B preferred stock, pursuant to which it would redeem any shares of Series B preferred stock not purchased by it in the tender offer at a redemption price of $25 per share, without any payment for accrued, unpaid and undeclared dividends on the Series B preferred stock from, and including, June 15, 2015 to, but excluding, July 1, 2015, the redemption date. On June 29, 2015, MetLife, Inc. repurchased and canceled 37,192,413 shares of Series B preferred stock in the tender offer for $932 million in cash. On July 1, 2015, MetLife, Inc. redeemed and canceled the remaining 22,807,587 shares of Series B preferred stock not tendered in the tender offer for an aggregate redemption price of $570 million in cash. In connection with the tender offer and redemption, MetLife, Inc. recognized a preferred stock repurchase premium of $42 million (calculated as the difference between the carrying value of the Series B preferred stock and the total amount paid by MetLife, Inc. to the holders of the Series B preferred stock in connection with the tender offer and redemption), which was reflected as a reduction to retained earnings on the consolidated balance sheet.
The outstanding preferred stock ranks senior to MetLife, Inc.’s common stock with respect to the payment of dividends and distributions upon liquidation, dissolution or winding-up. Holders of the outstanding preferred stock are entitled to receive dividend payments only when, as and if declared by MetLife, Inc.’s Board of Directors or a duly authorized committee thereof. Dividends on the preferred stock are not cumulative or mandatory. Accordingly, if dividends are not declared on the preferred stock of the applicable series for any dividend period, then any accrued dividends for that dividend period will cease to accrue and be payable. If a dividend is not declared before the dividend payment date for any such dividend period, MetLife, Inc. will have no obligation to pay dividends accrued for such dividend period whether or not dividends are declared for any future period. No dividends may be paid or declared on MetLife, Inc.’s common stock (or any other securities ranking junior to the preferred stock) and MetLife, Inc. may not purchase, redeem, or otherwise acquire its common stock (or other such junior stock) unless the full dividends for the latest completed dividend period on all outstanding shares of preferred stock, and any parity stock, have been declared and paid or provided for. If dividends are declared on MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”), they will be payable quarterly, in arrears, at an annual rate of the greater of: (i) 1.00% above three-month LIBOR on the related LIBOR determination date; or (ii) 4.00%. If dividends are declared on the Series C preferred stock for any dividend period, they are calculated on a non-cumulative basis at a fixed rate per annum of 5.25% from the date of original issue to, but excluding, June 15, 2020, and will be calculated at a floating rate per annum equal to three-month LIBOR plus 3.575% on the related LIBOR determination date from and after June 15, 2020. Dividends on the Series C preferred stock for any dividend period are payable, if declared, semi-annually in arrears on the 15th day of June and December of each year commencing on December 15, 2015 and ending on June 15, 2020, and thereafter quarterly in arrears on the 15th day of September, December, March and June of each year. Information on payments of dividends on the Series B preferred stock is set forth in the table below.
MetLife, Inc. is prohibited from declaring dividends on the outstanding preferred stock if it fails to meet specified capital adequacy, net income and stockholders’ equity levels. Beginning on January 1, 2019, MetLife, Inc. will no longer be subject to such limitations with respect to the Series C preferred stock. See “— Dividend Restrictions — MetLife, Inc.”
Holders of the preferred stock do not have voting rights except in certain circumstances, including where the dividends have not been paid for an equivalent of six or more dividend payment periods whether or not those periods are consecutive. Under such circumstances, the holders of the preferred stock have certain voting rights with respect to members of the Board of Directors of MetLife, Inc.
The preferred stock is not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions. The Series A preferred stock is redeemable at MetLife, Inc.’s option in whole or in part, at a redemption price of $25 per share of preferred stock, plus declared and unpaid dividends. MetLife, Inc. may, at its option, redeem the Series C preferred stock, (i) in whole but not in part, at any time prior to June 15, 2020, within 90 days after the occurrence of a “regulatory capital event,” and (ii) in whole or in part, from time to time, on or after June 15, 2020, in each case, at a redemption price equal to $1,000 per Series C preferred share, plus an amount equal to any dividends per share that have accrued but not been declared and paid for the then-current dividend period to, but excluding, such redemption date. A “regulatory capital event” could occur as a result of a change or proposed change in capital adequacy rules (or the interpretation or application thereof) that would apply to MetLife, Inc. from rules (or the interpretation or application thereof) in effect with respect to bank holding companies as of June 1, 2015 that would create a more than insubstantial risk, as determined by MetLife, Inc., that the Series C preferred stock would not be treated as “Tier 1 Capital” or as capital with attributes similar to those of Tier 1 Capital.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

In December 2008, MetLife, Inc. entered into an RCC related to the Series A and Series B preferred stock and, in June 2015, MetLife, Inc. entered into an RCC related to the Series C preferred stock. As part of each such RCC, MetLife, Inc. agreed that it will not repay, redeem or purchase the preferred stock on or before December 31, 2018, unless, subject to certain limitations, it has received proceeds during a specified period from the sale of specified replacement securities. The repurchase and redemption of Series B preferred stock as described above was in compliance with the terms of the applicable RCC. The RCC is, in each case, for the benefit of the holders of the related Covered Debt, which is currently MetLife, Inc.’s 10.750% JSDs. The RCC will terminate upon the occurrence of certain events, including the date on which MetLife, Inc. has no series of outstanding eligible debt securities.
The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for the Series A, Series B and Series C preferred stock was as follows:
 
 
 
 
 
 
Dividend
Declaration Date
 
Record Date
 
Payment Date
 
Series A
Per Share
 
Series A
Aggregate
 
Series B
Per Share
 
Series B
Aggregate
 
Series C
Per Share
 
Series C
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
November 15, 2017
 
November 30, 2017
 
December 15, 2017
 
$
0.253

 
$
6

 
$

 
$

 
$
26.250

 
$
39

August 15, 2017
 
August 31, 2017
 
September 15, 2017
 
$
0.256

 
6

 
$

 

 
$

 

May 15, 2017
 
May 31, 2017
 
June 15, 2017
 
$
0.256

 
7

 
$

 

 
$
26.250

 
39

March 6, 2017
 
February 28, 2017
 
March 15, 2017
 
$
0.250

 
6

 
$

 

 
$

 

 
 
 
 
 
 
 
 
$
25

 
 
 
$

 
 
 
$
78

November 15, 2016
 
November 30, 2016
 
December 15, 2016
 
$
0.253

 
$
6

 
$

 
$

 
$
26.250

 
$
39

August 15, 2016
 
August 31, 2016
 
September 15, 2016
 
$
0.256

 
6

 
$

 

 
$

 

May 16, 2016
 
May 31, 2016
 
June 15, 2016
 
$
0.256

 
7

 
$

 

 
$
26.250

 
39

March 7, 2016
 
February 29, 2016
 
March 15, 2016
 
$
0.253

 
6

 
$

 

 
$

 

 
 
 
 
 
 
 
 
$
25

 
 
 
$

 
 
 
$
78

November 16, 2015
 
November 30, 2015
 
December 15, 2015
 
$
0.253

 
$
6

 
$

 
$

 
$
28.292

 
$
43

August 17, 2015
 
August 31, 2015
 
September 15, 2015
 
$
0.256

 
6

 
$

 

 
$

 

May 15, 2015
 
May 31, 2015
 
June 15, 2015
 
$
0.256

 
7

 
$
0.406

 
24

 
$

 

March 5, 2015
 
February 28, 2015
 
March 16, 2015
 
$
0.250

 
6

 
$
0.406

 
24

 
$

 

 
 
 
 
 
 
 
 
$
25

 
 
 
$
48

 
 
 
$
43

See Note 22 for information on subsequent preferred stock dividends declared.
Common Stock
Issuances
During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. issued 4,680,116, 4,439,219 and 5,592,622 new shares of its common stock for $158 million, $166 million and $216 million, respectively, in connection with stock option exercises and other stock-based awards. There were no shares of common stock issued from treasury stock for each of the years ended December 31, 2017, 2016 and 2015.
Repurchase Authorizations
On September 22, 2015, MetLife, Inc. announced that its Board of Directors authorized $739 million of common stock repurchases in addition to previously authorized repurchases. On November 10, 2016, MetLife, Inc. announced that its Board of Directors authorized $3.0 billion of common stock repurchases. On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases.
During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. repurchased 56,599,540 shares, 6,948,739 shares and 39,491,991 shares under these repurchase authorizations for $2.9 billion, $372 million, and $1.9 billion, respectively. At December 31, 2017, MetLife, Inc. had $1.8 billion remaining under its common stock repurchase authorization. See Note 22 for information on subsequent common stock repurchases.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Under these authorizations, MetLife, Inc. may purchase its common stock from the MetLife Policyholder Trust, in the open market (including pursuant to the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”)), and in privately negotiated transactions. Common stock repurchases are dependent upon several factors, including the Company’s capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.
Dividends
The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for common stock was as follows:
 
 
 
 
 
 
Dividend
Declaration Date
 
 Record Date
 
 Payment Date
 
Per Share
 
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
October 24, 2017
 
November 6, 2017
 
December 13, 2017
 
$
0.400

 
$
422

July 7, 2017
 
August 7, 2017
 
September 13, 2017
 
$
0.400

 
427

April 25, 2017
 
May 8, 2017
 
June 13, 2017
 
$
0.400

 
431

January 6, 2017
 
February 6, 2017
 
March 13, 2017
 
$
0.400

 
437

 
 
 
 
 
 
 
 
$
1,717

October 25, 2016
 
November 7, 2016
 
December 13, 2016
 
$
0.400

 
$
441

July 7, 2016
 
August 8, 2016
 
September 13, 2016
 
$
0.400

 
441

April 26, 2016
 
May 9, 2016
 
June 13, 2016
 
$
0.400

 
441

January 6, 2016
 
February 5, 2016
 
March 14, 2016
 
$
0.375

 
413

 
 
 
 
 
 
 
 
$
1,736

October 27, 2015
 
November 6, 2015
 
December 11, 2015
 
$
0.375

 
$
419

July 7, 2015
 
August 7, 2015
 
September 11, 2015
 
$
0.375

 
420

April 28, 2015
 
May 11, 2015
 
June 12, 2015
 
$
0.375

 
420

January 6, 2015
 
February 6, 2015
 
March 13, 2015
 
$
0.350

 
394

 
 
 
 
 
 
 
 
$
1,653

See Note 22 for information on subsequent common stock dividends declared.
The funding of the cash dividends and operating expenses of MetLife, Inc. is primarily provided by cash dividends from MetLife, Inc.’s insurance subsidiaries. The statutory capital and surplus, or net assets, of MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions except to the extent that dividends are allowed to be paid in a given year without prior regulatory approval. Dividends exceeding these limitations can generally be made subject to regulatory approval. The nature and amount of these dividend restrictions, as well as the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries, are disclosed in “— Statutory Equity and Income” and “— Dividend Restrictions — Insurance Operations.” MetLife, Inc.’s principal non-U.S. insurance operations are branches or subsidiaries of American Life Insurance Company (“American Life”), a U.S. insurance subsidiary of the Company. In addition, the payment of dividends by MetLife, Inc. to its shareholders is also subject to restrictions. See “— Dividend Restrictions — MetLife, Inc.”
Stock-Based Compensation Plans
Plans for Employees and Agents
Under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”), MetLife, Inc. may grant awards to employees and agents in the form of Stock Options, Stock Appreciation Rights, Performance Shares or Performance Share Units, Restricted Stock or Restricted Stock Units, Cash-Based Awards and Stock-Based Awards (each, as applicable, as defined in the 2015 Stock Plan with reference to shares of MetLife, Inc. common stock (“Shares”)). Awards under the 2015 Stock Plan and its predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan”) were outstanding at December 31, 2017. MetLife, Inc. granted all awards to employees and agents in 2017 under the 2015 Stock Plan.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

The aggregate number of Shares authorized for issuance under the 2015 Stock Plan at December 31, 2017 was 36,166,517.
With the exception of performance shares granted in 2013 and after, which are re-measured quarterly, MetLife recognizes compensation expense related to awards under the 2005 Stock Plan or 2015 Stock Plan based on the number of awards it expects to vest, which represents the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant. Unless a material deviation from the assumed forfeiture rate is observed during the term in which the awards are expensed, MetLife recognizes any adjustment necessary to reflect differences in actual experience in the period the award becomes payable or exercisable.
Compensation expense related to awards under the 2005 Stock Plan is principally related to the issuance of Stock Options. Under the 2015 Stock Plan, compensation expense principally relates to Stock Options, Unit Options, Performance Shares, Performance Units, Restricted Stock Units and Restricted Units. MetLife, Inc. granted the majority of each year’s awards under the 2005 Stock Plan and 2015 Stock Plan in the first quarter of the year.
Deferred Shares are Shares that are covered by awards that have become payable under a plan, but the issuance of which has been deferred. Deferred Shares payable to employees or agents related to awards under the 2005 Stock Plan, 2015 Stock Plan, or earlier applicable plans equaled 1,351,798 Shares at December 31, 2017.
Certain stock-based awards provide solely for cash settlement based in whole or in part on the price of Shares or changes in the price of Shares (“Phantom Stock-Based Awards”). MetLife granted such awards under the MetLife, Inc. International Unit Option Incentive Plan, the MetLife International Performance Unit Incentive Plan, and the MetLife International Restricted Unit Incentive Plan prior to 2015, and under the 2015 Stock Plan in 2015 and later.
Plans for Non-Management Directors
Under the MetLife, Inc. 2015 Non-Management Director Stock Compensation Plan (the “2015 Director Stock Plan”), MetLife, Inc. may grant non-management Directors of MetLife, Inc. awards in the form of nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock or Restricted Stock Units, or Stock-Based Awards (each, as applicable, as defined in the 2015 Director Stock Plan with reference to Shares). The only awards MetLife, Inc. granted under the 2015 Director Stock Plan and its predecessor plan, the MetLife, Inc. 2005 Non-Management Director Stock Compensation Plan (the “2005 Director Stock Plan”), through December 31, 2017 vested immediately and no awards under the 2005 Director Stock Plan or 2015 Director Stock Plan remained outstanding at December 31, 2017.
The aggregate number of Shares authorized for issuance under the 2015 Director Stock Plan at December 31, 2017 was 1,702,903.
MetLife recognizes compensation expense related to awards under the 2015 Director Stock Plan based on the number of Shares awarded. The only awards made under the 2005 Director Stock Plan and under the 2015 Director Stock Plan through December 31, 2017 were Stock-Based Awards that vested immediately. MetLife, Inc. granted the majority of the awards in 2015 and 2016 under the 2015 Director Stock Plan in the second quarter of each year.
Deferred Shares payable to Directors related to awards under the 2005 Director Stock Plan, 2015 Director Stock Plan, or earlier applicable plans equaled 223,176 Shares at December 31, 2017.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Compensation Expense Related to Stock-Based Compensation
The components of compensation expense related to stock-based compensation includes compensation expense related to Phantom Stock-Based Awards, and excludes the insignificant compensation expense related to the 2015 Director Stock Plan. Those components were:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Stock Options and Unit Options
$
8

 
$
9

 
$
12

Performance Shares and Performance Units (1)
62

 
75

 
59

Restricted Stock Units and Restricted Units
58

 
63

 
66

Total compensation expense
$
128

 
$
147

 
$
137

Income tax benefit
$
45

 
$
51

 
$
48

__________________
(1)
Performance Shares expected to vest and the related compensation expenses may be further adjusted by the performance factor most likely to be achieved, as estimated by management, at the end of the performance period.
The following table presents the total unrecognized compensation expense related to stock-based compensation and the expected weighted average period over which these expenses will be recognized at:
 
December 31, 2017
 
Expense
 
Weighted Average
Period
 
(In millions)
 
(Years)
Stock Options
$
4

 
1.77
Performance Shares
$
30

 
1.59
Restricted Stock Units
$
40

 
1.84
Equity Awards
Stock Options
Stock Options are the contingent right of award holders to purchase Shares at a stated price for a limited time. All Stock Options have an exercise price equal to the closing price of a Share reported on the New York Stock Exchange (“NYSE”) on the date of grant, and have a maximum term of 10 years. The vast majority of Stock Options granted has become or will become exercisable at a rate of one-third of each award on each of the first three anniversaries of the grant date. Other Stock Options have become or will become exercisable on the third anniversary of the grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

A summary of the activity related to Stock Options was as follows:
 
Shares
Under
Option
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value (1)
 
 
 
 
 
(Years)
 
(In millions)
Outstanding at January 1, 2017
19,482,388

 
$
44.73

 
3.68
 
$
218

Granted (2)
709,085

 
$
46.85

 
 
 
 
Exercised (2)
(3,475,198
)
 
$
33.36

 
 
 
 
Expired (2)
(2,913,457
)
 
$
56.06

 
 
 
 
Forfeited (2)
(115,670
)
 
$
40.06

 
 
 
 
Other Separation adjustment (2)
2,322,606

 
$
38.40

 
 
 
 
Outstanding at December 31, 2017
16,009,754

 
$
38.77

 
3.54
 
$
198

Vested and expected to vest at December 31, 2017
15,991,119

 
$
38.76

 
3.13
 
$
238

Exercisable at December 31, 2017
14,487,455

 
$
38.46

 
3.02
 
$
185

__________________
(1)
The intrinsic value of each Stock Option is the closing price on a particular date less the exercise price of the Stock Option, so long as the difference is greater than zero. The aggregate intrinsic value of all outstanding Stock Options is computed using the closing Share price on December 31, 2017 of $50.56 and December 31, 2016 of $48.02, as applicable.
(2)
For Stock Options outstanding as of August 4, 2017, MetLife, Inc. increased the number of Stock Options by an adjustment ratio, and lowered their exercise price by dividing it by the same adjustment ratio, to maintain the intrinsic value of the award pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the Separation. MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common stock on August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading day. Each of “Granted,” “Exercised,” “Expired,” and “Forfeited” reflects the impact of this adjustment, as applicable, regardless of the date of the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment to produce the Stock Options outstanding at December 31, 2017.
MetLife estimates the fair value of Stock Options on the date of grant using a binomial lattice model. The significant assumptions the Company uses in its binomial lattice model are further described below. The assumptions include: expected volatility of the price of Shares; risk-free rate of return; dividend yield on Shares; exercise multiple; and the post-vesting termination rate.
Expected volatility is based upon an analysis of historical prices of Shares and call options on Shares traded on the open market. The Company uses a weighted-average of the implied volatility for publicly-traded call options with the longest remaining maturity nearest to the money as of each valuation date and the historical volatility, calculated using monthly closing prices of Shares. The Company chose a monthly measurement interval for historical volatility as this interval reflects the Company’s view that employee option exercise decisions are based on longer-term trends in the price of the underlying Shares rather than on daily price movements.
The binomial lattice model used by the Company incorporates different risk-free rates based on the imputed forward rates for U.S. Treasury Strips for each year over the contractual term of the option. The table below presents the full range of rates that were used for options granted during the respective periods.
Dividend yield is determined based on historical dividend distributions compared to the price of the underlying Shares as of the valuation date and held constant over the life of the Stock Option.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

The binomial lattice model used by the Company incorporates the term of the Stock Options. The model also factors in expected exercise behavior and a post-vesting termination rate, or the rate at which vested options are exercised or expire prematurely due to termination of employment. From these factors, the model derives an expected life of the Stock Option. The exercise behavior in the model is a multiple that reflects the ratio of stock price at the time of exercise over the exercise price of the Stock Option at the time the model expects holders to exercise. The model derives the exercise multiple from actual exercise activity. The model determines the post-vesting termination rate from actual exercise experience and expiration activity under the Incentive Plans.
The following table presents the weighted average assumptions, with the exception of risk-free rate, which is expressed as a range, that the model uses to determine the fair value of unexercised Stock Options that MetLife, Inc. has granted:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
Dividend yield
 
3.05%
 
3.90%
 
2.72%
Risk-free rate of return
 
0.94% - 3.22%
 
0.62% - 2.85%
 
0.20% - 3.04%
Expected volatility
 
34.19%
 
33.58%
 
32.56%
Exercise multiple
 
1.43
 
1.43
 
1.44
Post-vesting termination rate
 
2.94%
 
2.58%
 
2.73%
Contractual term (years)
 
10
 
10
 
10
Expected life (years)
 
6
 
7
 
7
Weighted average exercise price of stock options granted
 
$46.85
 
$34.33
 
$45.91
Weighted average fair value of stock options granted
 
$12.36
 
$8.27
 
$11.87
The following table presents a summary of Stock Option exercise activity:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Total intrinsic value of stock options exercised
 
$
59

 
$
42

 
$
44

Cash received from exercise of stock options
 
$
116

 
$
84

 
$
121

Income tax benefit realized from stock options exercised
 
$
20

 
$
15

 
$
15

Performance Shares
Performance Shares are units that, if they vest, are multiplied by a performance factor to produce a number of final Performance Shares which are payable in Shares. MetLife accounts for Performance Shares as equity awards. MetLife, Inc. does not credit Performance Shares with dividend-equivalents for dividends paid on Shares. Performance Share awards normally vest in their entirety at the end of the three-year performance period. Vesting is subject to continued service, except for employees who meet specified age and service criteria, and in certain other limited circumstances.
For awards granted for the 2015 – 2017 and later performance periods in progress through December 31, 2017, the vested Performance Shares will be multiplied by a performance factor of 0% to 175%. Assuming that MetLife, Inc. has met threshold performance goals related to its adjusted income or total shareholder return, the MetLife, Inc. Compensation Committee will determine the performance factor in its discretion. In doing so, the Compensation Committee may consider MetLife, Inc.’s total shareholder return relative to the performance of its competitors and adjusted return on MetLife, Inc.’s common stockholders’ equity relative to its financial plan. MetLife estimates the fair value of Performance Shares each quarter until they become payable. The performance factor for the 2014 - 2016 performance period was 44.4%.
Restricted Stock Units
Restricted Stock Units are units that, if they vest, are payable in an equal number of Shares. MetLife accounts for Restricted Stock Units as equity awards. MetLife, Inc. does not credit Restricted Stock Units with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Restricted Stock Units is based upon the closing price of Shares on the date of grant, reduced by the present value of estimated dividends to be paid on that stock.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

The vast majority of Restricted Stock Units normally vest in thirds on or shortly after the first three anniversaries of their grant date. Other Restricted Stock Units normally vest in their entirety on the third or later anniversary of their grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
The following table presents a summary of Performance Share and Restricted Stock Unit activity:
 
Performance Shares
 
Restricted Stock Units
 
Shares
 
Weighted
Average
Fair Value (1)
 
Units
 
Weighted
Average
Fair Value (1)
Outstanding at January 1, 2017
3,817,100

 
$
49.88

 
3,422,013

 
$
39.08

Granted (2)
1,225,333

 
$
45.60

 
1,445,238

 
$
42.45

Forfeited (2)
(270,292
)
 
$
42.94

 
(251,216
)
 
$
35.64

Payable (2) (3)
(1,192,734
)
 
$
44.84

 
(1,720,168
)
 
$
36.81

Other Separation adjustment (2)
454,353

 
$
42.34

 
408,510

 
$
37.07

Outstanding at December 31, 2017
4,033,760

 
$
46.02

 
3,304,377

 
$
37.17

Vested and expected to vest at December 31, 2017
3,971,002

 
$
46.02

 
3,246,476

 
$
37.14

__________________
(1)
Values for shares outstanding at January 1, 2017, represent weighted average number of shares multiplied by the fair value per share at December 31, 2016. Otherwise, all values represent weighted average of number of shares multiplied by the fair value per share at December 31, 2017. Fair value per share of Restricted Stock Units on December 31, 2017 was equal to Grant Date fair value per share.
(2)
For Performance Shares, Restricted Stock Units, and Deferred Shares outstanding as of August 4, 2017, MetLife, Inc. increased the number of units by an adjustment ratio to maintain the intrinsic value of the award or Deferred Shares pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the Separation. MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common stock on August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading day. Each of “Granted,” “Forfeited,” and “Payable” reflects the impact of this adjustment, as applicable, regardless of the date of the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment to produce the Performance Shares and Restricted Stock Units outstanding at December 31, 2017.
(3)
Includes both Shares paid and Deferred Shares for later payment.
Performance Share amounts above represent aggregate initial target awards and do not reflect potential increases or decreases resulting from the performance factor determined after the end of the respective performance periods. At December 31, 2017, the performance period for the 2015 — 2017 Performance Share grants was completed, but the performance factor had not yet been determined. Included in the immediately preceding table are 1,194,283 outstanding Performance Shares to which the 2015 — 2017 performance factor will be applied.
Liability Awards (Phantom Stock-Based Awards)
Certain MetLife subsidiaries have a liability for Phantom Stock-Based Awards in the form of Unit Options, Performance Units, and/or Restricted Units. These Share-based cash settled awards are recorded as liabilities until payout is made. Unlike Share-settled awards, which have a fixed grant-date fair value, the fair value of unsettled or unvested liability awards is re-measured at the end of each reporting period based on the change in fair value of one Share. The liability and corresponding expense are adjusted accordingly until the award is settled.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Unit Options
Unit Options are the contingent right of award holders to receive a cash payment equal to the closing price of a Share on the exercise date, less the closing price on the grant date, if the difference is greater than zero, for a limited time. All Unit Options have an exercise price equal to the closing price of a Share reported on the NYSE on the date of grant, and have a maximum term of 10 years. The vast majority of Unit Options has become or will become eligible for exercise at a rate of one-third of each award on each of the first three anniversaries of the grant date. Other Unit Options have become or will become eligible for exercise on the third anniversary of the grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
Performance Units
Performance Units are units that, if they vest, are multiplied by a performance factor to produce a number of final Performance Units which are payable in cash equal to the closing price of a Share on a date following the last day of the three-year performance period. Performance Units are accounted for as liability awards. They are not credited with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Performance Units is based upon the closing price of a Share on the date of grant, reduced by the present value of estimated dividends to be paid on that stock during the performance period.
See “— Equity Awards — Performance Shares” for a discussion of the Performance Shares vesting period and performance factor calculation, which are also used for Performance Units.
Restricted Units
Restricted Units are units that, if they vest, are payable in cash equal to the closing price of a Share on the last day of the restriction period. They are not credited with dividend-equivalents for dividends paid on Shares. The vast majority of Restricted Units normally vest in thirds on or shortly after the first three anniversaries of their grant date. Other Restricted Units normally vest in their entirety on the third or later anniversary of their grant date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited circumstances. Restricted Units are accounted for as liability awards.
The following table presents a summary of Liability Awards activity:
 
Unit
Options
 
Performance
Units
 
Restricted
Units
Outstanding at January 1, 2017
855,897

 
615,356

 
763,723

Granted (1)
24,175

 
238,487

 
375,414

Exercised (1)
(200,687
)
 

 

Forfeited (1)
(100,439
)
 
(53,499
)
 
(82,940
)
Paid (1)

 
(185,178
)
 
(368,049
)
Other Separation adjustment (1)
102,066

 
73,063

 
90,928

Outstanding at December 31, 2017
681,012

 
688,229

 
779,076

Vested and expected to vest at December 31, 2017
612,911

 
619,406

 
701,168

__________________
(1)
For Unit Options, Performance Units, and Restricted Units outstanding as of August 4, 2017, MetLife, Inc. increased the number of units, and for Units Options lowered the exercise price by an adjustment ratio to maintain the intrinsic value of the award pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the Separation. MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common stock on August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading day. Each of “Granted,” “Exercised,” “Forfeited,” and “Paid” reflects the impact of this adjustment, as applicable, regardless of the date of the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment to produce the Unit Options, Performance Units, and Restricted Units outstanding at December 31, 2017.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Statutory Equity and Income
The states of domicile of MetLife, Inc.’s U.S. insurance subsidiaries each impose risk-based capital (“RBC”) requirements that were developed by the National Association of Insurance Commissioners (“NAIC”). American Life does not write business in Delaware or any other domestic state and, as such, is exempt from RBC requirements by Delaware law. Regulatory compliance is determined by a ratio of a company’s total adjusted capital, calculated in the manner prescribed by the NAIC (“TAC”) to its authorized control level RBC, calculated in the manner prescribed by the NAIC (“ACL RBC”), based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC (“Company Action Level RBC”). While not required by or filed with insurance regulators, the Company also calculates an internally defined combined RBC ratio (“Statement-Based Combined RBC Ratio”), which is determined by dividing the sum of TAC for MetLife, Inc.’s principal U.S. insurance subsidiaries, excluding American Life, by the sum of Company Action Level RBC for such subsidiaries. The Company’s Statement-Based Combined RBC Ratio was in excess of 390% at December 31, 2017.The Company’s Statement-Based Combined RBC Ratio (both including and excluding Brighthouse insurance subsidiaries) was in excess of 400% at December 31, 2016. In addition, all non-exempted U.S. insurance subsidiaries individually exceeded Company Action Level RBC for all periods presented.
MetLife, Inc.’s foreign insurance operations are regulated by applicable authorities of the jurisdictions in which each entity operates and are subject to minimum capital and solvency requirements in those jurisdictions before corrective action commences. At December 31, 2017 and 2016, the adjusted capital of American Life’s insurance subsidiary in Japan, the Company’s largest foreign insurance operation, was in excess of four times the 200% solvency margin ratio that would require corrective action. Excluding Japan, the aggregate required capital and surplus of the Company’s other foreign insurance operations was $3.7 billion and the aggregate actual regulatory capital and surplus of such operations was $10.5 billion as of the date of the most recent required capital adequacy calculation for each jurisdiction, adjusted for the revision of assumed variable annuity guarantee reserves. See Note 1. Each of those other foreign insurance operations exceeded minimum capital and solvency requirements of their respective jurisdictions for all periods presented.
MetLife, Inc.’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile or applicable foreign jurisdiction. The NAIC has adopted the Codification of Statutory Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the effect of Statutory Codification on the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries.
Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis.
In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not give recognition to purchase accounting adjustments. MetLife, Inc.’s U.S. insurance subsidiaries have no material state prescribed accounting practices, except as described below.
New York has adopted certain prescribed accounting practices, primarily consisting of the continuous Commissioners’ Annuity Reserve Valuation Method, which impacts deferred annuities, and the New York Special Consideration Letter, which mandates certain assumptions in asset adequacy testing. The collective impact of these prescribed accounting practices decreased the statutory capital and surplus of MLIC for the years ended December 31, 2017 and 2016 by an amount of $1.1 billion and $909 million, respectively, in excess of the amount of the decrease had capital and surplus been measured under NAIC guidance.
American Life calculates its policyholder reserves on insurance written in each foreign jurisdiction in accordance with the reserve standards required by such jurisdiction. Additionally, American Life’s insurance subsidiaries are valued based on each respective subsidiary’s underlying local statutory equity, adjusted in a manner consistent with the reporting prescribed for its branch operations. The prescribed practice exempts American Life from calculating and disclosing the impact to its statutory capital and surplus. The tables below present amounts from MetLife, Inc.’s U.S. insurance subsidiaries, which are derived from the statutory-basis financial statements as filed with the insurance regulators.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Statutory net income (loss) was as follows:
 
 
 
 
Years Ended December 31,
Company
 
State of Domicile
 
2017
 
2016
 
2015
 
 
 
 
(In millions)
Metropolitan Life Insurance Company (1)
 
New York
 
$
1,982

 
$
3,444

 
$
3,703

American Life Insurance Company
 
Delaware
 
$
3,077

 
$
341

 
$
335

Brighthouse Life Insurance Company (2)
 
Delaware
 
N/A

 
$
1,186

 
$
(1,022
)
Metropolitan Property and Casualty Insurance Company
 
Rhode Island
 
$
197

 
$
171

 
$
204

Metropolitan Tower Life Insurance Company
 
Delaware
 
$
74

 
$
8

 
$
(42
)
New England Life Insurance Company (2)
 
Massachusetts
 
N/A

 
$
109

 
$
157

General American Life Insurance Company
 
Missouri
 
$
90

 
$
(2
)
 
$
204

Other (3)
 
Various
 
$
11

 
$
(70
)
 
$
20

__________________
(1)
In December 2016, MLIC transferred all of the issued and outstanding shares of the common stock of each of New England Life Insurance Company (“NELICO”) and General American Life Insurance Company (“GALIC”) to MetLife, Inc., in the form of a non-cash extraordinary dividend.
(2)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc.
(3)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of Brighthouse Life Insurance Company of NY (“Brighthouse NY”) to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse NY ceased to be a subsidiary of MetLife, Inc. For the years ended December 31, 2016 and 2015, statutory net income (loss) of Brighthouse NY was ($87) million and $17 million, respectively.
Statutory capital and surplus was as follows at:
 
 
December 31,
Company
 
2017
 
2016
 
 
(In millions)
Metropolitan Life Insurance Company (1)
 
$
10,384

 
$
11,195

American Life Insurance Company
 
$
6,548

 
$
5,895

Brighthouse Life Insurance Company (2)
 
N/A

 
$
4,374

Metropolitan Property and Casualty Insurance Company
 
$
2,266

 
$
2,271

Metropolitan Tower Life Insurance Company
 
$
733

 
$
669

New England Life Insurance Company (2)
 
N/A

 
$
455

General American Life Insurance Company
 
$
988

 
$
923

Other (3)
 
$
100

 
$
303

__________________
(1)
In December 2016, MLIC transferred all of the issued and outstanding shares of the common stock of each of NELICO and GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend.
(2)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc.
(3)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of Brighthouse NY to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse NY ceased to be a subsidiary of MetLife, Inc. At December 31, 2016, Brighthouse NY statutory capital and surplus was $196 million.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

The Company’s domestic captive life reinsurance subsidiaries, which reinsure risks including the closed block, level premium term life and ULSG assumed from other MetLife subsidiaries, have no state prescribed accounting practices, except for MRV and MetLife Reinsurance Company of Delaware (“MRD”).
MRV, with the explicit permission of the Commissioner of Insurance of the State of Vermont, has included, as admitted assets, the value of letters of credit serving as collateral for reinsurance credit taken by various affiliated cedants, in connection with reinsurance agreements entered into between MRV and the various affiliated cedants, which resulted in higher statutory capital and surplus of $2.7 billion and $5.6 billion for the years ended December 31, 2017 and 2016. MRV’s RBC would have triggered a regulatory event without the use of the state prescribed practice. A designated protected cell of MRV (“MRV Cell 2”) ceased being part of MetLife upon Separation.
MRD, with the explicit permission of the Commissioner of Insurance of the State of Delaware, has included, as admitted assets, the value of letters of credit issued to MRD, which resulted in higher statutory capital and surplus of $260 million for the year ended December 31, 2016. MRD’s RBC would not have triggered a regulatory event without the use of the state prescribed practice. MRD ceased to be a subsidiary of MetLife, Inc. upon Separation.
The combined statutory net income (loss) of MetLife, Inc.’s domestic captive life reinsurance subsidiaries was $2.1 billion, ($344) million and ($336) million for the years ended December 2017, 2016 and 2015, respectively, and the combined statutory capital and surplus, including the aforementioned prescribed practice, was $1.7 billion and $4.4 billion at December 31, 2017 and 2016, respectively.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Dividend Restrictions
Insurance Operations
The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory approval and dividends paid:
 
 
2018
 
2017
 
 
2016
Company
 
Permitted Without
Approval (1)
 
Paid (2)
 
 
Paid (2)
 
 
(In millions)
 
Metropolitan Life Insurance Company 
 
$
3,075

 
$
2,523

 
 
$
5,740

(3
)
American Life Insurance Company
 
$

 
$
2,200

(4)
 
$

 
Brighthouse Life Insurance Company (5)
 
N/A

 
$

 
 
$
261

 
Metropolitan Property and Casualty Insurance Company
 
$
125

 
$
185

 
 
$
228

 
Metropolitan Tower Life Insurance Company
 
$
73

 
$

 
 
$
60

 
New England Life Insurance Company (5)
 
N/A

 
$

 
 
$
295

(6
)
General American Life Insurance Company
 
$
118

 
$
1

 
 
$

 
__________________
(1)
Reflects dividend amounts that may be paid during 2018 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 2018, some or all of such dividends may require regulatory approval.
(2)
Reflects all amounts paid, including those requiring regulatory approval.
(3)
In 2016, MLIC paid an ordinary cash dividend to MetLife, Inc. in the amount of $3.6 billion. In addition, in December 2016, MLIC distributed all of the issued and outstanding shares of common stock of each of NELICO and GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend in the amount of $981 million and $1.2 billion, respectively, as calculated on a statutory basis.
(4)
Represents an extraordinary dividend.
(5)
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc. See Note 3 for other Brighthouse dividend transactions prior to the Separation.
(6)
Represents an extraordinary dividend paid by NELICO in 2016 to MetLife, Inc.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Under New York State Insurance Law, MLIC is permitted, without prior insurance regulatory clearance, to pay stockholder dividends to MetLife, Inc. in any calendar year based on either of two standards. Under one standard, MLIC is permitted, without prior insurance regulatory clearance, to pay dividends out of earned surplus (defined as positive unassigned funds (surplus), excluding 85% of the change in net unrealized capital gains or losses (less capital gains tax), for the immediately preceding calendar year), in an amount up to the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not to exceed 30% of surplus to policyholders as of the end of the immediately preceding calendar year. In addition, under this standard, MLIC may not, without prior insurance regulatory clearance, pay any dividends in any calendar year immediately following a calendar year for which its net gain from operations, excluding realized capital gains, was negative. Under the second standard, if dividends are paid out of other than earned surplus, MLIC may, without prior insurance regulatory clearance, pay an amount up to the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). In addition, MLIC will be permitted to pay a dividend to MetLife, Inc. in excess of the amounts allowed under both standards only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Financial Services (the “Superintendent”) and the Superintendent either approves the distribution of the dividend or does not disapprove the dividend within 30 days of its filing. Under New York State Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholder.
Under Delaware Insurance Code, each of American Life and Metropolitan Tower Life Insurance Company (“MTL”) is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the amount of the dividend, when aggregated with all other dividends in the preceding 12 months, does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its net statutory gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions of each insurer's own securities. Each of American Life and MTL will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Delaware Commissioner of Insurance (the “Delaware Commissioner”) and the Delaware Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the immediately preceding calendar year requires insurance regulatory approval. Under Delaware Insurance Code, the Delaware Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
Under Rhode Island Insurance Code, Metropolitan Property and Casualty Insurance Company (“MPC”) is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the aggregate amount of all such dividends in any 12 month period does not exceed the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) net income, not including realized capital gains, for the immediately preceding calendar year, not including pro rata distributions of MPC’s own securities. In determining whether a dividend is extraordinary, MPC may include carry forward net income from the previous two calendar years, excluding realized capital gains less dividends paid in the second and immediately preceding calendar years. MPC will be permitted to pay a dividend to MetLife, Inc. in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Rhode Island Commissioner of Insurance (the “Rhode Island Commissioner”) and the Rhode Island Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. Under Rhode Island Insurance Code, the Rhode Island Commissioner has broad discretion in determining whether the financial condition of a stock property and casualty insurance company would support the payment of such dividends to its stockholders.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Under Missouri State Insurance Law, GALIC is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the amount of such dividend when aggregated with all other dividends in the preceding 12 months does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding net realized capital gains), not including pro rata distributions of GALIC’s own securities. GALIC will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Missouri Director of Insurance (the “Missouri Director”) and the Missouri Director either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined by us to mean “unassigned funds (surplus)”) as of the last filed annual statutory statement requires insurance regulatory approval. Under Missouri State Insurance Law, the Missouri Director has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
MetLife, Inc.
In addition to regulatory restrictions on the payment of dividends by its insurance subsidiaries to MetLife, Inc., the payment of dividends by MetLife, Inc. to its stockholders is also subject to other restrictions. The declaration and payment of dividends is subject to the discretion of MetLife, Inc.’s Board of Directors, and will depend on its financial condition, results of operations, cash requirements, future prospects and other factors deemed relevant by the Board. In addition, the payment of dividends on MetLife, Inc.’s common stock, and MetLife, Inc.’s ability to repurchase its common stock, may be subject to restrictions described below arising under the terms of MetLife, Inc.’s preferred stock and junior subordinated debentures in situations where MetLife, Inc. may be experiencing financial stress, as described below. For purposes of this discussion, “junior subordinated debentures” are deemed to include MetLife, Inc.’s Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, as discussed in Note 14.
“Dividend Stopper” Provisions in the Preferred Stock and Junior Subordinated Debentures. MetLife, Inc.’s preferred stock and junior subordinated debentures contain provisions that would automatically suspend the payment of preferred stock dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain risk based capital ratio, net income and stockholders’ equity tests at specified times, except to the extent of the net proceeds from the issuance of certain securities during specified periods. If preferred stock dividends or interest on junior subordinated debentures are not paid, certain provisions in those instruments (sometimes referred to as “dividend stoppers”) may restrict MetLife, Inc. from repurchasing its common or preferred stock or paying dividends on its common or preferred stock and interest on its junior subordinated debentures. If MetLife, Inc. has not paid the full dividends on its preferred stock for the latest completed dividend period, MetLife, Inc. may not repurchase or pay dividends on its common stock during a dividend period. Under the junior subordinated debentures, if MetLife, Inc. has not paid in full the accrued interest on its junior subordinated debentures through the most recent interest payment date, it may not repurchase or pay dividends on its common stock or other capital stock (including the preferred stock), subject to certain exceptions. After obtaining the approval of the holders of a majority of MetLife, Inc.’s outstanding common stock on October 19, 2017, MetLife, Inc. amended the stockholders’ equity test applicable to the preferred stock to reflect the Separation of Brighthouse, so that prospectively the test will reflect the decrease in MetLife’s shareholders’ equity as a result of the Separation. On August 28, 2017, with the consent of holders of each series of junior subordinated debentures (or securities exchangeable for junior subordinated debentures), MetLife, Inc. amended the stockholders’ equity test in the junior subordinated debentures to the same effect.
The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions are met, defer payment of interest without giving rise to an event of default for periods of up to 10 years. In that case, after five years MetLife, Inc. would be obligated to use commercially reasonable efforts to sell equity securities to raise proceeds to pay the interest. MetLife, Inc. would not be subject to limitations on the number of deferral periods that MetLife, Inc. could begin, so long as all accrued and unpaid interest is paid with respect to prior deferral periods. If MetLife, Inc. were to defer payments of interest, the “dividend stopper” provisions in the junior subordinated debentures would thus prevent MetLife, Inc. from repurchasing or paying dividends on its common stock or other capital stock (including the preferred stock) during the period of deferral, subject to exceptions.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

MetLife, Inc. is a party to certain RCCs which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of preferred stock or junior subordinated debentures by requiring MetLife, 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 “— Preferred Stock” for a description of such covenants in effect with respect to the preferred stock, and Note 14 for a description of such covenants in effect with respect to junior subordinated debentures.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to MetLife, Inc., was as follows:
 
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1)
 
Unrealized Gains
(Losses) on
Derivatives
 
Foreign
Currency
Translation
Adjustments
 
Defined
Benefit
Plans
Adjustment
 
Total
 
(In millions)
Balance at December 31, 2014
$
15,224

 
$
1,076

 
$
(3,303
)
 
$
(2,283
)
 
$
10,714

OCI before reclassifications
(7,224
)
 
(19
)
 
(1,646
)
 
125

 
(8,764
)
Deferred income tax benefit (expense)
2,456

 
6

 
(1
)
 
(43
)
 
2,418

AOCI before reclassifications, net of income tax
10,456

 
1,063

 
(4,950
)
 
(2,201
)
 
4,368

Amounts reclassified from AOCI
(223
)
 
608

 

 
229

 
614

Deferred income tax benefit (expense)
78

 
(213
)
 

 
(80
)
 
(215
)
Amounts reclassified from AOCI, net of income tax
(145
)
 
395

 

 
149

 
399

Balance at December 31, 2015
10,311

 
1,458

 
(4,950
)
 
(2,052
)
 
4,767

OCI before reclassifications
800

 
344

 
(476
)
 
(62
)
 
606

Deferred income tax benefit (expense)
(338
)
 
(100
)
 
114

 
24

 
(300
)
AOCI before reclassifications, net of income tax
10,773

 
1,702

 
(5,312
)
 
(2,090
)
 
5,073

Amounts reclassified from AOCI
21

 
229

 

 
193

 
443

Deferred income tax benefit (expense)
(9
)
 
(66
)
 

 
(75
)
 
(150
)
Amounts reclassified from AOCI, net of income tax
12

 
163

 

 
118

 
293

Balance at December 31, 2016
10,785

 
1,865

 
(5,312
)
 
(1,972
)
 
5,366

OCI before reclassifications
5,392

 
(140
)
 
765

 
(23
)
 
5,994

Deferred income tax benefit (expense)
(1,732
)
 
47

 
125

 
8

 
(1,552
)
AOCI before reclassifications, net of income tax
14,445

 
1,772

 
(4,422
)
 
(1,987
)
 
9,808

Amounts reclassified from AOCI
(289
)
 
(1,025
)
 

 
167

 
(1,147
)
Deferred income tax benefit (expense)
87

 
356

 

 
(43
)
 
400

Amounts reclassified from AOCI, net of income tax
(202
)
 
(669
)
 

 
124

 
(747
)
Disposal of subsidiary (2)
(2,286
)
 
(305
)
 
51

 
28

 
(2,512
)
Deferred income tax benefit (expense)
800

 
107

 
(19
)
 
(10
)
 
878

Disposal of subsidiary, net of income tax
(1,486
)
 
(198
)
 
32

 
18

 
(1,634
)
Balance at December 31, 2017
$
12,757

 
$
905

 
$
(4,390
)
 
$
(1,845
)
 
$
7,427

__________________
(1)
See Note 8 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the policyholder dividend obligation.
(2)
See Note 3.


352

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)

Information regarding amounts reclassified out of each component of AOCI was as follows:
AOCI Components
 
Amounts Reclassified from AOCI
 
Consolidated Statements of
Operations Locations
 
 
Years Ended December 31,
 
 
 
 
2017
 
2016
 
2015
 
 
 
 
(In millions)
 
 
Net unrealized investment gains (losses):
 
 
 
 
 
 
 
 
Net unrealized investment gains (losses)
 
$
404

 
$
78

 
$
263

 
Net investment gains (losses)
Net unrealized investment gains (losses)
 
20

 
39

 
35

 
Net investment income
Net unrealized investment gains (losses)
 
(49
)
 
(37
)
 
56

 
Net derivative gains (losses)
Net unrealized investment gains (losses)
 
(86
)
 
(101
)
 
(131
)
 
Discontinued operations
Net unrealized investment gains (losses), before income tax
 
289

 
(21
)
 
223

 
 
Income tax (expense) benefit
 
(87
)
 
9

 
(78
)
 
 
Net unrealized investment gains (losses), net of income tax
 
202

 
(12
)
 
145

 
 
Unrealized gains (losses) on derivatives - cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate swaps
 
24

 
56

 
84

 
Net derivative gains (losses)
Interest rate swaps
 
16

 
12

 
11

 
Net investment income
Interest rate swaps
 
2

 
36

 
2

 
Discontinued operations
Interest rate forwards
 
(11
)
 
(1
)
 
4

 
Net derivative gains (losses)
Interest rate forwards
 
2

 
4

 
3

 
Net investment income
Interest rate forwards
 
1

 
1

 
2

 
Other expenses
Interest rate forwards
 
3

 
4

 
4

 
Discontinued operations
Foreign currency swaps
 
974

 
(350
)
 
(720
)
 
Net derivative gains (losses)
Foreign currency swaps
 

 
(2
)
 
(1
)
 
Net investment income
Foreign currency swaps
 
2

 
2

 
1

 
Other expenses
Foreign currency swaps
 
11

 
5

 

 
Discontinued operations
Credit forwards
 
1

 
3

 
1

 
Net derivative gains (losses)
Credit forwards
 

 
1

 

 
Net investment income
Credit forwards
 

 

 
1

 
Discontinued operations
Gains (losses) on cash flow hedges, before income tax
 
1,025

 
(229
)
 
(608
)
 
 
Income tax (expense) benefit
 
(356
)
 
66

 
213

 
 
Gains (losses) on cash flow hedges, net of income tax
 
669

 
(163
)
 
(395
)
 
 
Defined benefit plans adjustment: (1)
 
 
 
 
 
 
 
 
Amortization of net actuarial gains (losses)
 
(190
)
 
(199
)
 
(231
)
 
 
Amortization of prior service (costs) credit
 
23

 
6

 
6

 
 
Discontinued operations
 

 

 
(4
)
 
 
Amortization of defined benefit plan items, before income tax
 
(167
)
 
(193
)
 
(229
)
 
 
Income tax (expense) benefit
 
43

 
75

 
80

 
 
Amortization of defined benefit plan items, net of income tax
 
(124
)
 
(118
)
 
(149
)
 
 
Total reclassifications, net of income tax
 
$
747

 
$
(293
)
 
$
(399
)
 
 
__________________
(1)
These AOCI components are included in the computation of net periodic benefit costs. See Note 17.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

16. Other Expenses
Information on other expenses was as follows:
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Employee and related costs
 
$
3,595

 
$
3,840

 
$
3,950

Professional services
 
1,693

 
1,619

 
1,568

General and administrative expenses
 
1,129

 
1,007

 
1,417

Pension, postretirement and postemployment benefit costs
 
307

 
400

 
367

Premium taxes, other taxes, and licenses & fees
 
842

 
688

 
691

Commissions and other variable expenses
 
5,387

 
5,741

 
6,112

Capitalization of DAC
 
(3,002
)
 
(3,152
)
 
(3,319
)
Amortization of DAC and VOBA
 
2,681

 
2,718

 
3,184

Amortization of negative VOBA
 
(140
)
 
(269
)
 
(361
)
Interest expense on debt
 
1,129

 
1,157

 
1,168

Total other expenses
 
$
13,621

 
$
13,749

 
$
14,777

Certain prior year amounts have been reclassified to conform to the current year presentation, which has been revised to align the expense categories with the Company’s businesses. The reclassifications did not result in a change to total other expenses.
See Note 3 for further information on Separation-related transaction costs.
Capitalization of DAC and Amortization of DAC and VOBA
See Note 5 for additional information on DAC and VOBA including impacts of capitalization and amortization. See also Note 7 for a description of the DAC amortization impact associated with the closed block.
Interest Expense on Debt
See Notes 1213, and 14 for attribution of interest expense by debt issuance. Interest expense on debt includes interest expense related to CSEs. See Note 8.
Income Tax
See Note 18 for information on the charge related to income tax for the year ended December 31, 2015.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
16. Other Expenses (continued)

Restructuring Charges
The Company commenced in 2016 a unit cost improvement program related to the Company’s refreshed enterprise strategy. This global strategy focuses on transforming the Company to become more digital, driving efficiencies and innovation to achieve competitive advantage, and simplified, decreasing the costs and risks associated with the Company’s highly complex industry to customers and shareholders. Restructuring charges related to this program are included in other expenses. As the expenses relate to an enterprise-wide initiative, they are reported in Corporate & Other. Such restructuring charges were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
Severance
 
(In millions)
Balance at January 1,

$
35

 
$

Restructuring charges
38

 
35

Cash payments
(51
)
 

Balance at December 31,

$
22

 
$
35

Total restructuring charges incurred since inception of initiative
$
73

 
$
35

Management anticipates further restructuring charges through the year ending December 31, 2019. However, such restructuring plans were not sufficiently developed to enable management to make an estimate of such restructuring charges at December 31, 2017.
In 2016, the Company completed a previous enterprise-wide strategic initiative. These restructuring charges were included in other expenses. As the expenses related to an enterprise-wide initiative, they were reported in Corporate & Other. Information regarding such restructuring charges was as follows:
 
 
Years Ended December 31,
 
 
2016
 
2015
 
 
Severance
 
Lease and
Asset
Impairment
 
Total
 
Severance
 
Lease and
Asset
Impairment
 
Total

 
(In millions)
Balance at January 1,
 
$
18

 
$
4

 
$
22

 
$
31

 
$
6

 
$
37

Restructuring charges
 

 
1

 
1

 
60

 
4

 
64

Cash payments
 
(17
)
 
(4
)
 
(21
)
 
(73
)
 
(6
)
 
(79
)
Balance at December 31,
 
$
1

 
$
1

 
$
2

 
$
18

 
$
4

 
$
22

Total restructuring charges incurred since inception of initiative
 
$
383

 
$
47

 
$
430

 
$
383

 
$
46

 
$
429

17. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various U.S. qualified and nonqualified defined benefit pension plans and other postretirement employee benefit plans covering employees and sales representatives who meet specified eligibility requirements. U.S. pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits that are primarily based upon years of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional accounts which credit participants with benefits equal to a percentage of eligible pay, as well as interest credits, determined annually based upon the annual rate of interest on 30-year U.S. Treasury securities, for each account balance. The U.S. nonqualified pension plans provide supplemental benefits in excess of limits applicable to a qualified plan. The non-U.S. pension plans generally provide benefits based upon either years of credited service and earnings preceding retirement or points earned on job grades and other factors in years of service.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

These subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for U.S. retired employees. Employees of these subsidiaries who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service criteria while working for one of the subsidiaries may become eligible for these other postretirement benefits, at various levels, in accordance with the applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total costs of postretirement medical benefits. Employees hired after 2003 are not eligible for any employer subsidy for postretirement medical benefits.
The benefit obligations, funded status and net periodic benefit costs related to these pension and other postretirement benefits were comprised of the following:
 
December 31, 2017
 
December 31, 2016
 
Pension Benefits
 
Other Postretirement
Benefits
 
Pension Benefits
 
Other Postretirement
Benefits
 
U.S.
Plans
 
Non-
U.S.
Plans
 
Total
 
U.S.
Plans
 
Non-
U.S.
Plans
 
Total
 
U.S.
Plans
 
Non-
U.S.
Plans
 
Total
 
U.S.
Plans
 
Non-
U.S.
Plans
 
Total
 
(In millions)
Benefit obligations
$
10,500

 
$
909

 
$
11,409

 
$
1,648

 
$
26

 
$
1,674

 
$
9,859

 
$
882

 
$
10,741

 
$
1,734

 
$
25

 
$
1,759

Estimated fair value of plan assets
9,371

 
317

 
9,688

 
1,426

 
8

 
1,434

 
8,721

 
288

 
9,009

 
1,379

 
7

 
1,386

Over (under) funded status
$
(1,129
)
 
$
(592
)
 
$
(1,721
)
 
$
(222
)
 
$
(18
)
 
$
(240
)
 
$
(1,138
)
 
$
(594
)
 
$
(1,732
)
 
$
(355
)
 
$
(18
)
 
$
(373
)
Net periodic benefit costs
$
267

 
$
82

 
$
349

 
$
(12
)
 
$
2

 
$
(10
)
 
$
278

 
$
81

 
$
359

 
$
37

 
$
2

 
$
39


356

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

Obligations and Funded Status
 
 
December 31,
 
 
2017
 
2016
 
 
Pension
Benefits (1)
 
Other
Postretirement
Benefits
 
Pension
Benefits (1)
 
Other
Postretirement
Benefits
 
 
(In millions)
Change in benefit obligations:
 
 
 
 
 
 
 
 
Benefit obligations at January 1,
 
$
10,741

 
$
1,759

 
$
10,293

 
$
1,892

Service costs
 
238

 
6

 
272

 
9

Interest costs
 
429

 
76

 
423

 
82

Plan participants’ contributions
 

 
33

 

 
30

Net actuarial (gains) losses
 
595

 
(95
)
 
362

 
(115
)
Acquisition, divestitures, settlements and curtailments
 
(27
)
 

 
(37
)
 
18

Change in benefits
 

 

 
(11
)
 
(43
)
Benefits paid
 
(600
)
 
(107
)
 
(582
)
 
(111
)
Effect of foreign currency translation
 
33

 
2

 
21

 
(3
)
Benefit obligations at December 31,
 
11,409

 
1,674

 
10,741

 
1,759

Change in plan assets:
 
 
 
 
 
 
 
 
Estimated fair value of plan assets at January 1,
 
9,009

 
1,386

 
8,603

 
1,382

Actual return on plan assets
 
968

 
125

 
618

 
75

Acquisition, divestitures and settlements
 
(30
)
 
(1
)
 
(7
)
 
(1
)
Plan participants’ contributions
 

 
33

 

 
30

Employer contributions
 
329

 
(2
)
 
374

 
13

Benefits paid
 
(600
)
 
(107
)
 
(582
)
 
(111
)
Effect of foreign currency translation
 
12

 

 
3

 
(2
)
Estimated fair value of plan assets at December 31,
 
9,688

 
1,434

 
9,009

 
1,386

Over (under) funded status at December 31,
 
$
(1,721
)
 
$
(240
)
 
$
(1,732
)
 
$
(373
)
Amounts recognized on the consolidated balance sheets:
 
 
 
 
 
 
 
 
Other assets
 
$
59

 
$
160

 
$
3

 
$
1

Other liabilities
 
(1,780
)
 
(400
)
 
(1,735
)
 
(374
)
Net amount recognized
 
$
(1,721
)
 
$
(240
)
 
$
(1,732
)
 
$
(373
)
AOCI:
 
 
 
 
 
 
 
 
Net actuarial (gains) losses
 
$
2,917

 
$
(55
)
 
$
2,993

 
$
89

Prior service costs (credit)
 
(11
)
 
(27
)
 
(11
)
 
(49
)
AOCI, before income tax
 
$
2,906

 
$
(82
)
 
$
2,982

 
$
40

Accumulated benefit obligation
 
$
10,996

 
N/A

 
$
10,340

 
N/A

__________________
(1)
Includes nonqualified unfunded plans, for which the aggregate PBO was $1.2 billion and $1.1 billion at December 31, 2017 and 2016, respectively.

357

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

Information for pension plans with PBOs in excess of plan assets and accumulated benefit obligations (“ABO”) in excess of plan assets was as follows at:
 
December 31,
 
2017
 
2016
 
2017
 
2016
 
PBO Exceeds Estimated Fair Value
of Plan Assets
 
ABO Exceeds Estimated Fair Value
of Plan Assets
 
(In millions)
Projected benefit obligations
$
2,016

 
$
10,670

 
$
1,996

 
$
1,894

Accumulated benefit obligations
$
1,904

 
$
10,318

 
$
1,890

 
$
1,785

Estimated fair value of plan assets
$
285

 
$
8,979

 
$
266

 
$
228

Net Periodic Benefit Costs
The components of net periodic benefit costs and other changes in plan assets and benefit obligations recognized in OCI were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
 
(In millions)
Net periodic benefit costs:
 
 
 
 
 
 
 
 
 
 
 
Service costs
$
238

 
$
6

 
$
272

 
$
9

 
$
275

 
$
17

Interest costs
429

 
76

 
423

 
82

 
414

 
89

Settlement and curtailment costs (1)
4

 
2

 
2

 
19

 
(1
)
 
3

Expected return on plan assets
(516
)
 
(72
)
 
(527
)
 
(75
)
 
(534
)
 
(80
)
Amortization of net actuarial (gains) losses
195

 

 
189

 
10

 
189

 
42

Amortization of prior service costs (credit)
(1
)
 
(22
)
 

 
(6
)
 
(1
)
 
(5
)
Total net periodic benefit costs (credit)
349

 
(10
)
 
359

 
39

 
342

 
66

Other changes in plan assets and benefit obligations recognized in OCI:
 
 
 
 
 
 
 
 
 
 
 
Net actuarial (gains) losses
149

 
(146
)
 
238

 
(124
)
 
43

 
(161
)
Prior service costs (credit)
(1
)
 

 
(11
)
 
(41
)
 

 
(7
)
Amortization of net actuarial (gains) losses
(195
)
 

 
(189
)
 
(10
)
 
(189
)
 
(42
)
Amortization of prior service (costs) credit
1

 
22

 

 
6

 
1

 
5

Discontinued operations

 

 
(1
)
 
1

 
(2
)
 
(2
)
Disposal of subsidiary
(30
)
 
2

 

 

 

 

Total recognized in OCI
(76
)
 
(122
)
 
37

 
(168
)
 
(147
)
 
(207
)
Total recognized in net periodic benefit costs and OCI
$
273

 
$
(132
)
 
$
396

 
$
(129
)
 
$
195

 
$
(141
)
__________________
(1)
The Company recognized curtailment charges in 2016 on certain postretirement benefit plans in connection with the U.S. Retail Advisor Force Divestiture. See Note 3.

358

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

The estimated net actuarial (gains) losses and prior service costs (credit) for the defined benefit pension plans and other postretirement benefit plans that will be amortized from AOCI into net periodic benefit costs over the next year are $171 million and ($1) million, and ($6) million and ($19) million, respectively.
Assumptions
Assumptions used in determining benefit obligations for the U.S. plans were as follows:
 
Pension Benefits
 
Other Postretirement Benefits
December 31, 2017
 
 
 
 
 
Weighted average discount rate
3.65%
 
3.70%
Rate of compensation increase
2.25
%
-
8.50%
 
N/A
December 31, 2016
 
 
 
 
 
Weighted average discount rate
4.30%
 
4.45%
Rate of compensation increase
2.25
%
-
8.50%
 
N/A
Assumptions used in determining net periodic benefit costs for the U.S. plans were as follows:
 
Pension Benefits
 
Other Postretirement Benefits
Year Ended December 31, 2017
 
 
 
 
 
Weighted average discount rate
4.30%
 
4.45%
Weighted average expected rate of return on plan assets
6.00%
 
5.36%
Rate of compensation increase
2.25
%
-
8.50%
 
N/A
Year Ended December 31, 2016
 
 
 
 
 
Weighted average discount rate
4.13%
 
4.37%
Weighted average expected rate of return on plan assets
6.00%
 
5.53%
Rate of compensation increase
2.25
%
-
8.50%
 
N/A
Year Ended December 31, 2015
 
 
 
 
 
Weighted average discount rate
4.10%
 
4.10%
Weighted average expected rate of return on plan assets
6.25%
 
5.70%
Rate of compensation increase
2.25
%
-
8.50%
 
N/A
The weighted average discount rate for the U.S. plans is determined annually based on the yield, measured on a yield to worst basis, of a hypothetical portfolio constructed of high quality debt instruments available on the valuation date, which would provide the necessary future cash flows to pay the aggregate PBO when due.
The weighted average expected rate of return on plan assets for the U.S. plans is based on anticipated performance of the various asset sectors in which the plans invest, weighted by target allocation percentages. Anticipated future performance is based on long-term historical returns of the plan assets by sector, adjusted for the long-term expectations on the performance of the markets. While the precise expected rate of return derived using this approach will fluctuate from year to year, the policy is to hold this long-term assumption constant as long as it remains within reasonable tolerance from the derived rate.
The weighted average expected rate of return on plan assets for use in that plan’s valuation in 2018 is currently anticipated to be 5.75% for U.S. pension benefits and 5.11% for U.S. other postretirement benefits.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

The assumed healthcare costs trend rates used in measuring the APBO and net periodic benefit costs were as follows:
 
December 31,
 
2017
 
2016

Before
Age 65
 
Age 65 and
older
 
Before
Age 65
 
Age 65 and
older
Following year
5.6
%
 
6.6
%
 
6.8
%
 
13.0
%
Ultimate rate to which cost increase is assumed to decline
4.0
%
 
4.3
%
 
4.0
%
 
4.3
%
Year in which the ultimate trend rate is reached
2086
 
2098
 
2077
 
2092
Assumed healthcare costs trend rates may have a significant effect on the amounts reported for healthcare plans. A 1% change in assumed healthcare costs trend rates would have the following effects on the U.S. plans as of December 31, 2017:
 
 
One Percent
Increase
 
One Percent
Decrease
 
 
(In millions)
Effect on total of service and interest costs components
 
$
9

 
$
(8
)
Effect of accumulated postretirement benefit obligations
 
$
186

 
$
(154
)
Plan Assets
Certain U.S. subsidiaries provide employees with benefits under various Employee Retirement Income Security Act of 1974 (“ERISA”) benefit plans. These include qualified pension plans, postretirement medical plans and certain retiree life insurance coverage. The assets of these U.S. subsidiaries’ qualified pension plans are held in an insurance group annuity contract, and the vast majority of the assets of the postretirement medical plan and backing the retiree life coverage are held in a trust which largely utilizes insurance contracts to hold the assets. All of these contracts are issued by the Company’s insurance affiliates, and the assets under the contracts are held in insurance separate accounts that have been established by the Company. The underlying assets of the separate accounts are principally comprised of cash and cash equivalents, short-term investments, fixed maturity and equity securities, derivatives, real estate, private equity investments and hedge fund investments.
The insurance contract provider engages investment management firms (“Managers”) to serve as sub-advisors for the separate accounts based on the specific investment needs and requests identified by the plan fiduciary. These Managers have portfolio management discretion over the purchasing and selling of securities and other investment assets pursuant to the respective investment management agreements and guidelines established for each insurance separate account. The assets of the qualified pension plans and postretirement medical plans (the “Invested Plans”) are well diversified across multiple asset categories and across a number of different Managers, with the intent of minimizing risk concentrations within any given asset category or with any of the given Managers.
The Invested Plans, other than those held in participant directed investment accounts, are managed in accordance with investment policies consistent with the longer-term nature of related benefit obligations and within prudent risk parameters. Specifically, investment policies are oriented toward (i) maximizing the Invested Plan’s funded status; (ii) minimizing the volatility of the Invested Plan’s funded status; (iii) generating asset returns that exceed liability increases; and (iv) targeting rates of return in excess of a custom benchmark and industry standards over appropriate reference time periods. These goals are expected to be met through identifying appropriate and diversified asset classes and allocations, ensuring adequate liquidity to pay benefits and expenses when due and controlling the costs of administering and managing the Invested Plan’s investments. Independent investment consultants are periodically used to evaluate the investment risk of the Invested Plan’s assets relative to liabilities, analyze the economic and portfolio impact of various asset allocations and management strategies and recommend asset allocations.
Derivative contracts may be used to reduce investment risk, to manage duration and to replicate the risk/return profile of an asset or asset class. Derivatives may not be used to leverage a portfolio in any manner, such as to magnify exposure to an asset, asset class, interest rates or any other financial variable. Derivatives are also prohibited for use in creating exposures to securities, currencies, indices or any other financial variable that is otherwise restricted.

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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

The table below summarizes the actual weighted average allocation of the estimated fair value of total plan assets by asset class at December 31 for the years indicated and the approved target allocation by major asset class at December 31, 2017 for the Invested Plans:
 
 
December 31,
 
 
2017
 
2016
 
 
U.S. Pension
Benefits
 
U.S. Other
Postretirement
Benefits (1)
 
U.S. Pension
Benefits
 
U.S. Other
Postretirement
Benefits (1)
 
 
Target
 
Actual
Allocation
 
Target
 
Actual
Allocation
 
Actual
Allocation
 
Actual
Allocation
Asset Class
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities 
 
82
%
 
82
%
 
85
%
 
84
%
 
81
%
 
76
%
Equity securities (2)
 
10
%
 
10
%
 
15
%
 
15
%
 
11
%
 
24
%
Alternative securities (3)
 
8
%
 
8
%
 
%
 
1
%
 
8
%
 
%
Total assets
 
 
 
100
%
 
 
 
100
%
 
100
%
 
100
%
__________________
(1)
U.S. other postretirement benefits do not reflect postretirement life’s plan assets invested in fixed maturity securities.
(2)
Equity securities percentage includes derivative assets.
(3)
Alternative securities primarily include hedge, private equity and real estate funds.
Estimated Fair Value
The pension and other postretirement benefit plan assets are categorized into a three-level fair value hierarchy, as described in Note 10, based upon the significant input with the lowest level in its valuation. The Level 2 asset category includes certain separate accounts that are primarily invested in liquid and readily marketable securities. The estimated fair value of such separate accounts is based upon reported NAV provided by fund managers and this value represents the amount at which transfers into and out of the respective separate account are effected. These separate accounts provide reasonable levels of price transparency and can be corroborated through observable market data. Directly held investments are primarily invested in U.S. and foreign government and corporate securities. The Level 3 asset category includes separate accounts that are invested in assets that provide little or no price transparency due to the infrequency with which the underlying assets trade and generally require additional time to liquidate in an orderly manner. Accordingly, the values for separate accounts invested in these alternative asset classes are based on inputs that cannot be readily derived from or corroborated by observable market data.

361

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

The pension and other postretirement plan assets measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy are summarized as follows:
 
 
December 31, 2017
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Fair Value Hierarchy
 
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$

 
$
3,833

 
$
1

 
$
3,834

 
$
20

 
$
362

 
$

 
$
382

U.S. government bonds
 
1,256

 
528

 

 
1,784

 
269

 
6

 

 
275

Foreign bonds
 

 
1,037

 

 
1,037

 

 
102

 

 
102

Federal agencies
 
35

 
134

 

 
169

 

 
17

 

 
17

Municipals
 

 
335

 

 
335

 

 
28

 

 
28

Short-term investments
 
135

 
192

 

 
327

 
8

 
390

 

 
398

Other (1)
 
7

 
388

 
10

 
405

 

 
68

 

 
68

Total fixed maturity securities
 
1,433


6,447


11


7,891


297


973




1,270

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock - domestic
 
480

 
90

 

 
570

 
80

 

 

 
80

Common stock - foreign
 
317

 
87

 
3

 
407

 
74

 

 

 
74

Total equity securities
 
797


177


3


977


154






154

Other investments
 
19

 
144

 
622

 
785

 

 
9

 

 
9

Derivative assets
 
33

 
2

 

 
35

 
1

 

 

 
1

Total assets
 
$
2,282


$
6,770


$
636


$
9,688


$
452


$
982


$


$
1,434


362

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

 
 
December 31, 2016
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Fair Value Hierarchy
 
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
$

 
$
3,499

 
$

 
$
3,499

 
$
20

 
$
306

 
$

 
$
326

U.S. government bonds
 
1,656

 
4

 

 
1,660

 
210

 
1

 

 
211

Foreign bonds
 

 
862

 

 
862

 

 
79

 

 
79

Federal agencies
 

 
196

 

 
196

 

 
27

 

 
27

Municipals
 

 
313

 

 
313

 

 
23

 

 
23

Short-term investments
 
118

 
217

 

 
335

 
13

 
416

 

 
429

Other (1)
 

 
362

 
9

 
371

 

 
55

 

 
55

Total fixed maturity securities
 
1,774


5,453


9


7,236


243


907




1,150

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock - domestic
 
474

 

 

 
474

 
113

 

 

 
113

Common stock - foreign
 
380

 
69

 

 
449

 
122

 

 

 
122

Total equity securities
 
854


69




923


235






235

Other investments
 
30

 
105

 
637

 
772

 

 

 

 

Derivative assets
 
16

 
(3
)
 
65

 
78

 
1

 

 

 
1

Total assets
 
$
2,674


$
5,624


$
711


$
9,009


$
479


$
907


$


$
1,386

__________________
(1)
Other primarily includes money market securities, mortgage-backed securities, collateralized mortgage obligations and ABS.

363

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

A rollforward of all pension and other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs was as follows:
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Pension Benefits
 
 
Fixed Maturity Securities:
 
Equity Securities:
 
 
 
 
 
 
Corporate
 
Foreign
Bonds
 
Other (1)
 
Common Stock - Foreign
 
Other
Investments
 
Derivative
Assets
 
 
(In millions)
Balance, January 1, 2016
 
$
77

 
$
17

 
$
7

 
$

 
$
723

 
$
76

Realized gains (losses)
 
2

 

 

 

 

 
3

Unrealized gains (losses)
 
3

 
(3
)
 

 

 
33

 
(18
)
Purchases, sales, issuances and settlements, net
 
(20
)
 
(3
)
 

 

 
(119
)
 
6

Transfers into and/or out of Level 3
 
(62
)
 
(11
)
 
2

 

 

 
(2
)
Balance, December 31, 2016
 
$

 
$

 
$
9

 
$

 
$
637

 
$
65

Realized gains (losses)
 
(10
)
 

 

 
2

 

 
(22
)
Unrealized gains (losses)
 
10

 

 

 

 
(12
)
 
6

Purchases, sales, issuances and settlements, net
 

 

 
8

 
(4
)
 

 
(48
)
Transfers into and/or out of Level 3
 
1

 

 
(7
)
 
5

 
(3
)
 
(1
)
Balance, December 31, 2017
 
$
1

 
$

 
$
10

 
$
3

 
$
622

 
$

__________________
(1)
Other includes ABS and collateralized mortgage obligations.
For the years ended December 31, 2017 and 2016, there were no other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
Expected Future Contributions and Benefit Payments
It is the subsidiaries’ practice to make contributions to the U.S. qualified pension plan to comply with minimum funding requirements of ERISA. In accordance with such practice, no contributions are required for 2018. The subsidiaries expect to make discretionary contributions to the qualified pension plan of $150 million in 2018. For information on employer contributions, see “— Obligations and Funded Status.”
Benefit payments due under the U.S. nonqualified pension plans are primarily funded from the subsidiaries’ general assets as they become due under the provisions of the plans, and therefore benefit payments equal employer contributions. The U.S. subsidiaries expect to make contributions of $70 million to fund the benefit payments in 2018.
Postretirement benefits are either: (i) not vested under law; (ii) a non-funded obligation of the subsidiaries; or (iii) both. Current regulations do not require funding for these benefits. The subsidiaries use their general assets, net of participant’s contributions, to pay postretirement medical claims as they come due. As permitted under the terms of the governing trust document, the subsidiaries may be reimbursed from plan assets for postretirement medical claims paid from their general assets. The U.S. subsidiaries expect to make contributions of $50 million towards benefit obligations in 2018 to pay postretirement medical claims.

364

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)

Gross benefit payments for the next 10 years, which reflect expected future service where appropriate, are expected to be as follows:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
(In millions)
2018
 
$
604

 
$
87

2019
 
$
618

 
$
90

2020
 
$
634

 
$
90

2021
 
$
645

 
$
89

2022
 
$
664

 
$
90

2023-2027
 
$
3,523

 
$
450

Additional Information
As previously discussed, most of the assets of the U.S. pension benefit plans are held in group annuity contracts issued by the subsidiaries while some of the assets of the U.S. postretirement benefit plans are held in a trust which largely utilizes life insurance contracts issued by the subsidiaries to hold such assets. Total revenues from these contracts recognized on the consolidated statements of operations were $56 million, $58 million and $55 million for the years ended December 31, 2017, 2016 and 2015, respectively, and included policy charges and net investment income from investments backing the contracts and administrative fees. Total investment income (loss), including realized and unrealized gains (losses), credited to the account balances was $1.1 billion, $660 million and ($125) million for the years ended December 31, 2017, 2016 and 2015, respectively. The terms of these contracts are consistent in all material respects with those the subsidiaries offer to unaffiliated parties that are similarly situated.
Defined Contribution Plans
Certain subsidiaries sponsor defined contribution plans under which a portion of employee contributions are matched. These subsidiaries contributed $72 million, $81 million and $80 million for the years ended December 31, 2017, 2016 and 2015, respectively.

365

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

18. Income Tax
On December 22, 2017, President Trump signed into law U.S. Tax Reform. U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018. U.S. Tax Reform moves the United States from a worldwide tax system to a participation exemption system by providing corporations a 100% dividends received deduction (“DRD”) for dividends distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposes a one-time deemed repatriation tax on unremitted earnings and profits at a rate of 8.0% for illiquid assets and 15.5% for cash and cash equivalents.
The incremental financial statement impact related to U.S. Tax Reform was as follows:
 
 
U.S. Tax Reform
 
 
(In millions)
Income (loss) from continuing operations before provision for income tax
 
$
(289
)
Provision for income tax expense (benefit):
 
 
Deemed repatriation
 
170

Deferred tax revaluation
 
(1,790
)
Total provision for income tax expense (benefit)
 
(1,620
)
Income (loss) from continuing operations, net of income tax
 
1,331

Income tax (expense) benefit related to items of other comprehensive income (loss)
 
144

Increase to net equity from U.S. Tax Reform
 
$
1,475

In accordance with SAB 118 issued by the SEC in December 2017, the Company has recorded provisional amounts for certain items for which the income tax accounting is not complete. For these items, the Company has recorded a reasonable estimate of the tax effects of U.S. Tax Reform. The estimates will be reported as provisional amounts during a measurement period, which will not exceed one year from the date of enactment of U.S. Tax Reform. The Company may reflect adjustments to its provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.
The following items are considered provisional estimates due to complexities and ambiguities in U.S. Tax Reform which resulted in incomplete accounting for the tax effects of these provisions. Further guidance, either legislative or interpretive, and analysis will be required to complete the accounting for these items:
Deemed Repatriation Transition Tax - The Company has recorded a $170 million charge for this item. This charge is in addition to the $180 million charge recorded in the third quarter of 2017 resulting from the post-Separation review of the Company’s capital needs. The total transition tax liability recorded for the year ended December 31, 2017 is $350 million.
Global Intangible Low-Tax Income - U.S. Tax Reform imposes a minimum tax on global intangible low-tax income, which is generally the excess income of foreign subsidiaries over a 10% rate of routine return on tangible business assets. The Company has not yet formally adopted an accounting policy for this item. For the year ended December 31, 2017, the Company did not record a tax charge and tax incurred in future periods related to global intangible low-tax income will be recorded in the period incurred.
Compensation and Fringe Benefits - U.S. Tax Reform limits certain employer deductions for fringe benefit and related expenses and also repeals the exception allowing the deduction of certain performance-based compensation paid to certain senior executives. The Company has recorded an $8 million tax charge, included within the deferred tax revaluation.

366

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

Alternative Minimum Tax Credits - U.S. Tax Reform eliminates the corporate alternative minimum tax and allows for minimum tax credit carryforwards to be used to offset future regular tax or to be refunded over the next few years. However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued for corporations claiming refundable prior year alternative minimum tax credits are subject to a sequestration rate of 6.6%. The application of this fee to refunds in future years is subject to further guidance. Additionally, the sequestration reduction rate in effect at the time is subject to uncertainty. The Company has recorded a $9 million tax charge included within the deferred tax revaluation.
Tax Credit Partnerships - Certain tax credit partnership investments derive returns in part from income tax credits. The Company recognizes changes in tax attributes at the partnership level when reported by the investee in its financial information. U.S. Tax Reform may impact the tax attributes of tax credit partnerships. However, investee financial information is not yet available to enable the Company to determine the impacts of U.S. Tax Reform. Accordingly, the Company has applied prior law to these equity method investments in accordance with SAB 118. During the one year measurement period under SAB 118, the impacts of U.S. Tax Reform will be recognized as the investee financial information is made available.
U.S. Tax Reform requires the Company to recognize a transition tax on all previously unremitted foreign earnings at December 31, 2017. However, the Company has not provided for U.S. deferred taxes on the remaining excess of book bases over tax bases of certain investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to estimate the amount of remaining deferred tax liability related to the Company’s remaining basis difference in these foreign subsidiaries.
The provision for income tax from continuing operations was as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Current:
 
 
 
 
 
Federal
$
(246
)
 
$
520

 
$
632

State and local
5

 
3

 
10

Foreign
891

 
628

 
556

Subtotal
650

 
1,151

 
1,198

Deferred:
 
 
 
 
 
Federal
(2,373
)
 
(827
)
 
194

Foreign
253

 
369

 
198

Subtotal
(2,120
)
 
(458
)
 
392

Provision for income tax expense (benefit)
$
(1,470
)
 
$
693

 
$
1,590

The Company’s income (loss) from continuing operations before income tax expense (benefit) from domestic and foreign operations were as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Income (loss) from continuing operations:
 
 
 
 
 
Domestic
$
684

 
$
185

 
$
1,874

Foreign
2,852

 
4,096

 
3,777

Total
$
3,536

 
$
4,281

 
$
5,651


367

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported for continuing operations was as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Tax provision at U.S. statutory rate
$
1,238

 
$
1,498

 
$
1,977

Tax effect of:
 
 
 
 
 
Dividend received deduction
(67
)
 
(69
)
 
(71
)
Tax-exempt income
(97
)
 
(86
)
 
(70
)
Prior year tax (1)
(27
)
 
(13
)
 
559

Low income housing tax credits
(278
)
 
(270
)
 
(221
)
Other tax credits
(102
)
 
(98
)
 
(67
)
Foreign tax rate differential (2), (3), (4)
(95
)
 
(332
)
 
(555
)
Change in valuation allowance
(8
)
 
(9
)
 
5

Separation tax benefits
(540
)
 

 

U.S. Tax Reform impact (5)
(1,519
)
 

 

Other, net
25

 
72

 
33

Provision for income tax expense (benefit)
$
(1,470
)
 
$
693

 
$
1,590

__________________
(1)
As discussed further below, for the year ended December 31, 2015, prior year tax includes a $557 million non-cash charge related to an uncertain tax position.
(2)
For the year ended December 31, 2017, foreign tax rate differential includes a net tax charge of $180 million as a result of repatriation. Included in the net tax charge of $180 million is a $444 million tax charge related to the repatriation of approximately $3.0 billion of pre-2017 earnings following the post-Separation review of the Company’s capital needs. This charge was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations. This charge was recorded prior to U.S. Tax Reform and is incremental to the $170 million repatriation transition tax recorded for the year ended December 31, 2017.
(3)
For the year ended December 31, 2016, foreign tax rate differential includes a tax benefit of $110 million in Japan related to a change in tax rate, offset by a tax charge of $19 million in Chile related to a change in tax rate.
(4)
For the year ended December 31, 2015, foreign tax rate differential includes tax benefits of $174 million related to a Japan tax rate change, $61 million related to restructuring in Chile, $57 million related to the repatriation of earnings from Japan, $41 million related to certain non-portfolio net investment gains that were non-taxable and $31 million related to the devaluation of the peso in Argentina. These benefits were partially offset by charges of $23 million related to the impact of foreign exchange on investment gains in Argentina.
(5)
U.S. Tax Reform impact of ($1.5) billion excludes ($101) million of tax provision at the U.S. statutory rate for a total tax reform benefit of ($1.6) billion.

368

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:
 
December 31,
 
2017
 
2016
 
(In millions)
Deferred income tax assets:
 
 
 
Policyholder liabilities and receivables
$
2,654

 
$
2,029

Net operating loss carryforwards
512

 
1,420

Employee benefits
802

 
1,045

Capital loss carryforwards
6

 
9

Tax credit carryforwards
1,322

 
1,375

Litigation-related and government mandated
160

 
268

Other
657

 
743

Total gross deferred income tax assets
6,113

 
6,889

Less: Valuation allowance
189

 
161

Total net deferred income tax assets
5,924

 
6,728

Deferred income tax liabilities:
 
 
 
Investments, including derivatives
2,772

 
2,940

Intangibles
1,321

 
1,213

Net unrealized investment gains
4,783

 
5,423

DAC
3,206

 
3,619

Other
609

 
425

Total deferred income tax liabilities
12,691

 
13,620

Net deferred income tax asset (liability)
$
(6,767
)
 
$
(6,892
)
The Company also has recorded a valuation allowance benefit of $8 million related to certain state and foreign net operating loss carryforwards for the year ended December 31, 2017. In addition, a $19 million increase was related to foreign currency movement and a $17 million increase was recorded as a balance sheet reclassification with other deferred tax assets for the year ended December 31, 2017. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign and state net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable.

369

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

The following table sets forth the domestic, state, and foreign net operating loss carryforwards and the domestic capital loss carryforwards for tax purposes at December 31, 2017.
 
Net Operating Loss Carryforwards
 
Capital Loss Carryforwards
 
Domestic
 
State
 
Foreign
 
Domestic
 
(In millions)
Expiration:
 
 
 
 
 
 
 
2018-2022
$
1

 
$
49

 
$
46

 
$
27

2023-2027

 
64

 
28

 

2028-2032
8

 
13

 

 

2033-2037
2,095

 
2

 

 

Indefinite

 

 
397

 

 
$
2,104

 
$
128

 
$
471

 
$
27

The following table sets forth the general business credits, foreign tax credits, and other credit carryforwards for tax purposes at December 31, 2017.
 
Tax Credit Carryforwards
 
General Business
Credits
 
Foreign Tax
Credits
 
Other
 
(In millions)
Expiration:
 
 
 
 
 
2018-2022
$

 
$
42

 
$

2023-2027

 
200

 

2028-2032
236

 
1

 

2033-2037
832

 

 

Indefinite

 
21

 
263

 
$
1,068

 
$
264

 
$
263

The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign jurisdictions. The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2007, except for i) 2000 through 2002 where the IRS disallowance relates to certain tax credits claimed, for which in April 2015, the Company received a Statutory Notice of Deficiency (the “Notice”) and paid the tax thereon in September 2015 (see note (1) below); and ii) 2003 through 2006, where the IRS disallowance relates predominantly to certain tax credits claimed and the Company is engaged with IRS Appeals. Management believes it has established adequate tax liabilities and final resolution for the years 2000 through 2006 is not expected to have a material impact on the Company’s consolidated financial statements. The IRS audit cycle for the years 2007-2009, which began in December of 2015, is scheduled to conclude in 2018. In material foreign jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2009.
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, federal tax legislation could impact unrecognized tax benefits. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.

370

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Balance at January 1,
$
1,146

 
$
1,259

 
$
719

Additions for tax positions of prior years (1)
70

 
24

 
574

Reductions for tax positions of prior years
(101
)
 
(112
)
 
(24
)
Additions for tax positions of current year
33

 
23

 
24

Reductions for tax positions of current year
(3
)
 

 

Settlements with tax authorities
(43
)
 
(48
)
 
(34
)
Balance at December 31, (1)
$
1,102

 
$
1,146

 
$
1,259

Unrecognized tax benefits that, if recognized, would impact the effective rate
$
1,073

 
$
1,112

 
$
1,215

__________________
(1)
The significant increase in 2015 is related to a non-cash charge the Company recorded to net income of $792 million, net of tax. The charge was related to an uncertain tax position and was comprised of a $557 million charge included in provision for income tax expense (benefit) and a $362 million ($235 million, net of tax) charge included in other expenses. This charge is the result of the Company’s consideration of certain decisions of the U.S. Court of Appeals for the Second Circuit upholding the disallowance of foreign tax credits claimed by other corporate entities not affiliated with the Company. The Company’s action relates to tax years from 2000 to 2009, during which MLIC held non-U.S. investments in support of its life insurance business through a United Kingdom investment subsidiary that was structured as a joint venture at the time.
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense.
Interest was as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Interest recognized on the consolidated statements of operations (1)
$
37

 
$
(41
)
 
$
388

 
 
 
 
 
 
 
 
 
December 31,
 
 
 
2017
 
2016
 
 
 
(In millions)
Interest included in other liabilities on the consolidated balance sheets
 
 
$
659

 
$
623

__________________
(1)
The significant increase in 2015 is related to the non-cash charge discussed above.
The Company had insignificant penalties for the years ended December 31, 2017, 2016 and 2015.
There has been no change in the Company’s position on the disallowance of its foreign tax credits by the IRS. The Company continues to contest the disallowance of these foreign tax credits by the IRS as management believes the facts strongly support the Company’s position. The Company will defend its position vigorously and does not expect any additional charges related to this matter.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Income Tax (continued)

Also related to the aforementioned foreign tax credit matter, on April 9, 2015, the IRS issued the Notice to the Company. The Notice asserted that the Company owes additional taxes and interest for 2000 through 2002 primarily due to the disallowance of foreign tax credits. The transactions that are the subject of the Notice continue through 2009, and it is likely that the IRS will seek to challenge these later periods. On September 18, 2015, the Company paid the assessed tax and interest of $444 million for 2000 through 2002. On November 19, 2015, $9 million of this amount was refunded from the IRS as an overpayment of interest. On May 30, 2017, the Company filed a claim for refund with the IRS for the remaining tax and interest.
Prior to U.S. Tax Reform, the DRD related to variable life insurance and annuity contracts was generally based on a company-specific percentage referred to as the company’s share. The calculation of this amount was subject to significant dispute between taxpayers and the IRS. U.S. Tax Reform eliminated this dispute by fixing the calculation to a specific percentage subsequent to 2017.
For the years ended December 31, 2017, 2016, and 2015, the Company recognized an income tax benefit of $61 million, $63 million and $66 million, respectively, related to the separate account DRD. The 2017 and 2016 benefit each included an expense of $1 million related to a true-up of the 2016 and 2015 tax returns. The 2015 benefit included a benefit of $1 million related to a true-up of the 2014 tax return.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

19. Earnings Per Common Share
The following table presents the weighted average shares, basic earnings per common share and diluted earnings per common share for each income category presented:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions, except per share data)
Weighted Average Shares:
 
 
 
 
 
Weighted average common stock outstanding for basic earnings per common share
1,069.7

 
1,100.5

 
1,117.8

Incremental common shares from assumed exercise or issuance of stock-based awards
8.8

 
8.0

 
10.5

Weighted average common stock outstanding for diluted earnings per common share
1,078.5

 
1,108.5

 
1,128.3

Income (Loss) from Continuing Operations:
 
 
 
 
 
Income (loss) from continuing operations, net of income tax
$
5,006

 
$
3,588

 
$
4,061

Less: Income (loss) from continuing operations, net of income tax, attributable to noncontrolling interests
10

 
4

 
12

Less: Preferred stock dividends
103

 
103

 
116

  Preferred stock repurchase premium

 

 
42

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
$
4,893

 
$
3,481

 
$
3,891

Basic
$
4.57

 
$
3.16

 
$
3.48

Diluted
$
4.53

 
$
3.13

 
$
3.44

Income (Loss) from Discontinued Operations:
 
 
 
 
 
Income (loss) from discontinued operations, net of income tax
$
(986
)
 
$
(2,734
)
 
$
1,324

Less: Income (loss) from discontinued operations, net of income tax, attributable to noncontrolling interests

 

 

Income (loss) from discontinued operations, net of income tax, available to MetLife, Inc.’s common shareholders
$
(986
)
 
$
(2,734
)
 
$
1,324

Basic
$
(0.92
)
 
$
(2.48
)
 
$
1.19

Diluted
$
(0.91
)
 
$
(2.46
)
 
$
1.18

Net Income (Loss):
 
 
 
 
 
Net income (loss)
$
4,020

 
$
854

 
$
5,385

Less: Net income (loss) attributable to noncontrolling interests
10

 
4

 
12

Less: Preferred stock dividends
103

 
103

 
116

  Preferred stock repurchase premium

 

 
42

Net income (loss) available to MetLife, Inc.’s common shareholders
$
3,907

 
$
747

 
$
5,215

Basic
$
3.65

 
$
0.68

 
$
4.67

Diluted
$
3.62

 
$
0.67

 
$
4.62



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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

20. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.
The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been established for a number of the matters noted below. It is possible that some of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated at December 31, 2017. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position.
Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of December 31, 2017, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $425 million.
Matters as to Which an Estimate Cannot Be Made
For other matters disclosed below, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Asbestos-Related Claims
MLIC is and has been a defendant in a large number of asbestos-related suits filed primarily in state courts. These suits principally allege that the plaintiff or plaintiffs suffered personal injury resulting from exposure to asbestos and seek both actual and punitive damages. MLIC has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products nor has MLIC issued liability or workers’ compensation insurance to companies in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. The lawsuits principally have focused on allegations with respect to certain research, publication and other activities of one or more of MLIC’s employees during the period from the 1920’s through approximately the 1950’s and allege that MLIC learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. MLIC believes that it should not have legal liability in these cases. The outcome of most asbestos litigation matters, however, is uncertain and can be impacted by numerous variables, including differences in legal rulings in various jurisdictions, the nature of the alleged injury and factors unrelated to the ultimate legal merit of the claims asserted against MLIC. MLIC employs a number of resolution strategies to manage its asbestos loss exposure, including seeking resolution of pending litigation by judicial rulings and settling individual or groups of claims or lawsuits under appropriate circumstances.
Claims asserted against MLIC have included negligence, intentional tort and conspiracy concerning the health risks associated with asbestos. MLIC’s defenses (beyond denial of certain factual allegations) include that: (i) MLIC owed no duty to the plaintiffs — it had no special relationship with the plaintiffs and did not manufacture, produce, distribute or sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs did not rely on any actions of MLIC; (iii) MLIC’s conduct was not the cause of the plaintiffs’ injuries; (iv) plaintiffs’ exposure occurred after the dangers of asbestos were known; and (v) the applicable time with respect to filing suit has expired. During the course of the litigation, certain trial courts have granted motions dismissing claims against MLIC, while other trial courts have denied MLIC’s motions. There can be no assurance that MLIC will receive favorable decisions on motions in the future. While most cases brought to date have settled, MLIC intends to continue to defend aggressively against claims based on asbestos exposure, including defending claims at trials.
The approximate total number of asbestos personal injury claims pending against MLIC as of the dates indicated, the approximate number of new claims during the years ended on those dates and the approximate total settlement payments made to resolve asbestos personal injury claims at or during those years are set forth in the following table:
 
December 31,
 
2017
 
2016
 
2015
 
(In millions, except number of claims)
Asbestos personal injury claims at year end
62,930

 
67,223

 
67,787

Number of new claims during the year
3,514

 
4,146

 
3,856

Settlement payments during the year (1)
$
48.6

 
$
50.2

 
$
56.1

__________________
(1)
Settlement payments represent payments made by MLIC during the year in connection with settlements made in that year and in prior years. Amounts do not include MLIC’s attorneys’ fees and expenses.
The number of asbestos cases that may be brought, the aggregate amount of any liability that MLIC may incur, and the total amount paid in settlements in any given year are uncertain and may vary significantly from year to year.
The ability of MLIC to estimate its ultimate asbestos exposure is subject to considerable uncertainty, and the conditions impacting its liability can be dynamic and subject to change. The availability of reliable data is limited and it is difficult to predict the numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the law in the jurisdictions in which claims are filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims against MLIC when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

The ability to make estimates regarding ultimate asbestos exposure declines significantly as the estimates relate to years further in the future. In the Company’s judgment, there is a future point after which losses cease to be probable and reasonably estimable. It is reasonably possible that the Company’s total exposure to asbestos claims may be materially greater than the asbestos liability currently accrued and that future charges to income may be necessary. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material effect on the Company’s financial position.
The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. MLIC’s recorded asbestos liability is based on its estimation of the following elements, as informed by the facts presently known to it, its understanding of current law and its past experiences: (i) the probable and reasonably estimable liability for asbestos claims already asserted against MLIC, including claims settled but not yet paid; (ii) the probable and reasonably estimable liability for asbestos claims not yet asserted against MLIC, but which MLIC believes are reasonably probable of assertion; and (iii) the legal defense costs associated with the foregoing claims. Significant assumptions underlying MLIC’s analysis of the adequacy of its recorded liability with respect to asbestos litigation include: (i) the number of future claims; (ii) the cost to resolve claims; and (iii) the cost to defend claims.
MLIC reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing external literature regarding asbestos claims experience in the U.S., assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. These variables include bankruptcies of other companies involved in asbestos litigation, legislative and judicial developments, the number of pending claims involving serious disease, the number of new claims filed against it and other defendants and the jurisdictions in which claims are pending. Based upon its regular reevaluation of its exposure from asbestos litigation, MLIC has updated its liability analysis for asbestos-related claims through December 31, 2017. MLIC increased its recorded liability for asbestos-related claims to $551 million at December 31, 2017.
Regulatory Matters
The Company receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the SEC; federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority (“FINRA”), as well as from local and national regulators and government authorities in jurisdictions outside the United States where MetLife conducts business. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries.
In the Matter of Chemform, Inc. Site, Pompano Beach, Broward County, Florida
In July 2010, the Environmental Protection Agency (“EPA”) advised MLIC that it believed payments were due under two settlement agreements, known as “Administrative Orders on Consent,” that New England Mutual Life Insurance Company (“New England Mutual”) signed in 1989 and 1992 with respect to the cleanup of a Superfund site in Florida (the “Chemform Site”). The EPA originally contacted MLIC (as successor to New England Mutual) and a third party in 2001, and advised that they owed additional clean-up costs for the Chemform Site. The matter was not resolved at that time. In September 2012, the EPA, MLIC and the third party executed an Administrative Order on Consent under which MLIC and the third party agreed to be responsible for certain environmental testing at the Chemform Site. The EPA may seek additional costs if the environmental testing identifies issues. The EPA and MLIC have reached a settlement in principal on the EPA’s claim for past costs. The Company estimates that the aggregate cost to resolve this matter, including the settlement for claims of past costs and the costs of environmental testing, will not exceed $300 thousand.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Sales Practices Regulatory Matters
Regulatory authorities in a number of states and FINRA, and occasionally the SEC, have had investigations or inquiries relating to sales of individual life insurance policies or annuities or other products by MLIC and GALIC, as well as former subsidiaries of the Company that are part of Brighthouse as a result of the Separation, and a former broker‑dealer subsidiary. These investigations often focus on the conduct of particular financial services representatives and the sale of unregistered or unsuitable products or the misuse of client assets. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief, including restitution payments. The Company may continue to resolve investigations in a similar manner. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for these sales practices-related investigations or inquiries.
Unclaimed Property Litigation
City of Westland Police and Fire Retirement System v. MetLife, Inc., et. al. (S.D.N.Y., filed January 12, 2012)
Seeking to represent a class of persons who purchased MetLife, Inc. common shares between February 2, 2010, and October 6, 2011, the plaintiff alleges that MetLife, Inc. and several current and former directors and executive officers of MetLife, Inc. violated the Securities Act of 1933, as well as the Exchange Act and Rule 10b-5 promulgated thereunder by issuing, or causing MetLife, Inc. to issue, materially false and misleading statements concerning MetLife, Inc.’s potential liability for millions of dollars in insurance benefits that should have been paid to beneficiaries or escheated to the states. Plaintiff seeks unspecified compensatory damages and other relief. On September 22, 2017, the Court granted plaintiff’s motion to certify its proposed class of persons who purchased or acquired MetLife, Inc. common stock in the Company’s August 3, 2010 offering or the Company’s March 4, 2011 offering. The defendants intend to defend this action vigorously.
Total Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New York, filed November 17, 2017)
Alleging that MetLife, Inc., MLIC, and several other insurance companies violated the New York False Claims Act (the “Act”) by filing false unclaimed property reports from 1986 to 2017 with New York to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part of their demutualization in the late 1990s, Total Asset Recovery Services (“The Relator”) has brought an action under the qui tam provision of the Act on behalf of itself and New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator seeks treble damages and other relief. The Company intends to defend this action vigorously.
Total Control Accounts Litigation
MLIC is a defendant in a lawsuit related to its use of retained asset accounts, known as TCAs, as a settlement option for death benefits.
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of all persons for whom MLIC established a TCA to pay death benefits under an ERISA plan. The action alleges that MLIC’s use of the TCA as the settlement option for life insurance benefits under some group life insurance policies violates MLIC’s fiduciary duties under ERISA. As damages, plaintiff seeks disgorgement of profits that MLIC realized on accounts owned by members of the class. In addition, plaintiff, on behalf of a subgroup of the class, seeks interest under Georgia’s delayed settlement interest statute, alleging that the use of the TCA as the settlement option did not constitute payment. On September 27, 2016, the court denied MLIC’s summary judgment motion in full and granted plaintiff’s partial summary judgment motion. On September 29, 2017, the court certified a nationwide class. The court also certified a Georgia subclass. The Company intends to defend this action vigorously.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Diversified Lending Group Litigation
Hartshorne v. MetLife, Inc., et al. (Los Angeles County Superior Court, filed March 25, 2015)
Plaintiffs named MetLife, Inc., MSI and NELICO in 12 related lawsuits in California state court alleging various causes of action including multiple negligence and statutory claims relating to a Ponzi scheme involving the Diversified Lending Group. All but one of the plaintiffs have resolved their claims with the Company. The Company intends to vigorously defend the remaining claim.
Inquiries into Pension Benefits and Assumed Variable Annuity Guarantee Reserves and Related Litigation
The Company informed its primary state regulator, the New York Department of Financial Services (“NYDFS”), about its practices in connection with the payment of certain pension benefits to annuitants and related matters. The NYDFS is examining the issue. The Division of Enforcement of the SEC is also investigating this matter and several additional regulators, including, but not limited to, the Massachusetts Securities Division, have made inquiries into these practices, including as to related disclosures. It is possible that other jurisdictions may pursue similar investigations or inquiries. On February 13, 2018, the Company announced that in connection with a review of practices and procedures used to estimate reserves related to certain RIS group annuitants who have been unresponsive or missing over time, the Company had identified a material weakness in its internal control over financial reporting related to certain RIS group annuity reserves. In conjunction with the material weakness, the Company increased reserves by $510 million pre-tax to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. See Note 1.
The Company informed the SEC that as a result of its review of the calculation of reserves associated with certain variable annuity guarantees assumed from the former operating joint venture in Japan, the Company had identified a material weakness in its internal control over financial reporting related to these reserves. In conjunction with the material weakness, the Company decreased these reserves by $896 million pre-tax. See Note 1. The SEC staff is investigating this matter and the Company has informed other regulators. It is possible that other jurisdictions may pursue similar investigations or inquiries.
The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, ERISA, or other laws or regulations. The Company could incur significant costs in connection with these actions. The Company’s increase in reserves does not reflect, and the Company has not recorded an accrual for, any such potential amounts. An estimate of the possible loss or range of loss cannot be made at this time.
Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018)
Seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through January 29, 2018, the plaintiff alleges that MetLife, Inc., its Chief Executive Officer and Chairman of the Board, and its Chief Financial Officer violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by issuing materially false and/or misleading statements because the defendants failed to disclose that MetLife’s practices and procedures used to estimate its reserves set aside for annuity and pension payments were inadequate, and that MetLife had inadequate internal control over financial reporting. The plaintiff seeks unspecified compensatory damages and other relief. The defendants intend to defend this action vigorously.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Other Litigation
Sun Life Assurance Company of Canada Indemnity Claim
In 2006, Sun Life Assurance Company of Canada (“Sun Life”), as successor to the purchaser of MLIC’s Canadian operations, filed a lawsuit in Toronto, seeking a declaration that MLIC remains liable for “market conduct claims” related to certain individual life insurance policies sold by MLIC that were subsequently transferred to Sun Life. In January 2010, the court found that Sun Life had given timely notice of its claim for indemnification but, because it found that Sun Life had not yet incurred an indemnifiable loss, granted MLIC’s motion for summary judgment. Both parties agreed to consider the indemnity claim through arbitration. In September 2010, Sun Life notified MLIC that a purported class action lawsuit was filed against Sun Life in Toronto alleging sales practices claims regarding the policies sold by MLIC and transferred to Sun Life. On August 30, 2011, Sun Life notified MLIC that another purported class action lawsuit was filed against Sun Life in Vancouver, BC alleging sales practices claims regarding certain of the same policies sold by MLIC and transferred to Sun Life. Sun Life contends that MLIC is obligated to indemnify Sun Life for some or all of the claims in these lawsuits. These sales practices cases against Sun Life are ongoing, and the Company is unable to estimate the reasonably possible loss or range of loss arising from this litigation.
MetLife, Inc. v. Financial Stability Oversight Council (D. D.C., January 13, 2015).
MetLife, Inc. filed this action in U.S. District Court for the District of Columbia (“D.C. District Court”) seeking to overturn the Financial Stability Oversight Council (“FSOC”) designation of MetLife, Inc. as a non-bank systemically important financial institution (“non-bank SIFI”). The suit was brought under the section of the Dodd-Frank Wall Street Reform and Consumer Protection Act providing that a company designated as a non-bank SIFI may petition the federal courts for review, and sought an order requiring that the final determination be rescinded. On January 23, 2018, the United States District Court of Appeals for the District of Columbia dismissed the FSOC’s appeal of the D.C. District Court’s March 30, 2016 decision that rescinded the Company’s designation as a non-bank SIFI.
Voshall v. Metropolitan Life Insurance Company (Superior Court of the State of California, County of Los Angeles, April 8, 2015)
Plaintiff filed this putative class action lawsuit on behalf of himself and all persons covered under a long-term group disability income insurance policy issued by MLIC to public entities in California between April 8, 2011 and April 8, 2015. Plaintiff alleges that MLIC improperly reduced benefits by including cost of living adjustments and employee paid contributions in the employer retirement benefits and other income that reduces the benefit payable under such policies. Plaintiff asserts causes of action for declaratory relief, violation of the California Business & Professions Code, breach of contract and breach of the implied covenant of good faith and fair dealing. The Company intends to defend this action vigorously.
Martin v. Metropolitan Life Insurance Company, (Superior Court of the State of California, County of Contra Costa, filed December 17, 2015)
Plaintiffs filed this putative class action lawsuit on behalf of themselves and all California persons who have been charged compound interest by MLIC in life insurance policy and/or premium loan balances within the last four years. Plaintiffs allege that MLIC has engaged in a pattern and practice of charging compound interest on life insurance policy and premium loans without the borrower authorizing such compounding, and that this constitutes an unlawful business practice under California law. Plaintiff asserts causes of action for declaratory relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiff seeks declaratory and injunctive relief, restitution of interest, and damages in an unspecified amount. On April 12, 2016, the court granted MLIC’s motion to dismiss. Plaintiffs have appealed this ruling.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Lau v. Metropolitan Life Insurance Company (S.D.N.Y. filed, December 3, 2015)
This putative class action lawsuit was filed by a single defined contribution plan participant on behalf of all ERISA plans whose assets were invested in MetLife’s “Group Annuity Contract Stable Value Funds” within the past six years. The suit alleges breaches of fiduciary duty under ERISA and challenges the “spread” with respect to the stable value fund group annuity products sold to retirement plans. The allegations focus on the methodology MetLife uses to establish and reset the crediting rate, the terms under which plan participants are permitted to transfer funds from a stable value option to another investment option, the procedures followed if an employer terminates a contract, and the level of disclosure provided. Plaintiff seeks declaratory and injunctive relief, as well as damages in an unspecified amount. The parties have settled and the court has dismissed the action.
Newman v. Metropolitan Life Insurance Company (N.D. Ill., filed March 23, 2016)
Plaintiff filed this putative class action alleging causes of action for breach of contract, fraud, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, based on MLIC’s class-wide increase in premiums charged for long-term care insurance policies. Plaintiff alleges a class consisting of herself and all persons over age 65 who selected a Reduced Pay at Age 65 payment feature and whose premium rates were increased after age 65. Plaintiff asserts that premiums could not be increased for these class members and/or that marketing material was misleading as to MLIC’s right to increase premiums. Plaintiff seeks unspecified compensatory, statutory and punitive damages, as well as recessionary and injunctive relief. On April 12, 2017, the court granted MLIC’s motion, dismissing the action with prejudice. Plaintiff appealed this ruling to the United States Court of Appeals for the Seventh Circuit and on February 6, 2018, the Seventh Circuit reversed and remanded for further proceedings, ruling that Plaintiff is entitled to relief on her contract claim.
Miller, et al. v. MetLife, Inc., et al. (C.D. Cal., filed April 7, 2017)
Plaintiffs filed this putative class action against MetLife, Inc. and MLIC in the U.S. District Court for the Central District of California, purporting to assert claims on behalf of all persons who replaced their MetLife Optional Term Life or Group Universal Life policy with a Group Variable Universal Life policy wherein MetLife allegedly charged smoker rates for certain non-smokers. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On September 25, 2017, plaintiffs dismissed the action and refiled the complaint in U.S. District Court for the Southern District of New York. On November 9, 2017, plaintiffs dismissed MetLife, Inc. without prejudice from the action. MLIC intends to defend this action vigorously.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under the Fair Labor Standards Act, the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that MetLife improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for overtime pay even though they allege they continued to work more than 40 hours per week. The Company intends to defend this action vigorously.
Sales Practices Claims
Over the past several years, the Company has faced numerous claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds, other products or the misuse of client assets. Some of the current cases seek substantial damages, including punitive and treble damages and attorneys’ fees. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.

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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Summary
Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Insolvency Assessments
Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. In addition, Japan has established the Life Insurance Policyholders Protection Corporation of Japan as a contingency to protect policyholders against the insolvency of life insurance companies in Japan through assessments to companies licensed to provide life insurance.
Assets and liabilities held for insolvency assessments were as follows:
 
December 31,
 
2017
 
2016
 
(In millions)
Other Assets:
 
 
 
Premium tax offset for future discounted and undiscounted assessments
$
56

 
$
30

Premium tax offsets currently available for paid assessments
50

 
33

Total
$
106

 
$
63

Other Liabilities:
 
 
 
Insolvency assessments
$
75

 
$
47


381

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

Commitments
Leases
The Company, as lessee, has entered into various lease and sublease agreements for office space, information technology, aircrafts, automobiles, and other equipment. Future minimum gross rental payments relating to these lease arrangements are as follows:
 
 
Amount
 
 
(In millions)
2018
 
$
302

2019
 
265

2020
 
256

2021
 
237

2022
 
209

Thereafter
 
993

Total
 
$
2,262

Total minimum rental payments to be received in the future under non-cancelable subleases were $572 million as of December 31, 2017. Operating lease expense was $374 million, $383 million and $364 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $3.4 billion and $4.3 billion at December 31, 2017 and 2016, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $6.1 billion and $8.2 billion at December 31, 2017 and 2016, respectively.
Guarantees
In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $329 million, with a cumulative maximum of $750 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.

382

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)

The Company has also minimum fund yield requirements on certain international pension funds in accordance with local laws. Since these guarantees are not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future.
The Company’s recorded liabilities were $5 million and $10 million at December 31, 2017 and 2016, respectively, for indemnities, guarantees and commitments.

383

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

21. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for 2017 and 2016 are summarized in the table below:
 
 
Three Months Ended
 
 
March 31, 2017
 
June 30, 2017
 
September 30, 2017
 
December 31, 2017
 
 
Prior to
 Revision (1)
 
Revisions (2)
 
As
Revised
 
Prior to
Revision (1)
 
Revisions (2)
 
As
Revised
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
 
(in millions, except per share data)
Total revenues
 
$
14,925

 
$
39

 
$
14,964

 
$
15,286


$
47

 
$
15,333

 
$
16,104

 
$
67

 
$
16,171

 
$
15,754


$
86

 
$
15,840

Total expenses
 
$
13,921

 
$
(29
)
 
$
13,892

 
$
14,309


$
6

 
$
14,315

 
$
15,603

 
$
83

 
$
15,686

 
$
14,879


$

 
$
14,879

Income (loss) from continuing operations, net of income tax
 
$
908

 
$
44

 
$
952

 
$
829


$
27

 
$
856

 
$
893

 
$
(10
)
 
$
883

 
$
2,134


$
181

 
$
2,315

Income (loss) from discontinued operations, net of income tax
 
$
(79
)
 
$
3

 
$
(76
)
 
$
58


$

 
$
58

 
$
(968
)
 
$

 
$
(968
)
 
$


$

 
$

Net income (loss)
 
$
829

 
$
47

 
$
876

 
$
887


$
27

 
$
914

 
$
(75
)
 
$
(10
)
 
$
(85
)
 
$
2,134


$
181

 
$
2,315

Less: Net income (loss) attributable to noncontrolling interests
 
$
3

 
$

 
$
3

 
$
3


$

 
$
3

 
$
6

 
$

 
$
6

 
$
(2
)

$

 
$
(2
)
Net income (loss) attributable to MetLife, Inc.
 
$
826

 
$
47

 
$
873

 
$
884


$
27

 
$
911

 
$
(81
)
 
$
(10
)
 
$
(91
)
 
$
2,136


$
181

 
$
2,317

Less: Preferred stock dividends
 
$
6

 
$

 
$
6

 
$
46


$

 
$
46

 
$
6

 
$

 
$
6

 
$
45


$

 
$
45

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
820

 
$
47

 
$
867

 
$
838


$
27

 
$
865

 
$
(87
)

$
(10
)
 
$
(97
)
 
$
2,091


$
181

 
$
2,272

Basic earnings per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$
0.82


$
0.05

 
$
0.87

 
$
0.73


$
0.03

 
$
0.76

 
$
0.83


$
(0.01
)
 
$
0.82

 
$
1.99


$
0.17

 
$
2.16

Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
 
$
(0.07
)

$

 
$
(0.07
)
 
$
0.05


$

 
$
0.05

 
$
(0.91
)

$

 
$
(0.91
)
 
$


$

 
$

Net income (loss) attributable to MetLife, Inc.
 
$
0.76


$
0.04

 
$
0.80

 
$
0.82


$
0.04

 
$
0.86

 
$
(0.08
)

$
(0.01
)
 
$
(0.09
)
 
$
2.03


$
0.17

 
$
2.20

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
0.75


$
0.05

 
$
0.80

 
$
0.78


$
0.03

 
$
0.81

 
$
(0.08
)

$
(0.01
)
 
$
(0.09
)
 
$
1.99


$
0.17

 
$
2.16

Diluted earnings per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$
0.82


$
0.04

 
$
0.86

 
$
0.72


$
0.03

 
$
0.75

 
$
0.82


$
(0.01
)
 
$
0.81

 
$
1.97


$
0.17

 
$
2.14

Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
 
$
(0.07
)

$

 
$
(0.07
)
 
$
0.05


$

 
$
0.05

 
$
(0.90
)

$

 
$
(0.90
)
 
$


$

 
$

Net income (loss) attributable to MetLife, Inc.
 
$
0.75


$
0.04

 
$
0.79

 
$
0.82


$
0.03

 
$
0.85

 
$
(0.08
)

$

 
$
(0.08
)
 
$
2.01


$
0.17

 
$
2.18

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
0.75


$
0.04

 
$
0.79

 
$
0.77


$
0.03

 
$
0.80

 
$
(0.08
)

$
(0.01
)
 
$
(0.09
)
 
$
1.97


$
0.17

 
$
2.14

 
 
Three Months Ended
 
 
March 31, 2016
 
June 30, 2016
 
September 30, 2016
 
December 31, 2016
 
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
As
Previously
Reported
 
Revisions (2)
 
As
Revised
 
 
(in millions, except per share data)
Total revenues
 
$
16,097

 
$
148

 
$
16,245

 
$
16,025

 
$
324

 
$
16,349

 
$
15,833

 
$
(27
)
 
$
15,806

 
$
12,635

 
$
(248
)
 
$
12,387

Total expenses
 
$
13,780

 
$
(28
)
 
$
13,752

 
$
13,979

 
$

 
$
13,979

 
$
14,674

 
$
43

 
$
14,717

 
$
14,017

 
$
41

 
$
14,058

Income (loss) from continuing operations, net of income tax
 
$
1,770

 
$
130

 
$
1,900

 
$
1,475

 
$
211

 
$
1,686

 
$
1,024

 
$
(51
)
 
$
973

 
$
(795
)
 
$
(176
)
 
$
(971
)
Income (loss) from discontinued operations, net of income tax
 
$
433

 
$
(1
)
 
$
432

 
$
(1,361
)
 
$

 
$
(1,361
)
 
$
(451
)
 
$
16

 
$
(435
)
 
$
(1,291
)
 
$
(79
)
 
$
(1,370
)
Net income (loss)
 
$
2,203

 
$
129

 
$
2,332

 
$
114

 
$
211

 
$
325

 
$
573

 
$
(35
)
 
$
538

 
$
(2,086
)
 
$
(255
)
 
$
(2,341
)
Less: Net income (loss) attributable to noncontrolling interests
 
$
2

 
$

 
$
2

 
$
4

 
$

 
$
4

 
$
(4
)
 
$

 
$
(4
)
 
$
2

 
$

 
$
2

Net income (loss) attributable to MetLife, Inc.
 
$
2,201

 
$
129

 
$
2,330

 
$
110

 
$
211

 
$
321

 
$
577

 
$
(35
)
 
$
542

 
$
(2,088
)
 
$
(255
)
 
$
(2,343
)
Less: Preferred stock dividends
 
$
6

 
$

 
$
6

 
$
46

 
$

 
$
46

 
$
6

 
$

 
$
6

 
$
45

 
$

 
$
45

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
2,195

 
$
129

 
$
2,324

 
$
64

 
$
211

 
$
275

 
$
571

 
$
(35
)
 
$
536

 
$
(2,133
)
 
$
(255
)
 
$
(2,388
)
Basic earnings per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$
1.60

 
$
0.12

 
$
1.72

 
$
1.30

 
$
0.19

 
$
1.49

 
$
0.93

 
$
(0.05
)
 
$
0.88

 
$
(0.77
)
 
$
(0.15
)
 
$
(0.92
)
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
 
$
0.39

 
$

 
$
0.39

 
$
(1.24
)
 
$

 
$
(1.24
)
 
$
(0.41
)
 
$
0.02

 
$
(0.39
)
 
$
(1.17
)
 
$
(0.08
)
 
$
(1.25
)
Net income (loss) attributable to MetLife, Inc.
 
$
2.00

 
$
0.12

 
$
2.12

 
$
0.10

 
$
0.19

 
$
0.29

 
$
0.52

 
$
(0.03
)
 
$
0.49

 
$
(1.90
)
 
$
(0.23
)
 
$
(2.13
)
Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1.99

 
$
0.12

 
$
2.11

 
$
0.06

 
$
0.19

 
$
0.25

 
$
0.52

 
$
(0.03
)
 
$
0.49

 
$
(1.94
)
 
$
(0.23
)
 
$
(2.17
)
Diluted earnings per common share (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$
1.59

 
$
0.12

 
$
1.71

 
$
1.29

 
$
0.19

 
$
1.48

 
$
0.92

 
$
(0.05
)
 
$
0.87

 
$
(0.77
)
 
$
(0.15
)
 
$
(0.92
)
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
 
$
0.39

 
$

 
$
0.39

 
$
(1.23
)
 
$

 
$
(1.23
)
 
$
(0.41
)
 
$
0.02

 
$
(0.39
)
 
$
(1.17
)
 
$
(0.08
)
 
$
(1.25
)
Net income (loss) attributable to MetLife, Inc.
 
$
1.99

 
$
0.11

 
$
2.10

 
$
0.10

 
$
0.19

 
$
0.29

 
$
0.52

 
$
(0.03
)
 
$
0.49

 
$
(1.90
)
 
$
(0.23
)
 
$
(2.13
)
Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1.98

 
$
0.12

 
$
2.10

 
$
0.06

 
$
0.19

 
$
0.25

 
$
0.51

 
$
(0.03
)
 
$
0.48

 
$
(1.94
)
 
$
(0.23
)
 
$
(2.17
)
__________________
(1)
Results of operations were revised to reflect Brighthouse as discontinued operations. See Note 3.
(2)
See Note 1 information on prior period revisions.
(3)
For the three months ended December 31, 2016, 9.2 million shares related to the assumed exercise or issuance of stock-based awards have been excluded from the weighted average common shares outstanding - diluted, as to include these assumed shares would be anti-dilutive to net income (loss) available to common shareholders per common share - diluted.

384

Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)

22. Subsequent Events
Common Stock Repurchases
In 2018, through February 16, 2018, MetLife, Inc. repurchased 7,499,116 shares of its common stock in the open market for $392 million.
Disposition
See Note 3 for additional information related to the disposition of MetLife Afore.
Dividends
Preferred Stock
On February 16, 2018, MetLife, Inc. announced a first quarter 2018 dividend of $0.25 per share, for a total of $6 million, on its Series A preferred stock, subject to the final confirmation that it has met the financial tests specified in the certificate of designation for the Series A preferred stock, which the Company anticipates will be made and announced on or about March 5, 2018. The dividend will be payable on March 15, 2018 to shareholders of record as of February 28, 2018.
Common Stock
On January 5, 2018, the MetLife, Inc. Board of Directors declared a first quarter 2018 common stock dividend of $0.40 per share payable on March 13, 2018 to shareholders of record as of February 5, 2018. The Company estimates that the aggregate dividend payment will be $416 million.

385

Table of Contents

MetLife, Inc.
Schedule I
Consolidated Summary of Investments —
Other Than Investments in Related Parties
December 31, 2017
(In millions)
Types of Investments
Cost or
Amortized Cost (1)
 
Estimated Fair Value
 
Amount at
Which Shown on
Balance Sheet
Fixed maturity securities:
 
 
 
 
 
Bonds:
 
 
 
 
 
Foreign government securities
$
55,351

 
$
61,534

 
$
61,534

U.S. government and agency securities
43,446

 
47,394

 
47,394

Public utilities
12,087

 
13,581

 
13,581

State and political subdivision securities
10,752

 
12,455

 
12,455

All other corporate bonds
115,238

 
123,445

 
123,445

Total bonds
236,874

 
258,409

 
258,409

Mortgage-backed and asset-backed securities
48,106

 
49,318

 
49,318

Redeemable preferred stock
1,089

 
1,204

 
1,204

Total fixed maturity securities
286,069

 
308,931

 
308,931

FVO securities
14,656

 
16,745

 
16,745

Equity securities:
 
 
 
 
 
Common stock:
 
 
 
 
 
Industrial, miscellaneous and all other
1,538

 
1,807

 
1,807

Banks, trust and insurance companies
83

 
154

 
154

Public utilities
66

 
74

 
74

Non-redeemable preferred stock
453

 
478

 
478

Total equity securities
2,140

 
2,513

 
2,513

Mortgage loans
68,731

 
 
 
68,731

Policy loans
9,669

 
 
 
9,669

Real estate and real estate joint ventures
9,589

 
 
 
9,589

Real estate acquired in satisfaction of debt
48

 
 
 
48

Other limited partnership interests
5,708

 
 
 
5,708

Short-term investments
4,870

 
 
 
4,870

Other invested assets
17,263

 
 
 
17,263

Total investments
$
418,743

 
 
 
$
444,067

__________________
(1)
The FVO securities portfolio is mainly comprised of fixed maturity and equity securities, including mutual funds and, to a lesser extent, short-term investments and cash and cash equivalents. Cost or amortized cost for fixed maturity securities and mortgage loans represents original cost reduced by repayments, valuation allowances and impairments from other-than-temporary declines in estimated fair value that are charged to earnings and adjusted for amortization of premiums or accretion of discounts; for equity securities, cost represents original cost reduced by impairments from other-than-temporary declines in estimated fair value; for real estate, cost represents original cost reduced by impairments and depreciation; for real estate joint ventures and other limited partnership interests, cost represents original cost reduced for impairments or original cost adjusted for equity in earnings and distributions.

386

Table of Contents

MetLife, Inc.
Schedule II
Condensed Financial Information
(Parent Company Only)
December 31, 2017 and 2016
(In millions, except share and per share data)
 
2017
 
2016
Condensed Balance Sheets
 
 
 
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $4,520 and $3,900, respectively)
$
4,510

 
$
3,894

Fair value option securities, at estimated fair value
1,357

 

Short-term investments, principally at estimated fair value
30

 
148

Other invested assets, at estimated fair value
127

 
499

Total investments
6,024

 
4,541

Cash and cash equivalents
516

 
334

Accrued investment income
24

 
74

Investment in subsidiaries
73,274

 
85,429

Loans to subsidiaries
100

 
1,200

Other assets
1,153

 
1,529

Total assets
$
81,091

 
$
93,107

Liabilities and Stockholders’ Equity
 
 
 
Liabilities
 
 
 
Payables for collateral under derivatives transactions
$
36

 
$
147

Long-term debt — unaffiliated
14,599

 
15,505

Long-term debt — affiliated
2,000

 
3,100

Collateral financing arrangement

 
2,797

Junior subordinated debt securities
2,454

 
1,734

Other liabilities
3,326

 
2,294

Total liabilities
22,415

 
25,577

Stockholders’ Equity
 
 
 
Preferred stock, par value $0.01 per share; $2,100 aggregate liquidation preference

 

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,168,710,101 and 1,164,029,985 shares issued, respectively; 1,043,588,396 and 1,095,519,005 shares outstanding, respectively
12

 
12

Additional paid-in capital
31,111

 
30,944

Retained earnings
26,527

 
34,683

Treasury stock, at cost; 125,121,705 and 68,510,980 shares, respectively
(6,401
)
 
(3,474
)
Accumulated other comprehensive income (loss)
7,427

 
5,366

Total stockholders’ equity
58,676

 
67,531

Total liabilities and stockholders’ equity
$
81,091

 
$
93,108

See accompanying notes to the condensed financial information.

387

Table of Contents

MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
2017
 
2016
 
2015
Condensed Statements of Operations
 
 
 
 
 
Revenues
 
 
 
 
 
Equity in earnings of subsidiaries
$
7,162

 
$
1,833

 
$
6,048

Net investment income
101

 
129

 
170

Other revenues
59

 
151

 
124

Net investment gains (losses)
(1,142
)
 
86

 
12

Net derivative gains (losses)
(186
)
 
(68
)
 
(7
)
Total revenues
5,994

 
2,131

 
6,347

Expenses
 
 
 
 
 
Interest expense
1,108

 
1,152

 
1,171

Goodwill impairment

 
147

 

Termination of financing arrangements
294

 
2

 

Other expenses
657

 
388

 
180

Total expenses
2,059

 
1,689

 
1,351

Income (loss) before provision for income tax
3,935

 
442

 
4,996

Provision for income tax expense (benefit)
(75
)
 
(408
)
 
(377
)
Net income (loss)
4,010

 
850

 
5,373

Less: Preferred stock dividends
103

 
103

 
116

 Preferred stock repurchase premium

 

 
42

Net income (loss) available to common shareholders
$
3,907

 
$
747

 
$
5,215

Comprehensive income (loss)
$
7,391

 
$
1,449

 
$
(574
)
See accompanying notes to the condensed financial information.


388

Table of Contents

MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
2017
 
2016
 
2015
Condensed Statements of Cash Flows
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
4,010

 
$
850

 
$
5,373

Earnings of subsidiaries
(7,162
)
 
(1,833
)
 
(6,048
)
Dividends from subsidiaries
6,745

 
4,470

 
2,335

(Gains) losses on investments and from sales of businesses, net
1,142

 
(86
)
 
(12
)
Goodwill impairment

 
147

 

Tax separation agreement charge
1,093

 

 

Other, net
634

 
199

 
(42
)
Net cash provided by (used in) operating activities
6,462


3,747


1,606

Cash flows from investing activities
 
 
 
 
 
Sales of fixed maturity securities
7,217

 
8,603

 
7,952

Purchases of fixed maturity securities
(7,733
)
 
(7,409
)
 
(7,957
)
Cash received in connection with freestanding derivatives
452

 
311

 
930

Cash paid in connection with freestanding derivatives
(629
)
 
(561
)
 
(510
)
Sales of businesses

 
291

 

Expense paid on behalf of subsidiaries
(42
)
 
(68
)
 
(40
)
Receipts on loans to subsidiaries

 
140

 
761

Issuances of loans to subsidiaries

 
(140
)
 
(300
)
Returns of capital from subsidiaries
610

 
80

 
5

Capital contributions to subsidiaries
(339
)
 
(1,733
)
 
(667
)
Net change in short-term investments
118

 
120

 
110

Other, net
(14
)
 
(18
)
 
2

Net cash provided by (used in) investing activities
(360
)

(384
)

286

Cash flows from financing activities
 
 
 
 
 
Net change in payables for collateral under derivative transactions
(111
)
 
(80
)
 
(122
)
Long-term debt issued

 

 
2,739

Long-term debt repaid
(1,000
)
 
(1,250
)
 
(1,000
)
Fees paid for the termination of a committed facility related to Separation
(244
)
 
(2
)
 

Treasury stock acquired in connection with share repurchases
(2,927
)
 
(372
)
 
(1,930
)
Preferred stock issued, net of issuance costs

 

 
1,483

Repurchase of preferred stock

 

 
(1,460
)
Preferred stock repurchase premium

 

 
(42
)
Dividends on preferred stock
(103
)
 
(103
)
 
(116
)
Dividends on common stock
(1,717
)
 
(1,736
)
 
(1,653
)
Other, net
182

 
93

 
187

Net cash provided by (used in) financing activities
(5,920
)

(3,450
)

(1,914
)
Change in cash and cash equivalents
182


(87
)

(22
)
Cash and cash equivalents, beginning of year
334

 
421

 
443

Cash and cash equivalents, end of year
$
516


$
334


$
421


389

Table of Contents

MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
 
2017
 
2016
 
2015
Supplemental disclosures of cash flow information
 
 
 
 
 
Net cash paid (received) for:
 
 
 
 
 
Interest
$
1,096

 
$
1,146

 
$
1,133

Income tax:
 
 
 
 
 
Amounts paid to (received from) subsidiaries, net
$
(1,552
)
 
$
(569
)
 
$
(226
)
Amounts paid to Brighthouse in accordance with the tax separation agreement
729

 

 

Income tax paid (received) by MetLife, Inc., net
(37
)
 
136

 
55

Total income tax, net
$
(860
)
 
$
(433
)
 
$
(171
)
Non-cash transactions:
 
 
 
 
 
Dividends from subsidiary
$

 
$
2,652

 
$

Returns of capital from subsidiaries
$
17,518

 
$
372

 
$
4,284

Capital contributions to subsidiaries
$
15,655

 
$
157

 
$
4,120

Distribution of Brighthouse
$
10,346

 
$

 
$

Payables to subsidiaries for future capital contributions
$

 
$

 
$
120

Allocation of interest expense to subsidiary
$
15

 
$
39

 
$
28

Allocation of interest income to subsidiary
$
4

 
$
54

 
$
57



390

Table of Contents

MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information
(Parent Company Only)

1. Basis of Presentation
The condensed financial information of MetLife, Inc. (the “Parent Company”) should be read in conjunction with the consolidated financial statements of MetLife, Inc. and its subsidiaries and the notes thereto (the “Consolidated Financial Statements”). These condensed unconsolidated financial statements reflect the results of operations, financial position and cash flows for MetLife, Inc. Investments in subsidiaries are accounted for using the equity method of accounting.
The preparation of these condensed unconsolidated financial statements in conformity with GAAP requires management to adopt accounting policies and make certain estimates and assumptions. The most important of these estimates and assumptions relate to the fair value measurements, the accounting for goodwill and identifiable intangible assets and the provision for potential losses that may arise from litigation and regulatory proceedings and tax audits, which may affect the amounts reported in the condensed unconsolidated financial statements and accompanying notes. Actual results could differ from these estimates.
See Note 1 of the Notes to the Consolidated Financial Statements for information on prior period revisions.
The impact of the revisions is shown in the tables below:
 
 
December 31, 2016
Condensed Balance Sheets
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Assets
 
 
 
 
 
 
Investment in subsidiaries
 
$
85,207

 
$
222

 
$
85,429

Total assets
 
$
92,885

 
$
222

 
$
93,107

Stockholders’ Equity
 
 
 
 
 
 
Retained earnings
 
$
34,480

 
$
203

 
$
34,683

Accumulated other comprehensive income (loss)
 
$
5,347

 
$
19

 
$
5,366

Total stockholders’ equity
 
$
67,309

 
$
222

 
$
67,531

Total liabilities and stockholders’ equity
 
$
92,886

 
$
222

 
$
93,108

 
 
For the Years Ended December 31,
 
 
2016
 
2015
Condensed Statements of Operations
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
 
$
1,783

 
$
50

 
$
1,833

 
$
5,985

 
$
63

 
$
6,048

Total revenues
 
$
2,081

 
$
50

 
$
2,131

 
$
6,284

 
$
63

 
$
6,347

Income (loss) before provision for income tax
 
$
392

 
$
50

 
$
442

 
$
4,933

 
$
63

 
$
4,996

Net income (loss)
 
$
800

 
$
50

 
$
850

 
$
5,310

 
$
63

 
$
5,373

Net income (loss) available to common shareholders
 
$
697

 
$
50

 
$
747

 
$
5,152

 
$
63

 
$
5,215

Comprehensive income (loss)
 
$
1,376

 
$
73

 
$
1,449

 
$
(568
)
 
$
(6
)
 
$
(574
)

391

Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)

 
 
For the Years Ended December 31,
 
 
2016
 
2015
Condensed Statements of Cash Flows
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
800

 
$
50

 
$
850

 
$
5,310

 
$
63

 
$
5,373

Earnings of subsidiaries
 
$
(1,783
)
 
$
(50
)
 
$
(1,833
)
 
$
(5,985
)
 
$
(63
)
 
$
(6,048
)
2. Investment in Subsidiaries
On August 3, 2017, Brighthouse Financial, Inc. paid a cash dividend to MetLife, Inc. of $1.8 billion in connection with the Separation.
In December 2016, MLIC transferred the issued and outstanding shares of the common stock of each of NELICO and GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend of $2.7 billion.
In February 2016, MetLife, Inc. paid a cash capital contribution of $1.5 billion to Brighthouse Insurance in connection with the Separation.
In December 2015, MetLife, Inc. accrued $50 million, $45 million and $25 million in capital contributions payable to the following captive reinsurers: MRV, MRD and MRSC, respectively, which were included in payables to subsidiaries at December 31, 2015. The payables were settled for cash in February 2016.
In December 2014, MetLife, Inc. accrued $350 million and $95 million in capital contributions payable to MRV and MRD, respectively, which were included in payables to subsidiaries at December 31, 2014. The payables were settled for cash in February 2015.
3. Loans to Subsidiaries
MetLife, Inc. lends funds as necessary to its subsidiaries, some of which are regulated, to meet their capital requirements. Payments of interest and principal on surplus notes of regulated subsidiaries, which are subordinate to all other obligations of the issuing company, may be made only with the prior approval of the insurance department of the state of domicile.
In April 2017, in connection with the Separation, MetLife, Inc. repaid $750 million and $350 million senior notes to MRD due September 2032 and December 2033, respectively, in an exchange transaction. The $750 million senior note bore interest at a fixed rate of 4.21% and the $350 million senior note bore interest at a fixed rate of 5.10%. Simultaneously, MRD repaid $750 million and $350 million surplus notes to MetLife, Inc. The $750 million surplus note bore interest at a fixed rate of 5.13% and the $350 million surplus note bore interest at a fixed rate of 6.00% (the “MRD Notes Exchange”).
In April 2016, American Life issued a $140 million short-term note to MetLife, Inc. which was repaid in July 2016. The short-term note bore interest at six-month LIBOR plus 1.00%.
In May 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in June 2015. The short-term note bore interest at six-month LIBOR plus 1.00%.
In April 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in May 2015. The short-term note bore interest at six-month LIBOR plus 0.875%.
In July 2013, MetLife Ireland Treasury d.a.c. (formerly known as MetLife Ireland Treasury Limited) (“MIT”) borrowed the Chilean peso equivalent of $1.5 billion from MetLife, Inc., which was due in July 2023. The loan bore interest at a fixed rate of 8.5%, payable annually. In December, September and June 2015, MIT made loan payments of the Chilean peso equivalent of $77 million, $153 million and $231 million, respectively. At December 31, 2015, the loan was fully paid.
Interest income earned on loans to subsidiaries of $44 million, $64 million and $91 million for the years ended December 31, 2017, 2016 and 2015, respectively, is included in net investment income.

392

Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)

4. Long-term Debt
Long-term debt outstanding was as follows:
 
Interest Rates (1)
 
 
 
 
 
December 31,
 
Range
 
Weighted
Average
 
Maturity
 
2017
 
2016
 
(Dollars in millions)
Senior notes — unaffiliated (2)
3.00%
-
7.72%
 
4.84%
 
2018
-
2046
 
$
14,599

 
$
15,505

Senior notes — affiliated
3.03%
-
5.86%
 
4.58%
 
2019
-
2021
 
2,000

 
3,100

Total
 
 
 
 
 
 
 
 
 
 
$
16,599

 
$
18,605

__________________
(1)
Range of interest rates and weighted average interest rates are for the year ended December 31, 2017.
(2)
Net of $86 million and $92 million of unamortized issuance costs and net premiums and discounts at December 31, 2017 and 2016, respectively.
See Note 12 of the Notes to the Consolidated Financial Statements.
The aggregate maturities of long-term debt at December 31, 2017 for the next five years and thereafter are $1.0 billion in 2018, $1.8 billion in 2019, $789 million in 2020, $2.0 billion in 2021, $500 million in 2022 and $10.5 billion thereafter.
Credit Facility – Affiliated
In June 2016, MetLife, Inc. entered into a five-year agreement with an indirect wholly-owned subsidiary, MIT, to borrow up to $1.3 billion on a revolving basis, at interest rates based on the IRS safe harbor interest rate in effect at the time of the borrowing. MetLife, Inc. may borrow funds under the agreement at the lender’s discretion and subject to the availability of funds. There were no outstanding borrowings at December 31, 2017.
Long-term Debt – Affiliated
In June 2016, March 2016 and December 2015, MetLife, Inc. repaid $204 million, $10 million and $286 million, respectively, of affiliated long-term debt to MetLife Exchange Trust I at maturity in exchange for a return of capital. The long-term notes bore interest at three-month LIBOR plus 0.7%.
Senior Notes – Affiliated
In September 2016, a $250 million senior note issued to MLIC matured and, subsequently, in September 2016 MetLife, Inc. issued a new $250 million senior note to MLIC. The senior note matures in September 2020 and bears interest at a rate per annum of 3.03%, payable semi-annually.
See Note 3 for information on the MRD Notes Exchange in 2017.

393

Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)
4. Long-term Debt (continued)

Interest Expense
Interest expense was comprised of the following:
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Long-term debt — unaffiliated
$
774

 
$
811

 
$
833

Long-term debt — affiliated
112

 
160

 
168

Collateral financing arrangements
27

 
47

 
36

Junior subordinated debt securities
195

 
134

 
134

Total
$
1,108

 
$
1,152

 
$
1,171

See Notes 13 and 14 of the Notes to the Consolidated Financial Statements for information about the collateral financing arrangement and junior subordinated debt securities. See also Note 3 of the Notes to the Consolidated Financial Statements regarding the termination of the MRSC collateral financing arrangement.
5. Junior Subordinated Debt Securities
In February 2017, in connection with the Separation, MetLife, Inc. exchanged $750 million aggregate principal amount of its 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068 for $750 million aggregate liquidation preference of the 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital Trust X (the “Trust”). As a result of the exchange, MetLife, Inc. is the sole beneficial owner of the Trust, a special purpose entity which issued the exchangeable surplus trust securities to investors, and is the beneficiary of $750 million of 8.595% surplus notes held by the Trust that were issued by Brighthouse Insurance. In March 2017, MetLife, Inc. dissolved the Trust. In June 2017, MetLife, Inc. forgave Brighthouse Insurance’s obligation to pay the principal amount of $750 million affiliated surplus notes held by MetLife, Inc.
6. Support Agreements
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. Under these arrangements, MetLife, Inc. has agreed to cause each such entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations.
MetLife, Inc. guarantees the obligations of its subsidiary, Delaware American Life Insurance Company (“DelAm”), under a stop loss reinsurance agreement with RGA Reinsurance (Barbados) Inc. (“RGARe”), pursuant to which RGARe retrocedes to DelAm a portion of the whole life medical insurance business that RGARe assumed from American Life on behalf of its Japan operations. Also, MetLife, Inc. guarantees the obligations of its subsidiary, Missouri Reinsurance, Inc. (“MoRe”), under a retrocession agreement with RGARe, pursuant to which MoRe retrocedes a portion of the closed block liabilities associated with industrial life and ordinary life insurance policies that it assumed from MLIC.
MetLife, Inc. guarantees the obligations of MetLife Reinsurance Company of Bermuda, Ltd. (“MrB”), a Bermuda insurance affiliate and an indirect, wholly-owned subsidiary of MetLife, Inc. under a reinsurance agreement with Mitsui Sumitomo Primary Life Insurance Co., Ltd. (“Mitsui”), a former affiliate that is now an unaffiliated third party, under which MrB reinsures certain variable annuity business written by Mitsui.
MetLife, Inc. guarantees the obligations of MrB in an aggregate amount up to $1.0 billion, under a reinsurance agreement with MetLife Europe d.a.c. (“MEL”) (formerly known as MetLife Europe Limited), under which MrB reinsured the guaranteed living benefits and guaranteed death benefits associated with certain unit-linked annuity contracts issued by MEL.

394

Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)
6. Support Agreements (continued)

MetLife, Inc., in connection with MRV’s reinsurance of certain universal life and term life insurance risks, committed to the Vermont Department of Banking, Insurance, Securities and Health Care Administration to take necessary action to cause the two protected cells of MRV to maintain total adjusted capital in an amount that is equal to or greater than 200% of each such protected cell’s authorized control level RBC, as defined in Vermont state insurance statutes. See Note 12 of the Notes to the Consolidated Financial Statements.
MetLife, Inc., in connection with the collateral financing arrangement associated with MRC’s reinsurance of a portion of the liabilities associated with the closed block, committed to the South Carolina Department of Insurance to make capital contributions, if necessary, to MRC so that MRC may at all times maintain its total adjusted capital in an amount that is equal to or greater than 200% of the Company Action Level RBC, as defined in South Carolina state insurance statutes as in effect on the date of determination or December 31, 2007, whichever calculation produces the greater capital requirement, or as otherwise required by the South Carolina Department of Insurance. See Note 13 of the Notes to the Consolidated Financial Statements.
MetLife, Inc. guarantees obligations arising from derivatives of the following subsidiaries: MrB, MetLife International Holdings, LLC and MetLife Worldwide Holdings, LLC. These subsidiaries are exposed to various risks relating to their ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. These subsidiaries use a variety of strategies to manage these risks, including the use of derivatives. Further, all of the subsidiaries’ derivatives are subject to industry standard netting agreements and collateral agreements that limit the unsecured portion of any open derivative position. On a net counterparty basis at December 31, 2017 and 2016, derivative transactions with positive mark-to-market values (in-the-money) were $515 million and $495 million, respectively, and derivative transactions with negative mark-to-market values (out-of-the-money) were $126 million and $237 million, respectively. To secure the obligations represented by the out of-the-money transactions, the subsidiaries had provided collateral to their counterparties with an estimated fair value of $114 million and $233 million at December 31, 2017 and 2016, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were $12 million and $4 million at December 31, 2017 and 2016, respectively.
MetLife, Inc. also guarantees the obligations of certain of its subsidiaries under committed facilities with third-party banks. See Note 12 of the Notes to the Consolidated Financial Statements.

395

Table of Contents

MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information
December 31, 2017, 2016 and 2015
(In millions)
Segment
 
DAC
and
VOBA
 
Future Policy Benefits,
Other Policy-Related
Balances and
Policyholder Dividend
Obligation
 
Policyholder
Account
Balances
 
Policyholder
Dividends
Payable
 
Unearned 
Premiums (1), (2)
 
Unearned
Revenue (1)
2017
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
614

 
$
65,610

 
$
70,455

 
$

 
$
1,907

 
$
24

Asia
 
9,261

 
39,702

 
59,702

 
80

 
2,378

 
916

Latin America
 
2,050

 
10,397

 
6,361

 

 
115

 
675

EMEA
 
1,673

 
5,768

 
13,811

 
7

 
24

 
454

MetLife Holdings
 
4,797

 
73,317

 
32,176

 
595

 
167

 
205

Corporate & Other
 
24

 
816

 
13

 

 
1

 

Total
 
$
18,419

 
$
195,610

 
$
182,518

 
$
682

 
$
4,592

 
$
2,274

2016
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
616

 
$
61,578

 
$
67,539

 
$

 
$
1,843

 
$
30

Asia
 
8,707

 
36,308

 
53,114

 
95

 
2,167

 
912

Latin America
 
1,808

 
9,163

 
5,597

 

 
448

 
563

EMEA
 
1,472

 
5,439

 
12,636

 
6

 
64

 
372

MetLife Holdings
 
5,246

 
72,220

 
33,982

 
604

 
204

 
209

Corporate & Other
 
(259
)
 
(2,739
)
 
(382
)
 
(9
)
 
(2
)
 
(27
)
Total
 
$
17,590

 
$
181,969

 
$
172,486

 
$
696

 
$
4,724

 
$
2,059

2015
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
615

 
$
59,413

 
$
63,986

 
$

 
$
1,820

 
$
33

Asia
 
8,386

 
34,397

 
49,094

 
88

 
1,859

 
974

Latin America
 
1,753

 
8,142

 
5,880

 

 
491

 
597

EMEA
 
1,532

 
5,837

 
13,172

 
7

 
60

 
336

MetLife Holdings
 
5,436

 
70,764

 
33,320

 
621

 
171

 
218

Corporate & Other
 
(292
)
 
(2,345
)
 
(322
)
 
(7
)
 

 
(23
)
Total
 
$
17,430

 
$
176,208

 
$
165,130

 
$
709

 
$
4,401

 
$
2,135

__________________
(1)
Amounts are included within the future policy benefits, other policy-related balances and policyholder dividend obligation column.
(2)
Includes premiums received in advance.

396

Table of Contents

MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information — (continued)
December 31, 2017, 2016 and 2015
(In millions)
Segment
 
Premiums and
Universal Life
and Investment-Type
Product Policy Fees
 
Net
Investment
Income
 
Policyholder
Benefits and
Claims and
Interest Credited
to Policyholder
Account Balances
 
Amortization of
DAC and
VOBA
Charged to
Other
Expenses
 
Other
Expenses (1)
2017
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
24,644

 
$
6,201

 
$
25,103

 
$
459

 
$
3,235

Asia
 
8,352

 
3,299

 
6,799

 
1,310

 
1,802

Latin America
 
3,737

 
1,288

 
2,973

 
224

 
1,111

EMEA
 
2,492

 
1,157

 
2,012

 
356

 
966

MetLife Holdings
 
5,603

 
5,426

 
7,097

 
234

 
2,550

Corporate & Other
 
(326
)
 
(8
)
 
(64
)
 
98

 
2,507

Total
 
$
44,502

 
$
17,363

 
$
43,920

 
$
2,681

 
$
12,171

2016
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
22,490

 
$
5,942

 
$
22,892

 
$
471

 
$
3,244

Asia
 
8,914

 
2,807

 
6,916

 
1,350

 
1,795

Latin America
 
3,554

 
1,133

 
2,770

 
184

 
1,007

EMEA
 
2,442

 
1,229

 
2,064

 
408

 
924

MetLife Holdings
 
6,034

 
5,670

 
7,521

 
424

 
3,392

Corporate & Other
 
(749
)
 
9

 
(629
)
 
(119
)
 
1,892

Total
 
$
42,685

 
$
16,790

 
$
41,534

 
$
2,718

 
$
12,254

2015
 
 
 
 
 
 
 
 
 
 
U.S.
 
$
21,804

 
$
6,020

 
$
22,100

 
$
471

 
$
3,197

Asia
 
8,491

 
2,859

 
6,808

 
1,262

 
1,619

Latin America
 
3,702

 
1,046

 
2,853

 
271

 
1,075

EMEA
 
2,455

 
347

 
1,109

 
492

 
998

MetLife Holdings
 
6,116

 
5,855

 
7,215

 
722

 
3,597

Corporate & Other
 
(595
)
 
78

 
(526
)
 
(34
)
 
2,463

Total
 
$
41,973

 
$
16,205

 
$
39,559

 
$
3,184

 
$
12,949

______________
(1)
Includes other expenses and policyholder dividends, excluding amortization of DAC and VOBA charged to other expenses.

397

Table of Contents

MetLife, Inc.
Schedule IV
Consolidated Reinsurance
December 31, 2017, 2016 and 2015
(Dollars in millions)
 
 
Gross Amount
 
Ceded
 
Assumed
 
Net Amount
 
% Amount Assumed to Net
2017
 
 
 
 
 
 
 
 
 
 
Life insurance in-force
 
$
4,594,523

 
$
513,091

 
$
581,246

 
$
4,662,678

 
12.5
%
Insurance premium
 
 
 
 
 
 
 

 
 
Life insurance (1)
 
$
22,379

 
$
1,863

 
$
1,531

 
$
22,047

 
6.9
%
Accident & health insurance
 
13,593

 
442

 
223

 
13,374

 
1.7
%
Property & casualty insurance
 
3,623

 
71

 
19

 
3,571

 
0.5
%
Total insurance premium
 
$
39,595

 
$
2,376

 
$
1,773

 
$
38,992

 
4.5
%
2016
 
 
 
 
 
 
 

 
 
Life insurance in-force
 
$
4,098,780

 
$
481,028

 
$
613,693

 
$
4,231,445

 
14.5
%
Insurance premium
 
 
 
 
 
 
 

 
 
Life insurance (1)
 
$
20,857

 
$
1,614

 
$
1,089

 
$
20,332

 
5.4
%
Accident & health insurance
 
13,551

 
447

 
257

 
13,361

 
1.9
%
Property & casualty insurance
 
3,567

 
75

 
17

 
3,509

 
0.5
%
Total insurance premium
 
$
37,975

 
$
2,136

 
$
1,363

 
$
37,202

 
3.7
%
2015
 
 
 
 
 
 
 

 
 
Life insurance in-force
 
$
4,080,869

 
$
546,122

 
$
593,722

 
$
4,128,469

 
14.4
%
Insurance premium
 
 
 
 
 
 
 

 
 
Life insurance (1)
 
$
20,854

 
$
1,570

 
$
1,150

 
$
20,434

 
5.6
%
Accident & health insurance
 
12,677

 
377

 
219

 
12,519

 
1.7
%
Property & casualty insurance
 
3,513

 
76

 
13

 
3,450

 
0.4
%
Total insurance premium
 
$
37,044

 
$
2,023

 
$
1,382

 
$
36,403

 
3.8
%
__________________
(1)
Includes annuities with life contingencies.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Overview
Based on the Company’s internal review, MetLife, Inc.’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) identified material weaknesses in the design and operation of its internal control over financial reporting. Management concluded that the Company has not maintained effective controls over (i) the administrative and accounting practices relating to certain Retirement and Income Solutions (“RIS”) group annuity reserves and the timely communication and escalation of issues regarding those reserves throughout the Company, and (ii) controls over the calculation of reserves relating to variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings. Management identified errors in reserve balances in connection with these material weaknesses. For more information on these reserve adjustments, see Note 1 of the Notes to the Consolidated Financial Statements.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, and that such information is accumulated and communicated to Company management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Company management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2017, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the CEO and CFO concluded that the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with GAAP.
Management evaluated the design and operating effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). Solely because of the material weaknesses in internal control over financial reporting described below, in the opinion of management, MetLife, Inc. did not maintain effective internal control over financial reporting as of December 31, 2017.
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Identification of the Material Weaknesses in Internal Control over Financial Reporting
The Company has identified the following deficiencies in the principles associated with both the control activities and information and communication components of the COSO framework:
RIS Group Annuity Reserves:
Ineffective design and operating effectiveness of the controls related to processes and procedures for identifying unresponsive and missing group annuity annuitants and pension beneficiaries (Control Activities); and
Ineffective design and operating effectiveness of the controls intended to ensure timely communication and escalation of the issue throughout the Company (Information & Communication).
Assumed Variable Annuity Guarantee Reserves:

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Ineffective design and operating effectiveness of the controls related to data validation and monitoring of reserves for variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings (Control Activities).
These deficiencies, if not effectively remediated, could result in unprevented and undetected misstatements of accounts or disclosures related to liabilities for certain RIS group annuity contracts and MetLife Holdings assumed variable annuity guarantee reserves. Such misstatements could result in a material misstatement of the annual or interim consolidated financial statements.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on its audit of the effectiveness of internal control over financial reporting, which is included on page 401.
Changes in Internal Control Over Financial Reporting
There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation Steps to Address Material Weaknesses
Although the Company’s remediation plan remains under development, the Company has begun remediation efforts and will continue initiatives to implement, document, and communicate policies, procedures, and internal controls. The Company’s remediation of the identified material weaknesses and strengthening of its internal control environment will require a substantial effort in 2018.
The following remediation activities highlight the Company’s commitment to remediating its identified material weaknesses.
RIS Group Annuity Reserves:
The Company is implementing immediate changes to its administrative and accounting procedures and search practices to identify, contact, and record responses from “unresponsive and missing” plan annuitants and to otherwise locate missing annuitants.
The Company is reviewing its practices regarding timely communication and escalation of issues throughout the Company.
The Company will engage third party advisors to undertake a comprehensive examination and analysis of the facts and circumstances giving rise to the material weakness, under the supervision of MetLife, Inc.’s Chief Risk Officer.
Assumed Variable Annuity Guarantee Reserves:
The Company is implementing immediate changes to how data for MetLife Holdings assumed variable annuity guarantee reserves is controlled and reviewed.
The Company will engage third party advisors to undertake a comprehensive examination and analysis of the facts and circumstances giving rise to the material weakness.
The Company will make further changes and improve its internal control over financial reporting following management’s review and development of the complete remediation plans for these material weaknesses that is responsive to the findings of the examinations.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of MetLife, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of MetLife, Inc. and subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated March 1, 2018, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Table of Contents

Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment:
RIS Group Annuity Reserves:
Ineffective design and operating effectiveness of the controls related to processes and procedures for identifying unresponsive and missing group annuity annuitants and pension beneficiaries; and
Ineffective design and operating effectiveness of the controls intended to ensure timely communication and escalation of the issue throughout the Company
Assumed Variable Annuity Guarantee Reserves:
Ineffective design and operating effectiveness of the controls related to data validation and monitoring of reserves for variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2017, of the Company, and this report does not affect our report on such consolidated financial statements.

/s/ DELOITTE & TOUCHE LLP
New York, New York
March 1, 2018

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Table of Contents

Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item pertaining to Directors is incorporated herein by reference to the sections entitled “Proxy Summary — Director Nominees,” “Proposal 1 — Election of Directors For a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Director Nominees” and “Proposal 1 — Election of Directors For a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Information About the Board of Directors ” and “Other Information — Section 16(a) Beneficial Ownership Reporting Compliance” in MetLife, Inc.’s definitive proxy statement for the Annual Meeting of Shareholders to be held on June 12, 2018, to be filed by MetLife, Inc. with the SEC pursuant to Regulation 14A within 120 days after the year ended December 31, 2017 (the “2018 Proxy Statement”).
The information called for by this Item pertaining to Executive Officers appears in “Business — Executive Officers” in this Annual Report on Form 10-K and “Other Information — Section 16(a) Beneficial Ownership Reporting Compliance” in the 2018 Proxy Statement.
The Company has adopted the MetLife Financial Management Code of Professional Conduct (the “Financial Management Code”), a “code of ethics” as defined under the rules of the SEC, that applies to MetLife, Inc.’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and all professionals in finance and finance-related departments. In addition, the Company has adopted the Directors’ Code of Business Conduct and Ethics (the “Directors’ Code”) which applies to all members of MetLife, Inc.’s Board of Directors, including the Chief Executive Officer, and the Code of Conduct (together with the Financial Management Code and the Directors’ Code, collectively, the “Ethics Codes”), which applies to all employees of the Company, including MetLife, Inc.’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Ethics Codes are available on the Company’s website at http://www.metlife.com/about/corporate-profile/corporate-governance/corporate-conduct/index.html. The Company intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K by posting information about amendments to, or waivers from a provision of, the Ethics Codes that apply to MetLife, Inc.’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer on the Company’s website at the address given above.
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to the sections entitled “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Information About the Board of Directors ,” “Proposal 1  Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Director Compensation in 2017,” and “Proposal 3 Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers” in the 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this Item pertaining to ownership of shares of MetLife, Inc.’s common stock (“Shares”) is incorporated herein by reference to the sections entitled “Other Information — Security Ownership of Directors and Executive Officers” and “Other Information — Security Ownership of Certain Beneficial Owners” in the 2018 Proxy Statement.

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Table of Contents

The following table provides information at December 31, 2017, regarding MetLife, Inc.’s equity compensation plans:
Equity Compensation Plan Information at December 31, 2017
 
 
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1)
 
Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (2)
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(3)
Plan Category
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
 
27,948,185

 
$
38.77

 
37,869,420

Equity compensation plans not approved by security holders
 
None

 

 
None

Total
 
27,948,185

 
$
38.77

 
37,869,420

______________
(1)
Column (a) reflects the following items outstanding as of December 31, 2017:
Stock Options
16,009,754

Restricted Stock Units
3,304,377

Performance Shares (assuming future payout at maximum performance factor)
7,059,080

Deferred Shares
1,574,974

Shares that will or may be issued
27,948,185

As of December 31, 2017:
Stock Options under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”) and its predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan) were outstanding;
Restricted Stock Units and Performance Shares under the 2015 Stock Plan were outstanding; and
Deferred Shares related to awards under the 2015 Stock Plan, MetLife, Inc. 2015 Non-Management Directors Stock Compensation Plan (the “2015 Director Stock Plan”), 2005 Stock Plan, MetLife, Inc. 2005 Non-Management Directors Stock Compensation Plan (the “2005 Director Stock Plan”), and earlier plans, were outstanding. Deferred Shares are Shares that are covered by awards that have become payable under any plan, but the issuance of which has been deferred.
The maximum performance factor for Performance Shares granted in 2015, 2016, and 2017 was 175%. The number of Performance Shares outstanding as of December 31, 2017 at target (100%) performance factor was 4,033,760.
MetLife, Inc. may issue Shares pursuant to awards (including Stock Option exercises, if any) under any plan using Shares held in treasury by MetLife, Inc. or by issuing new Shares.
For a general description of how the number of Shares paid out on account of Performance Shares and Restricted Stock Units is determined, and the vesting periods applicable to Performance Shares and Restricted Stock Units, see Note 15 of the Notes to the Consolidated Financial Statements.
(2)
Column (b) reflects the weighted average exercise price of all Stock Options under any plan that, as of December 31, 2017, had been granted but not forfeited, expired, or exercised. Performance Shares, Restricted Stock Units, and Deferred Shares are not included in determining the weighted average in column (b) because they have no exercise price.

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Table of Contents

(3)
Column (c) reflects the following items outstanding as of December 31, 2017:
 
Number of Shares
At January 15, 2015, the effective date of the 2015 Stock Plan and 2015 Director Stock Plan:
 
Shares newly authorized for issuance under the 2015 Stock Plan
11,750,000

Shares remaining authorized for issuance under the 2005 Stock Plan or other plans that were not covered by awards (i)
18,023,959

Shares authorized for issuance under the 2015 Director Stock Plan (ii)
1,642,208

Total Shares authorized for issuance at January 1, 2015
31,416,167

Additional Shares recovered for issuance (iii) in:
 
2015
4,475,737

2016
6,344,455

2017
6,636,193

Total Shares recovered for issuance since January 1, 2015
17,456,385

Less: Shares covered by new awards and new imputed reinvested dividends on Deferred Shares (iv) in:
 
2015
4,413,785

2016
6,036,177

2017
4,532,897

Total Shares covered by new awards and new imputed reinvested dividends on Deferred Shares since January 1, 2015
14,982,859

Net shares added to the 2015 Stock Plan and 2015 Director Plan authorizations in light of the Separation (v)
3,979,727

Shares remaining available for future issuance under the 2015 Stock Plan and 2015 Director Stock Plan
37,869,420

______________
(i)
Consisting of Shares that were not covered by awards, including Shares previously covered by awards but recovered due to forfeiture of awards or other reasons and once again available for issuance.
(ii)
Consists of Shares remaining authorized for issuance under the predecessor plan, the 2005 Director Stock Plan, that were not covered by awards, including Shares previously covered by awards but recovered due to forfeiture of awards or other reasons and once again available.
(iii)
Consists of Shares utilized under the 2005 Stock Plan or 2015 Stock Plan that were recovered during each of the indicated calendar years, and therefore once again available for issuance, due to: (i) termination of the award by expiration, forfeiture, cancellation, lapse, or otherwise without issuing Shares; (ii) settlement of the award in cash either in lieu of Shares or otherwise; (iii) exchange of the award for awards not involving Shares; (iv) payment of the exercise price of a Stock Option, or the tax withholding requirements with respect to an award, satisfied by tendering Shares to MetLife, Inc. (by either actual delivery or by attestation); (v) satisfaction of tax withholding requirements with respect to an award satisfied by MetLife, Inc. withholding Shares otherwise issuable; and (vi) the payout of Performance Shares at any performance factor less than the maximum performance factor.
(iv)
Consists of Shares covered by awards granted under the 2015 Stock Plan (including Performance Shares assuming future payout at maximum performance factor). Shares covered by awards granted under the 2015 Directors Stock Plan and Shares covered by imputed reinvested dividends credited on Deferred Shares owed to directors, employees or agents, in each case during each of the indicated calendar years.
(v)
In light of the Separation, and in order to maintain the Share authorizations under each plan at the levels that shareholders had approved, MetLife, Inc. increased the number of Shares authorized for issuance under the 2015 Stock Plan and 2015 Director Plan as of August 4, 2017, excluding those Shares from the authorizations that had already been issued, by the Adjustment Ratio. MetLife, Inc. also increased the number of Shares covered by outstanding Stock Options, Performance Shares, Restricted Stock Units, and Deferred Shares on that date by the Adjustment Ratio, in order to maintain the intrinsic value of those awards and Deferred Shares, which decreased the number of Shares available for issuance under both plans. The amount in this row is the net increase in the Share authorization under both the 2015 Stock Plan and 2015 Director Plan as a result of these adjustments. For a description of the adjustment to Stock Options, Performance Shares, Restricted Stock Units, and Deferred Shares, see Note 15 of the Notes to the Consolidated Financial Statements.

405

Table of Contents

Each Share MetLife, Inc. issues in connection with awards granted under the MetLife, Inc. 2005 Stock Plan other than Stock Options or Stock Appreciation Rights (such as Shares payable on account of Performance Shares or Restricted Stock Units under that plan, including any Deferred Shares resulting from such awards) reduces the number of Shares remaining for issuance by 1.179 (“2005 Stock Plan Share Award Ratio”). Each Share MetLife, Inc. issues in connection with a Stock Option or Stock Appreciation Right granted under the 2005 Stock Plan, or in connection with any award under any other plan for employees and agents (including any Deferred Shares resulting from such awards), reduces the number of Shares remaining for issuance by 1.0. (“Standard Award Ratio”). Shares related to awards that are recovered, and therefore authorized for issuance under the 2015 Stock Plan, are recovered with consideration of the 2005 Stock Plan Share Award Ratio and Standard Award Ratio, as applicable. Each Share MetLife, Inc. issues under the 2005 Director Stock Plan or 2015 Director Stock Plan (including any Deferred Shares resulting from such awards) reduces the number of Shares remaining for issuance under that plan by one. Shares related to awards that are recovered, and therefore authorized for issuance under the 2015 Director Stock Plan are recovered with consideration of this ratio. If MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Stock Plan and the award holder exercised it, only the number of Shares MetLife, Inc. issued, net of the Shares tendered, if any, would be deemed delivered for purposes of determining the maximum number of Shares MetLife, Inc. may issue under the 2015 Stock Plan.
Any Shares covered by awards under the 2015 Director Stock Plan that were to be recovered due to (i) termination of the award by expiration, forfeiture, cancellation, lapse, or otherwise without issuing Shares; (ii) settlement of the award in cash either in lieu of Shares or otherwise; (iii) exchange of the award for awards not involving Shares; and (iv) payment of the exercise price of a Stock Option, or the tax withholding requirements with respect to an award, satisfied by tendering Shares to MetLife, Inc. (by either actual delivery or by attestation) would be available to be issued under the 2015 Director Stock Plan. In addition, if MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Director Stock Plan, only the number of Shares issued, net of the Shares tendered, if any, would be deemed delivered for purposes of determining the maximum number of Shares available for issuance under the 2015 Director Stock Plan.
Under both the 2015 Stock Plan and the 2015 Director Stock Plan, in the event of a corporate event or transaction (including, but not limited to, a change in the Shares or the capitalization of MetLife) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of MetLife, combination of securities, exchange of securities, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of MetLife, or any similar corporate event or transaction, the appropriate committee of the Board of Directors of MetLife, in order to prevent dilution or enlargement of participants’ rights under the applicable plan, shall substitute or adjust, as applicable, the number and kind of Shares that may be issued under that plan and shall adjust the number and kind of Shares subject to outstanding awards. Any Shares related to awards under either plan which: (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of Shares; (ii) are settled in cash either in lieu of Shares or otherwise; or (iii) are exchanged with the appropriate committee’s permission for awards not involving Shares, are available again for grant under the applicable plan. If the option price of any Stock Option granted under either plan or the tax withholding requirements with respect to any award granted under either plan is satisfied by tendering Shares to MetLife (by either actual delivery or by attestation), or if a Stock Appreciation Right is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for issuance under that plan. The maximum number of Shares available for issuance under either plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock or Restricted Stock Units.
For a description of the kinds of awards that have been or may be made under the 2015 Stock Plan and 2015 Director Stock Plan and awards that remained outstanding under the 2005 Stock Plan, see Note 15 of the Notes to the Consolidated Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this Item is incorporated herein by reference to the sections entitled “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Procedures for Reviewing Related Person Transactions,” “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Related Person Transactions” and “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Information About the Board of Directors — Composition and Independence of the Board of Directors” in the 2018 Proxy Statement.

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Table of Contents

Item 14. Principal Accountant Fees and Services
The information called for by this item is incorporated herein by reference to the section entitled “Proposal 2 — Ratification of Appointment of the Independent Auditor” in the 2018 Proxy Statement.
Part IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 200.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 200.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins on page 407.

Item 16. Form 10-K Summary
None.
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about MetLife, Inc., its subsidiaries or affiliates, or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about MetLife, Inc., its subsidiaries and affiliates may be found elsewhere in this Annual Report on Form 10-K and MetLife, Inc.’s other public filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.)
 
 
 
 
Incorporated by Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
2.1
 

 
S-1
 
333-91517
 
2.1
 
November 23, 1999
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.2
 

 
S-1/A

 
333-91517
 
2.2
 
March 29, 2000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.3
 
 
8-K

 
001-15787

 
2.1
 
August 7, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1
 
 
10-K

 
001-15787

 
3.1
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2
 
 
10-K

 
001-15787
 
3.2
 
March 1, 2017
 
 

407

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3
 
 
10-K

 
001-15787
 
3.3
 
March 1, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.4
 
 
10-K

 
001-15787
 
3.4
 
March 1, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.5
 
 
10-Q
 
001-15787
 
3.6
 
November 7, 2013

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.6
 
 
8-K

 
001-15787
 
3.1
 
April 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.7
 
 
8-K
 
001-15787
 
3.1
 
May 28, 2015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.8
 
 
10-Q
 
001-15787
 
3.7
 
November 5, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.9
 
 
8-K
 
001-15787
 
3.1
 
October 24, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.10
 
 
8-K
 
001-15787
 
3.2
 
September 29, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.1
 
 
S-1/A
 
333-91517
 
4.1
 
March 9, 2000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.4
 
 
8-A
 
001-15787
 
99.6
 
June 10, 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.6
 
 
8-K
 
001-15787
 
4.2
 
May 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.7
 
Certain instruments defining the rights of holders of long-term debt of MetLife, Inc. and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. MetLife, Inc. hereby agrees to furnish to the Securities and Exchange Commission, upon request, copies of such instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1
 
 
10-K
 
001-15787
 
10.1
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.2
 
 
10-K
 
001-15787
 
10.2
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.3
 
 
10-Q
 
001-15787
 
10.2
 
November 7, 2012
 
 


408

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.4
 
 
8-K
 
001-15787
 
10.1
 
May 16, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.5
 
 
8-K
 
001-15787
 
10.1
 
June 15, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.6
 
 
10-Q
 
001-15787
 
10.1
 
August 6, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.7
 
 
10-Q
 
001-15787
 
10.1
 
November 5, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.8
 
 
10-Q
 
001-15787
 
10.2
 
November 5, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.9
 
 
10-K
 
001-15787
 
10.13
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.10
 
 
10-K
 
001-15787
 
10.14
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.11
 
 
10-Q
 
001-15787
 
10.1
 
August 5, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.12
 
 
10-K
 
001-15787
 
10.24
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.13
 
 
10-K
 
001-15787
 
10.24
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.14
 
 
10-K
 
001-15787
 
10.25
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.15
 
 
10-K
 
001-15787
 
10.28
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.16
 
 
10-K
 
001-15787
 
10.29
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.17
 
 
8-K
 
001-15787
 
10.9
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.18
 
 
8-K
 
001-15787
 
10.10
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.19
 
 
8-K
 
001-15787
 
10.4
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.20
 
 
8-K
 
001-15787
 
10.5
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.21
 
 
8-K
 
001-15787
 
10.1
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.22
 
 
8-K
 
001-15787
 
10.2
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.23
 
 
8-K
 
001-15787
 
10.3
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.24
 
 
10-K
 
001-15787
 
10.24
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.25
 
 
10-K
 
001-15787
 
10.25
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.26
 
 
8-K
 
001-15787
 
10.11
 
February 15, 2013
 
 

409

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.27
 
 
8-K
 
001-15787
 
10.12
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.28
 
 
8-K
 
001-15787
 
10.13
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.29
 
 
8-K
 
001-15787
 
10.6
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.30
 
 
8-K
 
001-15787
 
10.7
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.31
 
 
8-K
 
001-15787
 
10.8
 
February 15, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.32
 
 
S-1
 
333-91517
 
10.12
 
November 23, 1999
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.33
 
 
10-K
 
001-15787
 
10.62
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.34
 
 
8-K
 
001-15787
 
10.1
 
June 4, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.35
 
 
8-K
 
001-15787
 
10.1
 
November 24, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.36
 
 
8-K
 
001-15787
 
10.1
 
December 21, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.37
 
 
10-K
 
001-15787
 
10.72
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.38
 
 
10-K
 
001-15787
 
10.74
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.39
 
 
10-K
 
001-15787
 
10.48
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.40
 
 
10-K
 
001-15787
 
10.75
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.41
 
 
10-K
 
001-15787
 
10.77
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.42
 
 
10-K
 
001-15787
 
10.78
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.43
 
 
10-K
 
001-15787
 
10.52
 
February 25, 2016
 
 

410

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.44
 
 
10-K
 
001-15787
 
10.53
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.45
 
 
10-K
 
001-15787
 
10.45
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.46
 
 
10-K
 
001-15787
 
10.46
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.47
 
 
10-K
 
001-15787
 
10.81
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.48
 
 
10-K
 
001-15787
 
10.84
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.49
 
 
10-K
 
001-15787
 
10.85
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.50
 
 
10-K
 
001-15787
 
10.86
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.51
 
 
10-K
 
001-15787
 
10.60
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.52
 
 
10-K
 
001-15787
 
10.52
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.53
 
 
10-K
 
001-15787
 
10.53
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.54
 
 
10-K
 
001-15787
 
10.54
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.55
 
 
10-K
 
001-15787
 
10.88
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.56
 
 
10-K
 
001-15787
 
10.56
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.57
 
 
10-K
 
001-15787
 
10.57
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.58
 
 
S-8
 
333-214710
 
4.1
 
November 18, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.59
 
 
10-K
 
001-15787
 
10.94
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.60
 
 
10-K
 
001-15787
 
10.60
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.61
 
 
10-K
 
001-15787
 
10.61
 
March 1, 2017
 
 

411

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.62
 
 
10-K
 
001-15787
 
10.95
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.63
 
 
10-K
 
001-15787
 
10.98
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.64
 
 
10-K
 
001-15787
 
10.99
 
February 27, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.65
 
 
10-K
 
001-15787
 
10.71
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.66
 
 
10-K
 
001-15787
 
10.102
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.67
 
 
10-K
 
001-15787
 
10.73
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.68
 
 
10-K
 
001-15787
 
10.101
 
February 27, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.69
 
 
10-K
 
001-15787
 
10.69
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.70
 

 
10-K
 
001-15787
 
10.70
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.71
 
 
10-K
 
001-15787
 
10.71
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.72
 
 
10-K
 
001-15787
 
10.72
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.73
 
 
8-K
 
001-15787
 
10.1
 
May 4, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.74
 
 
10-K
 
001-15787
 
10.79
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.75
 
 
10-Q
 
001-15787
 
10.2
 
August 8, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.76
 
 
10-K
 
001-15787
 
10.111
 
February 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.77
 
 
10-K
 
001-15787
 
10.77
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.78
 
 
10-K
 
001-15787
 
10.78
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.79
 
 
10-K
 
001-15787
 
10.79
 
March 1, 2017
 
 

412

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.80
 
 
10-K
 
001-15787
 
10.80
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.81
 
 
S-8
 
333-198141
 
4.1
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.82
 
 
S-8
 
333-198145
 
4.1
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.83
 
 
8-K
 
001-15787
 
10.1
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.84
 
 
8-K
 
001-15787
 
10.2
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.85
 
 
8-K
 
001-15787
 
10.3
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.86
 
 
8-K
 
001-15787
 
10.4
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.87
 
 
8-K
 
001-15787
 
10.5
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.88
 
 
8-K
 
001-15787
 
10.6
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.89
 
 
8-K
 
001-15787
 
10.7
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.90
 
 
8-K
 
001-15787
 
10.8
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.91
 
 
8-K
 
001-15787
 
10.9
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.92
 
 
8-K
 
001-15787
 
10.10
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.93
 
 
8-K
 
001-15787
 
10.11
 
December 11, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.94
 
 
10-K
 
001-15787
 
10.95
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.95
 
 
10-K
 
001-15787
 
10.96
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.96
 
 
10-K
 
001-15787
 
10.97
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.97
 
 
10-K
 
001-15787
 
10.98
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.98
 
 
10-K
 
001-15787
 
10.99
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.99
 
 
10-K
 
001-15787
 
10.100
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.100
 
 
10-K
 
001-15787
 
10.101
 
February 25, 2016
 
 

413

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.101
 
 
10-K
 
001-15787
 
10.102
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.102
 
 
10-K
 
001-15787
 
10.103
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.103
 
 
10-K
 
001-15787
 
10.104
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.104
 
 
10-K
 
001-15787
 
10.105
 
February 25, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.105
 
 
S-8
 
333-198143
 
4.1
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.106
 
 
S-8
 
333-198143
 
4.2
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.107
 
 
S-8
 
333-198143
 
4.3
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.108
 
 
S-8
 
333-198143
 
4.4
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.109
 
 
S-8
 
333-198143
 
4.5
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.110
 
 
S-8
 
333-198143
 
4.6
 
August 14, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.111
 
 
10-Q
 
001-15787
 
10.1
 
May 6, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.112
 
 
10-Q
 
001-15787
 
10.1
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.113
 
 
10-Q
 
001-15787
 
10.2
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.114
 
 
10-Q
 
001-15787
 
10.3
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.115
 
 
10-Q
 
001-15787
 
10.4
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.116
 
 
10-Q
 
001-15787
 
10.5
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.117
 
 
10-Q
 
001-15787
 
10.6
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.118
 
 
10-Q
 
001-15787
 
10.1
 
August 5, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.119
 
 
10-Q
 
001-15787
 
10.15
 
February 25, 2016
 
 


414

Table of Contents

 
 
 
 
Incorporated By Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished
Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.120
 
 
8-K
 
001-15787
 
10.1
 
August 7, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.121
 
 
8-K
 
001-15787
 
10.1
 
November 6, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.122
 
 
8-K
 
001-15787
 
10.1
 
November 21, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.123
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
10.124
 
 
8-K
 
001-15787
 
10.1
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.125
 
 
8-K
 
001-15787
 
10.2
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.126
 
 
8-K
 
001-15787
 
10.3
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.127
 
 
8-K
 
001-15787
 
10.4
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.128
 
 
8-K
 
001-15787
 
10.5
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.129
 
 
8-K
 
001-15787
 
10.6
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.130
 
 
8-K
 
001-15787
 
10.7
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
21.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
23.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.2
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.2
 

 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
X
__________
* Indicates management contracts or compensatory plans or arrangements.

415

Table of Contents

Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 1, 2018
METLIFE, INC.
 
 
 
By
 
/s/ Steven A. Kandarian

 
 
Name: Steven A. Kandarian
 
 
Title: Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
Date
 
 
 
 
 
 
 
 
 
 
/s/ Cheryl W. Grisé

 
Director
 
March 1, 2018
Cheryl W. Grisé
 
 
 
 
 
 
 
 
 
/s/ Carlos M. Gutierrez

 
Director
 
March 1, 2018
Carlos M. Gutierrez
 
 
 
 
 
 
 
 
 
 
 
Director
 
 
Gerald L. Hassell
 
 
 
 
 
 
 
 
 
/s/ David L. Herzog

 
Director
 
March 1, 2018
David L. Herzog
 
 
 
 
 
 
 
 
 
/s/ R. Glenn Hubbard
 
Director
 
March 1, 2018
R. Glenn Hubbard
 
 
 
 
 
 
 
 
 
/s/ Alfred F. Kelly, Jr.
 
Director
 
March 1, 2018
Alfred F. Kelly, Jr.
 
 
 
 
 
 
 
 
 
/s/ Edward J. Kelly, III

 
Director
 
March 1, 2018
Edward J. Kelly, III
 
 
 
 
 
 
 
 
 
 /s/ William E. Kennard

 
Director
 
March 1, 2018
 William E. Kennard
 
 
 
 
 
 
 
 
 
/s/ James M. Kilts

 
Director
 
March 1, 2018
James M. Kilts
 
 
 
 
 
 
 
 
 
/s/ Catherine R. Kinney

 
Director
 
March 1, 2018
Catherine R. Kinney
 
 
 
 
 
 
 
 
 
/s/ Denise M. Morrison

 
Director
 
March 1, 2018
Denise M. Morrison
 
 
 
 
 
 
 
 
 

416

Table of Contents

Signature
 
Title
 
Date
 
 
 
 
 
/s/ Steven A. Kandarian

 
Chairman of the Board, President and
 
March 1, 2018
Steven A. Kandarian
 
Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ John C. R. Hele

 
Executive Vice President and
 
March 1, 2018
John C. R. Hele
 
Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ William O’Donnell

 
Executive Vice President and
 
March 1, 2018
William O’Donnell
 
Chief Accounting Officer
(Principal Accounting Officer)
 
 

417