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METLIFE INC - Quarter Report: 2019 March (Form 10-Q)

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________________
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
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)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨

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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01
MET
New York Stock Exchange
Floating Rate Non-Cumulative Preferred Stock, Series A, par value $0.01
METPrA
New York Stock Exchange
Depositary Shares each representing a 1/1000th interest in a share of 5.625% Non-Cumulative Preferred Stock, Series E

METPrE
New York Stock Exchange
At April 30, 2019, 950,369,346 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
 
 



Table of Contents
 
 
Page
 
Item 1.
Financial Statements (Unaudited) (at March 31, 2019 and December 31, 2018 and for the Three Months Ended March 31, 2019 and 2018)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 
 
 
 
 
 


Table of Contents

As used in this Form 10Q, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10‑Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words and terms such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future 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.
Many factors will be important in determining the results of MetLife, Inc., its subsidiaries and affiliates. Forward-looking statements are based on our assumptions and current expectations, which may be inaccurate, and on the current economic environment, which may change. These statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) difficult economic conditions, including risks relating to interest rates, credit spreads, equity, real estate, obligors and counterparties, currency exchange rates, derivatives, and terrorism and security; (2) adverse global capital and credit market conditions, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities; (3) downgrades in our claims paying ability, financial strength or credit ratings; (4) availability and effectiveness of reinsurance, hedging or indemnification arrangements; (5) increasing cost and limited market capacity for statutory life insurance reserve financings; (6) the impact on us of changes to and implementation of the wide variety of laws and regulations to which we are subject; (7) regulatory, legislative or tax changes relating to our operations that may affect the cost of, or demand for, our products or services; (8) adverse results or other consequences from litigation, arbitration or regulatory investigations; (9) legal, regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (10) MetLife, Inc.’s primary reliance, as a holding company, 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; (11) investment losses, defaults and volatility; (12) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (13) changes to investment valuations, allowances and impairments taken on investments, and methodologies, estimates and assumptions; (14) differences between actual claims experience and underwriting and reserving assumptions; (15) political, legal, operational, economic and other risks relating to our global operations; (16) competitive pressures, 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; (17) the impact of technological changes on our businesses; (18) catastrophe losses; (19) a deterioration in the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (20) impairment of goodwill or other long-lived assets, or the establishment of a valuation allowance against our deferred income tax asset; (21) changes in assumptions related to deferred policy acquisition costs, deferred sales inducements or value of business acquired; (22) exposure to losses related to guarantees in certain products; (23) ineffectiveness of risk management policies and procedures or models; (24) a failure in our cybersecurity systems or other information security systems or our disaster recovery plans; (25) any failure to protect the confidentiality of client information; (26) changes in accounting standards; (27) our associates taking excessive risks; (28) difficulties in marketing and distributing products through our distribution channels; (29) increased expenses relating to pension and other postretirement benefit plans; (30) inability to protect our intellectual property rights or claims of infringement of others’ intellectual property rights; (31) difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from business acquisitions and dispositions, joint ventures, or other legal entity reorganizations; (32) unanticipated or adverse developments that could adversely affect our expected operational or other benefits from the separation of Brighthouse Financial, Inc. and its subsidiaries; (33) 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; (34) provisions of laws and our incorporation documents that may delay, deter or prevent takeovers and corporate combinations involving MetLife; and (35) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission.
MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S. Securities and Exchange Commission.

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Table of Contents

Corporate Information
We announce financial and other information about MetLife to our investors on our website (www.metlife.com) through the MetLife Investor Relations web page (https://investor.metlife.com), as well as U.S. Securities and Exchange Commission filings, news releases, public conference calls and webcasts. MetLife encourages investors to visit the Investor Relations web page from time to time, as information is updated and new information is posted. The information found on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the U.S. Securities and Exchange Commission, and any references to our website are intended to be inactive textual references only.
Note Regarding Reliance on Statements in Our Contracts
See “Exhibits — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Quarterly Report on Form 10-Q.

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Part I — Financial Information
Item 1. Financial Statements
MetLife, Inc.
Interim Condensed Consolidated Balance Sheets
March 31, 2019 and December 31, 2018 (Unaudited)
(In millions, except share and per share data)
 
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $288,559 and $286,816, respectively)
 
$
308,410

 
$
298,265

Equity securities, at estimated fair value
 
1,432

 
1,440

Contractholder-directed equity securities and fair value option securities, at estimated fair value (includes $3 and $4, respectively, relating to variable interest entities)
 
13,245

 
12,616

Mortgage loans (net of valuation allowances of $350 and $342, respectively; includes $276 and $299, respectively, under the fair value option)
 
78,601

 
75,752

Policy loans
 
9,670

 
9,699

Real estate and real estate joint ventures
 
10,022

 
9,698

Other limited partnership interests
 
6,787

 
6,613

Short-term investments, principally at estimated fair value
 
4,524

 
3,937

Other invested assets (includes $2,392 and $2,300, respectively, of leveraged and direct financing leases and $214 and $141, respectively, relating to variable interest entities)
 
18,175

 
18,190

Total investments
 
450,866

 
436,210

Cash and cash equivalents, principally at estimated fair value (includes $19 and $52, respectively, relating to variable interest entities)
 
14,506

 
15,821

Accrued investment income
 
3,569

 
3,582

Premiums, reinsurance and other receivables (includes $2 and $3, respectively, relating to variable interest entities)
 
20,615

 
19,644

Deferred policy acquisition costs and value of business acquired
 
18,349

 
18,895

Goodwill
 
9,418

 
9,422

Other assets (includes $2 and $2, respectively, relating to variable interest entities)
 
10,100

 
8,408

Separate account assets
 
185,765

 
175,556

Total assets
 
$
713,188

 
$
687,538

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
187,508

 
$
186,780

Policyholder account balances
 
187,333

 
183,693

Other policy-related balances
 
16,967

 
16,529

Policyholder dividends payable
 
671

 
677

Policyholder dividend obligation
 
1,116

 
428

Payables for collateral under securities loaned and other transactions
 
25,084

 
24,794

Short-term debt
 
289

 
268

Long-term debt (includes $5 and $5, respectively, at estimated fair value, relating to variable interest entities)
 
12,850

 
12,829

Collateral financing arrangement
 
1,048

 
1,060

Junior subordinated debt securities
 
3,148

 
3,147

Current income tax payable
 
505

 
441

Deferred income tax liability
 
7,075

 
5,414

Other liabilities (includes $1 and $1, respectively, relating to variable interest entities)
 
25,091

 
22,964

Separate account liabilities
 
185,765

 
175,556

Total liabilities
 
654,450

 
634,580

Contingencies, Commitments and Guarantees (Note 14)
 

 

Equity
 
 
 
 
MetLife, Inc.’s stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; $3,405 aggregate liquidation preference
 

 

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,174,590,790 and 1,171,824,242 shares issued, respectively; 950,181,456 and 958,613,542 shares outstanding, respectively
 
12

 
12

Additional paid-in capital
 
32,535

 
32,474

Retained earnings
 
29,944

 
28,926

Treasury stock, at cost; 224,409,334 and 213,210,700 shares, respectively
 
(10,893
)
 
(10,393
)
Accumulated other comprehensive income (loss)
 
6,911

 
1,722

Total MetLife, Inc.’s stockholders’ equity
 
58,509

 
52,741

Noncontrolling interests
 
229

 
217

Total equity
 
58,738

 
52,958

Total liabilities and equity
 
$
713,188

 
$
687,538

See accompanying notes to the interim condensed consolidated financial statements.

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MetLife, Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(In millions, except per share data)

 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
Revenues
 
 
 
 
Premiums
 
$
9,405

 
$
9,178

Universal life and investment-type product policy fees
 
1,365

 
1,392

Net investment income
 
4,908

 
3,745

Other revenues
 
494

 
474

Net investment gains (losses)
 
15

 
(333
)
Net derivative gains (losses)
 
115

 
349

Total revenues
 
16,302

 
14,805

Expenses
 
 
 
 
Policyholder benefits and claims
 
9,072

 
8,718

Interest credited to policyholder account balances
 
1,961

 
769

Policyholder dividends
 
300

 
297

Other expenses
 
3,225

 
3,365

Total expenses
 
14,558

 
13,149

Income (loss) before provision for income tax
 
1,744

 
1,656

Provision for income tax expense (benefit)
 
359

 
399

Net income (loss)
 
1,385

 
1,257

Less: Net income (loss) attributable to noncontrolling interests
 
4

 
4

Net income (loss) attributable to MetLife, Inc.
 
1,381

 
1,253

Less: Preferred stock dividends
 
32

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1,349

 
$
1,247

Comprehensive income (loss)
 
$
6,555

 
$
(1,448
)
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax
 
6

 
4

Comprehensive income (loss) attributable to MetLife, Inc.
 
$
6,549

 
$
(1,452
)
Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
Basic
 
$
1.41

 
$
1.20

Diluted
 
$
1.40

 
$
1.19

See accompanying notes to the interim condensed consolidated financial statements.


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MetLife, Inc.
Interim Condensed Consolidated Statements of Equity
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(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, 2018
 
$

 
$
12

 
$
32,474

 
$
28,926

 
$
(10,393
)
 
$
1,722

 
$
52,741

 
$
217

 
$
52,958

Cumulative effects of changes in accounting principles, net of income tax (Note 1)
 
 
 
 
 
 
 
74

 
 
 
21

 
95

 
 
 
95

Balance at January 1, 2019
 

 
12

 
32,474

 
29,000

 
(10,393
)
 
1,743

 
52,836

 
217

 
53,053

Treasury stock acquired in connection with share repurchases
 
 
 
 
 


 
 
 
(500
)
 
 
 
(500
)
 
 
 
(500
)
Stock-based compensation
 
 
 
 
 
61

 
 
 
 
 
 
 
61

 
 
 
61

Dividends on preferred stock
 
 
 
 
 
 
 
(32
)
 
 
 
 
 
(32
)
 
 
 
(32
)
Dividends on common stock
 
 
 
 
 
 
 
(405
)
 
 
 
 
 
(405
)
 
 
 
(405
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 
6

 
6

Net income (loss)
 
 
 
 
 
 
 
1,381

 
 
 
 
 
1,381

 
4

 
1,385

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
5,168

 
5,168

 
2

 
5,170

Balance at March 31, 2019
 
$

 
$
12

 
$
32,535

 
$
29,944

 
$
(10,893
)
 
$
6,911

 
$
58,509

 
$
229

 
$
58,738

 
 
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, 2017
 
$

 
$
12

 
$
31,111

 
$
26,527

 
$
(6,401
)
 
$
7,427

 
$
58,676

 
$
194

 
$
58,870

Cumulative effects of changes in accounting principles, net of income tax
 
 
 
 
 
 
 
(905
)
 
 
 
912

 
7

 
 
 
7

Balance at January 1, 2018
 

 
12

 
31,111

 
25,622

 
(6,401
)
 
8,339

 
58,683

 
194

 
58,877

Preferred stock issuance
 
 
 
 
 
494

 
 
 
 
 
 
 
494

 
 
 
494

Treasury stock acquired in connection with share repurchases
 
 
 
 
 
 
 
 
 
(1,041
)
 
 
 
(1,041
)
 
 
 
(1,041
)
Stock-based compensation
 
 
 
 
 
48

 
 
 
 
 
 
 
48

 
 
 
48

Dividends on preferred stock
 
 
 
 
 
 
 
(6
)
 
 
 
 
 
(6
)
 
 
 
(6
)
Dividends on common stock
 
 
 
 
 
 
 
(416
)
 
 
 
 
 
(416
)
 
 
 
(416
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

Net income (loss)
 
 
 
 
 
 
 
1,253

 
 
 
 
 
1,253

 
4

 
1,257

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
(2,705
)
 
(2,705
)
 

 
(2,705
)
Balance at March 31, 2018
 
$

 
$
12

 
$
31,653

 
$
26,453

 
$
(7,442
)
 
$
5,634

 
$
56,310

 
$
198

 
$
56,508

See accompanying notes to the interim condensed consolidated financial statements.

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MetLife, Inc.
Interim Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2019 and 2018 (Unaudited)
(In millions)

 
Three Months
Ended
March 31,
 
2019
 
2018
Net cash provided by (used in) operating activities
$
2,072

 
$
1,296

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities available-for-sale
21,606

 
26,053

Equity securities
149

 
187

Mortgage loans
1,769

 
2,076

Real estate and real estate joint ventures
103

 
128

Other limited partnership interests
250

 
139

Purchases and originations of:
 
 
 
Fixed maturity securities available-for-sale
(23,386
)
 
(24,220
)
Equity securities
(16
)
 
(51
)
Mortgage loans
(4,416
)
 
(4,024
)
Real estate and real estate joint ventures
(483
)
 
(242
)
Other limited partnership interests
(428
)
 
(260
)
Cash received in connection with freestanding derivatives
1,021

 
1,974

Cash paid in connection with freestanding derivatives
(1,231
)
 
(2,192
)
Net change in policy loans
16

 
(25
)
Net change in short-term investments
(545
)
 
(160
)
Net change in other invested assets
(53
)
 
46

Other, net
(55
)
 
86

Net cash provided by (used in) investing activities
(5,699
)
 
(485
)
Cash flows from financing activities
 
 
 
Policyholder account balances:
 
 
 
Deposits
23,891

 
24,861

Withdrawals
(20,904
)
 
(24,447
)
Payables for collateral under securities loaned and other transactions:

 
 
 
Net change in payables for collateral under securities loaned and other transactions
388

 
592

Cash received for other transactions with tenors greater than three months


 
75

Cash paid for other transactions with tenors greater than three months


(75
)
 

Long-term debt issued

 
14

Long-term debt repaid
(10
)
 
(32
)
Collateral financing arrangements repaid
(12
)
 
(13
)
Financing element on certain derivative instruments and other derivative related transactions, net
(29
)
 
37

Treasury stock acquired in connection with share repurchases
(500
)
 
(1,041
)
Preferred stock issued, net of issuance costs

 
494

Dividends on preferred stock
(32
)
 
(6
)
Dividends on common stock
(405
)
 
(416
)
Other, net
4

 
100

Net cash provided by (used in) financing activities
2,316

 
218

Effect of change in foreign currency exchange rates on cash and cash equivalents balances
(4
)
 
197

Change in cash and cash equivalents
(1,315
)
 
1,226

Cash and cash equivalents, beginning of period
15,821

 
12,701

Cash and cash equivalents, end of period
$
14,506

 
$
13,927

Supplemental disclosures of cash flow information
 
 
 
Net cash paid (received) for:
 
 
 
Interest
$
148

 
$
243

Income tax
$
114

 
$
146

Non-cash transactions:
 
 
 
Reclassification of certain equity securities to other invested assets
$

 
$
791

See accompanying notes to the interim condensed consolidated financial statements.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)


1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“MetLife” and the “Company” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is 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.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2018 consolidated balance sheet data was derived from audited consolidated financial statements included in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2018 Annual Report.
Consolidation
The accompanying interim condensed consolidated financial statements include the accounts of MetLife, Inc. and its subsidiaries, as well as partnerships and joint ventures in which the Company has control, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting for real estate joint ventures and other limited partnership interests (“investee”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings in net investment income on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform to the 2019 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. The following tables provide a description of new ASUs issued by the FASB and the impact of the adoption on the Company’s consolidated financial statements.

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

Adoption of New Accounting Pronouncements
Except as noted below, the ASUs adopted by the Company effective January 1, 2019 did not have a material impact on its consolidated financial statements.
Standard
Description
Effective Date and Method of Adoption
Impact on Financial Statements
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as clarified and amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

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 their financial statements.
January 1, 2019. The Company adopted using a modified retrospective approach.

The adoption of the guidance resulted in a $18 million, net of income tax, increase to accumulated other comprehensive income (loss) (“AOCI”) with a corresponding decrease to retained earnings due to the reclassification of hedge ineffectiveness for cash flow hedging relationships existing as of January 1, 2019. The Company has included the expanded disclosures within Note 6.
ASU 2016-02, Leases (Topic 842), as clarified and amended by ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Leases (Topic 842): Targeted Improvements, and ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors

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 also requires new qualitative and quantitative disclosures. In July 2018, two amendments to the new guidance were issued. The amendments provide the option to adopt the new guidance prospectively without adjusting comparative periods. Also, the amendments provide lessors with a practical expedient not to separate lease and non-lease components for certain operating leases. In December 2018, an amendment was issued to clarify lessor accounting relating to taxes, certain lessor’s costs and variable payments related to both lease and non-lease components.

January 1, 2019. The Company adopted using a modified retrospective approach.
The Company elected the package of practical expedients allowed under the transition guidance. This allowed the Company to carry forward its historical lease classification. In addition, the Company elected all other practical expedients that were allowed under the new guidance and were applicable, including the practical expedient to combine lease and non-lease components into one lease component for certain real estate leases.

The adoption of this guidance resulted in the recording of additional net right-of-use (“ROU”) assets and lease liabilities of approximately $1.5 billion and $1.7 billion, respectively, as of January 1, 2019. The reduction of the ROU assets was a result of adjustments for prepaid/deferred rent, unamortized initial direct costs and impairment of certain ROU assets based on the net present value of the remaining minimum lease payments and sublease revenues. In addition, retained earnings increased by $95 million, net of income tax, as a result of the recognition of deferred gains on previous sale leaseback transactions. The guidance did not have a material impact on the Company’s consolidated net income and cash flows. The Company has included expanded disclosures on the consolidated balance sheets and in Notes 5 and 8.

9

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

Future Adoption of New Accounting Pronouncements
ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s consolidated financial statements. ASUs issued but not yet adopted as of March 31, 2019 that are currently being assessed and may or may not have a material impact on the Company’s consolidated financial statements are summarized in the table below.
Standard
Description
Effective Date and Method of Adoption
Impact on Financial Statements
ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset and which costs to expense as incurred. Implementation costs that are capitalized under the new guidance are required to be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use.

January 1, 2020. The new guidance can be applied either prospectively to eligible costs incurred on or after the guidance is first applied, or retrospectively to all periods presented.
The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

The new guidance removes certain disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant for employers that sponsor defined benefit pension or other postretirement plans.

December 31, 2020, to be applied on a retrospective basis to all periods presented (with early adoption permitted).
The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
The new guidance modifies the disclosure requirements on fair value by removing some requirements, modifying others, adding changes in unrealized gains and losses included in other comprehensive income (loss) (“OCI”) for recurring Level 3 fair value measurements, and under certain circumstances, providing the option to disclose certain other quantitative information with respect to significant unobservable inputs in lieu of a weighted average.

January 1, 2020. Amendments related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively.
As of December 31, 2018, the Company early adopted the provisions of the guidance that removed the requirements relating to transfers between fair value hierarchy levels and certain disclosures about valuation processes for Level 3 fair value measurements. The Company will adopt the remainder of the new guidance at the effective date, and is currently evaluating the impact of those changes on its consolidated financial statements.

ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of deferred policy acquisition costs (“DAC”) for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures.
January 1, 2021, to be applied retrospectively to January 1, 2019 (with early adoption permitted).
The Company has started its implementation efforts and is currently evaluating the impact of the new guidance. Given the nature and extent of the required changes to a significant portion of the Company’s operations, the adoption of this standard is expected to have a material impact on its consolidated financial statements.


10

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

Standard
Description
Effective Date and Method of Adoption
Impact on Financial Statements
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

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.

January 1, 2020, to 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 will reduce the complexity involved with the evaluation of goodwill for impairment. The impact of the new guidance will depend on the outcomes of future goodwill impairment tests.

ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as clarified and amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
This new guidance 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 other-than-temporary impairment (“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. In November 2018, the FASB issued ASU 2018-19, clarifying that receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. 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.

January 1, 2020. For substantially all financial assets, the ASU is to be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings. For previously impaired debt securities and certain debt securities acquired with evidence of credit quality deterioration since origination, the new guidance is to be applied prospectively.
The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

2. Segment Information
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.
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 (“RIS”) and Property & Casualty.
The Group Benefits business offers 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 RIS business offers a broad range of life and annuity-based insurance and investment products, including stable value and pension risk transfer products, institutional income annuities, tort settlements, and capital markets investment products, as well as solutions for funding 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 to small business owners property, liability and business interruption insurance.

11

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

Asia
The Asia segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include whole and term life, endowments, universal and variable life, accident & health insurance and fixed and variable annuities.
Latin America
The Latin America segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, retirement and savings products, accident & health insurance and credit insurance.
EMEA
The EMEA segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, accident & health insurance, retirement and savings products and credit insurance.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses, previously included in MetLife’s former retail business, that the Company no longer actively markets in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, and 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 and developing businesses (including the investment management business through which the Company, as a manager of assets such as global fixed income and real estate, provides differentiated investment solutions to institutional investors worldwide). Additionally, Corporate & Other includes run-off businesses. 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, investment expenses and intersegment loans, which bear interest rates commensurate with related borrowings.
Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. Adjusted earnings should not be viewed as a substitute for net income (loss). The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.
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. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.

12

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

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 guaranteed minimum income benefits (“GMIBs”) 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 equity securities, (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP; and
Other revenues is adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”).
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 certain amounts related to net investment income earned on contractholder-directed equity securities;
Amortization of DAC and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB fees and GMIB costs and (iii) Market value adjustments;
Amortization of negative VOBA excludes amounts related to Market value adjustments;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements and (iii) acquisition, integration and other costs. Other expenses includes TSA fees.
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 three months ended March 31, 2019 and 2018. 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.

13

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

The Company’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. The Company’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, net income (loss), 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.

14

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








Three Months Ended March 31, 2019

U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated


(In millions)
Revenues


















Premiums

$
5,567


$
1,699


$
646


$
542


$
927


$
24


$
9,405


$


$
9,405

Universal life and investment-type product policy fees

270


406


284


103


274


1


1,338


27


1,365

Net investment income

1,719


880


296


74


1,287


25


4,281


627


4,908

Other revenues

221


16


12


14


67


94


424


70


494

Net investment gains (losses)















15


15

Net derivative gains (losses)















115


115

Total revenues

7,777

 
3,001

 
1,238

 
733

 
2,555

 
144

 
15,448

 
854

 
16,302

Expenses









 



 



 
Policyholder benefits and claims and policyholder dividends

5,373


1,319


597


284


1,648


20


9,241


131


9,372

Interest credited to policyholder account balances

501


403


94


24


226




1,248


713


1,961

Capitalization of DAC

(114
)

(479
)

(94
)

(117
)

(6
)

(2
)

(812
)



(812
)
Amortization of DAC and VOBA

114


307


78


92


63


1


655


(31
)

624

Amortization of negative VOBA



(9
)



(1
)





(10
)



(10
)
Interest expense on debt

2




1




2


229


234




234

Other expenses

993


955


366


338


227


222


3,101


88


3,189

Total expenses

6,869

 
2,496

 
1,042

 
620

 
2,160

 
470

 
13,657

 
901

 
14,558

Provision for income tax expense (benefit)

184


149


62


27


78


(165
)

335


24


359

Adjusted earnings

$
724

 
$
356

 
$
134

 
$
86

 
$
317

 
$
(161
)

1,456





Adjustments to:













 



 
Total revenues













854




 
Total expenses













(901
)



 
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 
 
 

(24
)



 
Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 

$
1,385




$
1,385


15

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

 
 

 
 
 
 
Three Months Ended March 31, 2018
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
5,217

 
$
1,748

 
$
699

 
$
551

 
$
950

 
$
13

 
$
9,178

 
$

 
$
9,178

Universal life and investment-type product policy fees
 
258

 
394

 
282

 
112

 
314

 

 
1,360

 
32

 
1,392

Net investment income
 
1,662

 
795

 
276

 
75

 
1,352

 
59

 
4,219

 
(474
)
 
3,745

Other revenues
 
204

 
15

 
8

 
16

 
67

 
81

 
391

 
83

 
474

Net investment gains (losses)
 

 

 

 

 

 

 

 
(333
)
 
(333
)
Net derivative gains (losses)
 

 

 

 

 

 

 

 
349

 
349

Total revenues
 
7,341

 
2,952

 
1,265

 
754

 
2,683

 
153

 
15,148

 
(343
)
 
14,805

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
5,138

 
1,343

 
646

 
294

 
1,550

 
(3
)
 
8,968

 
47

 
9,015

Interest credited to policyholder account balances
 
407

 
351

 
98

 
25

 
236

 

 
1,117

 
(348
)
 
769

Capitalization of DAC
 
(106
)
 
(465
)
 
(94
)
 
(118
)
 
(10
)
 
(2
)
 
(795
)
 
(1
)
 
(796
)
Amortization of DAC and VOBA
 
115

 
314

 
60

 
106

 
100

 
2

 
697

 
(4
)
 
693

Amortization of negative VOBA
 

 
(15
)
 

 
(6
)
 

 

 
(21
)
 
(1
)
 
(22
)
Interest expense on debt
 
2

 

 
2

 

 
2

 
280

 
286

 

 
286

Other expenses
 
961

 
952

 
338

 
351

 
276

 
232

 
3,110

 
94

 
3,204

Total expenses
 
6,517

 
2,480

 
1,050

 
652

 
2,154

 
509

 
13,362

 
(213
)
 
13,149

Provision for income tax expense (benefit)
 
171

 
145

 
75

 
21

 
104

 
(159
)
 
357

 
42

 
399

Adjusted earnings
 
$
653

 
$
327

 
$
140

 
$
81

 
$
425

 
$
(197
)
 
1,429

 
 
 
 
Adjustments to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
(343
)
 
 
 
 
Total expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
213

 
 
 
 
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
(42
)
 
 
 
 
Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,257

 
 
 
$
1,257


16

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

The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
U.S.
 
$
257,461

 
$
248,174

Asia
 
152,264

 
146,278

Latin America
 
74,329

 
70,417

EMEA
 
27,834

 
27,829

MetLife Holdings
 
171,267

 
166,872

Corporate & Other
 
30,033

 
27,968

Total
 
$
713,188

 
$
687,538


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 three months ended March 31, 2019 and 2018.
3. Insurance
Guarantees
As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report, the Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and certain non-life contingent portions of GMIBs are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 6.
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.
Information regarding the Company’s guarantee exposure, which includes direct and assumed business, but excludes offsets from hedging or ceded reinsurance, if any, was as follows at:
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
In the
Event of Death
 
At
Annuitization
 
In the
Event of Death (8)
 
At
Annuitization (8)
 
 
(Dollars in millions)
 
Annuity Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Variable Annuity Guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
Total account value (1), (2), (3)
 
$
66,192

 
 
$
24,409

 
 
$
63,381

 
 
$
23,174

 
Separate account value (1)
 
$
41,540

 
 
$
22,632

 
 
$
38,888

 
 
$
21,385

 
Net amount at risk (2)
 
$
2,027

(4
)
 
$
424

(5
)
 
$
3,197

(4
)
 
$
511

(5
)
Average attained age of contractholders
 
66 years

 
 
65 years

 
 
66 years

 
 
64 years

 
Other Annuity Guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
Total account value (1), (3)
 
N/A

 
 
$
5,825

 
 
N/A

 
 
$
5,787

 
Net amount at risk
 
N/A

 
 
$
530

(6
)
 
N/A

 
 
$
549

(6
)
Average attained age of contractholders
 
N/A

 
 
50 years

 
 
N/A

 
 
50 years

 

17

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Insurance (continued)

 
 
March 31, 2019
 
December 31, 2018
 
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
Secondary
Guarantees (8)
 
Paid-Up
Guarantees
 
 
(Dollars in millions)
Universal and Variable Life Contracts:
 
 
 
 
 
 
 
 
Total account value (1), (3)
 
$
11,398

 
$
3,035

 
$
11,205

 
$
3,070

Net amount at risk (7)
 
$
91,404

 
$
15,279

 
$
93,028

 
$
15,539

Average attained age of policyholders
 
53 years

 
64 years

 
52 years

 
64 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 interim condensed 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.
(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.
(8)
The Company’s guarantee exposure amounts at December 31, 2018 as reported in the 2018 Annual Report have been revised. They conform to the presentation for the first quarter of 2019, which includes certain contracts with guarantees that were previously excluded. They include the following increases from the amounts reported in the 2018 Annual Report: (i) variable annuity guarantees in the event of death: $7.1 billion from $56.2 billion for total account value, $1.5 billion from $37.3 billion for separate account value and $429 million from $2.8 billion for net amount at risk; (ii) variable annuity guarantees at annuitization: $1.5 billion from $21.6 billion for total account value, $1.5 billion from $19.8 billion for separate account value and $28 million from $483 million for net amount at risk; (iii) other annuity guarantees: $4.5 billion from $1.3 billion for total account value and $60 million from $489 million for net amount at risk; and (iv) universal and variable life contract secondary guarantees: $2.3 billion from $8.9 billion for total account value and $28.9 billion from $64.2 billion for net amount at risk. 
Additionally, the average attained age of contractholders at annuitization for variable annuity guarantees decreased by one year from 65 years and the average attained age of policyholders with universal and variable life contract secondary guarantees decreased by five years from 57 years.

18

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Insurance (continued)

Liabilities for Unpaid Claims and Claim Expenses
Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
 
(In millions)
Balance, beginning of period
 
$
17,788

 
$
17,094

Less: Reinsurance recoverables
 
2,332

 
2,198

Net balance, beginning of period
 
15,456

 
14,896

Incurred related to:
 
 
 
 
Current period
 
6,338

 
6,504

Prior periods (1)
 
210

 
(148
)
Total incurred
 
6,548

 
6,356

Paid related to:
 
 
 
 
Current period
 
(3,430
)
 
(3,339
)
Prior periods
 
(2,814
)
 
(2,719
)
Total paid
 
(6,244
)
 
(6,058
)
Net balance, end of period
 
15,760

 
15,194

Add: Reinsurance recoverables
 
2,354

 
2,237

Balance, end of period (included in future policy benefits and other policy-related balances)
 
$
18,114

 
$
17,431

__________________
(1)
For the three months ended March 31, 2019, claims and claim adjustment expenses associated with prior periods increased due to events incurred in prior periods but reported in the current period. For the three months ended March 31, 2018, claims and claim adjustment expenses associated with prior periods decreased due to favorable claims experience in the current period.
4. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.

19

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Closed Block (continued)

Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Closed Block Liabilities
 
 
 
 
Future policy benefits
 
$
39,727

 
$
40,032

Other policy-related balances
 
422

 
317

Policyholder dividends payable
 
453

 
431

Policyholder dividend obligation
 
1,116

 
428

Deferred income tax liability
 
36

 
28

Other liabilities
 
200

 
328

Total closed block liabilities
 
41,954

 
41,564

Assets Designated to the Closed Block
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value
 
25,616

 
25,354

Equity securities, at estimated fair value
 
63

 
61

Contractholder-directed equity securities and fair value option securities, at estimated fair value
 
47

 
43

Mortgage loans
 
6,994

 
6,778

Policy loans
 
4,505

 
4,527

Real estate and real estate joint ventures
 
556

 
544

Other invested assets
 
592

 
643

Total investments
 
38,373

 
37,950

Accrued investment income
 
451

 
443

Premiums, reinsurance and other receivables
 
70

 
83

Current income tax recoverable
 
71

 
69

Total assets designated to the closed block
 
38,965

 
38,545

Excess of closed block liabilities over assets designated to the closed block
 
2,989

 
3,019

Amounts included in AOCI:
 
 
 
 
Unrealized investment gains (losses), net of income tax
 
1,675

 
1,089

Unrealized gains (losses) on derivatives, net of income tax
 
74

 
86

Allocated to policyholder dividend obligation, net of income tax
 
(882
)
 
(338
)
Total amounts included in AOCI
 
867

 
837

Maximum future earnings to be recognized from closed block assets and liabilities
 
$
3,856

 
$
3,856

Information regarding the closed block policyholder dividend obligation was as follows:
 
 
Three Months
Ended
March 31, 2019
 
Year
Ended
December 31, 2018
 
 
(In millions)
Balance, beginning of period
 
$
428

 
$
2,121

Change in unrealized investment and derivative gains (losses)
 
688

 
(1,693
)
Balance, end of period
 
$
1,116

 
$
428


20

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Closed Block (continued)

Information regarding the closed block revenues and expenses was as follows:
 
 
 
Three Months
Ended
March 31,
 
 
 
2019
 
2018
 
 
 
(In millions)
Revenues
 
 
 
 
 
Premiums
 
 
$
367

 
$
387

Net investment income
 
 
428

 
444

Net investment gains (losses)
 
 
(1
)
 
(29
)
Net derivative gains (losses)
 
 
3

 
(3
)
Total revenues
 
 
797

 
799

Expenses
 
 
 
 
 
Policyholder benefits and claims
 
 
539

 
571

Policyholder dividends
 
 
228

 
244

Other expenses
 
 
29

 
29

Total expenses
 
 
796

 
844

Revenues, net of expenses before provision for income tax expense (benefit)
 
 
1

 
(45
)
Provision for income tax expense (benefit)
 
 

 
(10
)
Revenues, net of expenses and provision for income tax expense (benefit)
 
 
$
1

 
$
(35
)
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.

21

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

5. Investments
Fixed Maturity Securities Available-for-Sale
Fixed Maturity Securities Available-for-Sale by Sector
The following table presents the fixed maturity securities available-for-sale (“AFS”) by sector. U.S. corporate and foreign corporate sectors include redeemable preferred stock. Residential mortgage-backed securities (“RMBS”) includes Agency, prime, alternative and sub-prime mortgage-backed securities. Asset-backed securities (“ABS”) includes securities collateralized by corporate loans and consumer loans. Municipals includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political subdivisions. Commercial mortgage-backed securities (“CMBS”) primarily includes securities collateralized by multiple properties. RMBS, ABS and CMBS are collectively, “Structured Securities.”
 
March 31, 2019
 
December 31, 2018
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 

Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 

Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
 
(In millions)
U.S. corporate
$
75,893

 
$
5,040

 
$
787

 
$

 
$
80,146

 
$
77,761

 
$
3,467

 
$
2,280

 
$

 
$
78,948

Foreign government
57,483

 
7,749

 
277

 

 
64,955

 
56,353

 
6,406

 
471

 

 
62,288

Foreign corporate
57,640

 
3,504

 
1,199

 

 
59,945

 
56,290

 
2,438

 
2,025

 

 
56,703

U.S. government and agency
37,819

 
3,413

 
224

 

 
41,008

 
37,030

 
2,756

 
464

 

 
39,322

RMBS
27,439

 
1,097

 
206

 
(30
)
 
28,360

 
27,409

 
920

 
394

 
(26
)
 
27,961

ABS
12,635

 
77

 
80

 
1

 
12,631

 
12,552

 
74

 
153

 
1

 
12,472

Municipals
10,371

 
1,546

 
19

 

 
11,898

 
10,376

 
1,228

 
71

 

 
11,533

CMBS
9,279

 
236

 
48

 

 
9,467

 
9,045

 
115

 
122

 

 
9,038

Total fixed maturity securities AFS
$
288,559


$
22,662


$
2,840


$
(29
)

$
308,410


$
286,816


$
17,404


$
5,980


$
(25
)

$
298,265

__________________
(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 AFS with an estimated fair value of $33 million and $15 million, and unrealized gains (losses) of less than $1 million and ($1) million, at March 31, 2019 and December 31, 2018, respectively.
Maturities of Fixed Maturity Securities AFS
The amortized cost and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at March 31, 2019:
 
 
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 AFS
 
 
(In millions)
Amortized cost
 
$
14,608

 
$
53,506

 
$
58,491

 
$
112,601

 
$
49,353

 
$
288,559

Estimated fair value
 
$
14,625

 
$
55,316

 
$
61,515

 
$
126,496

 
$
50,458

 
$
308,410

Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.

22

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position at:
 
 
March 31, 2019
 
December 31, 2018
 
 
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)
U.S. corporate
 
$
8,538

 
$
249

 
$
10,555

 
$
538

 
$
32,430

 
$
1,663

 
$
5,826

 
$
617

Foreign government
 
1,661

 
108

 
2,424

 
169

 
4,392

 
243

 
2,902

 
228

Foreign corporate
 
8,306

 
505

 
7,914

 
694

 
19,564

 
1,230

 
5,765

 
795

U.S. government and agency
 
2,579

 
4

 
7,550

 
220

 
6,813

 
58

 
8,937

 
406

RMBS
 
1,404

 
26

 
8,291

 
150

 
6,506

 
120

 
6,423

 
248

ABS
 
6,582

 
64

 
817

 
17

 
8,230

 
138

 
392

 
16

Municipals
 
129

 
3

 
518

 
16

 
1,380

 
46

 
349

 
25

CMBS
 
1,615

 
9

 
1,067

 
39

 
3,893

 
67

 
707

 
55

Total fixed maturity securities AFS
 
$
30,814

 
$
968

 
$
39,136

 
$
1,843

 
$
83,208

 
$
3,565

 
$
31,301

 
$
2,390

Total number of securities in an unrealized loss position
 
3,008

 

 
3,153

 

 
6,913

 

 
2,335

 

Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS
As described more fully in Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, including fixed maturity securities AFS and perpetual hybrid securities, in accordance with its impairment policy, in order to evaluate whether such investments are other-than-temporarily impaired.
Current Period Evaluation
Based on the Company’s current evaluation of its 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 March 31, 2019. 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 and foreign currency exchange rates. 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 AFS decreased $3.1 billion for the three months ended March 31, 2019 to $2.8 billion. The decrease in gross unrealized losses for the three months ended March 31, 2019 was primarily attributable to decreases in interest rates, narrowing credit spreads and, to a lesser extent, the impact of strengthening foreign currencies on non-functional currency denominated fixed maturity securities AFS.
At March 31, 2019, $113 million of the total $2.8 billion of gross unrealized losses were from 37 fixed maturity securities AFS with an unrealized loss position of 20% or more of amortized cost for six months or greater.

23

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Investment Grade Fixed Maturity Securities AFS
Of the $113 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $76 million, or 67%, were related to gross unrealized losses on 20 investment grade fixed maturity securities AFS. Unrealized losses on investment grade fixed maturity securities AFS are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities AFS, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities AFS
Of the $113 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $37 million, or 33%, were related to gross unrealized losses on 17 below investment grade fixed maturity securities AFS. Unrealized losses on below investment grade fixed maturity securities AFS are principally related to CMBS and foreign government securities and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty. Management evaluates CMBS based on actual and projected cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, the payment terms of the underlying assets backing a particular security and the payment priority within the tranche structure of the security and evaluates foreign government securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuers.
Equity Securities
Equity securities are summarized as follows at:
 
March 31, 2019
 
December 31, 2018
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
 
(Dollars in millions)
Common stock
$
1,016

 
70.9
%
 
$
1,037

 
72.0
%
Non-redeemable preferred stock
416

 
29.1

 
403

 
28.0

Total equity securities
$
1,432

 
100.0
%
 
$
1,440

 
100.0
%
Contractholder-Directed Equity Securities and Fair Value Option Securities
As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report, contractholder-directed equity securities and fair value option (“FVO”) securities (“FVO Securities”) (collectively, “Unit-linked and FVO Securities”) include three categories of investments for which the FVO has been elected, or are otherwise required to be carried at estimated fair value.

24

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
March 31, 2019
 
December 31, 2018
 
Carrying Value
 
% of
Total
 
Carrying Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
49,960

 
63.6
 %
 
$
48,463

 
64.0
 %
Agricultural
15,130

 
19.2

 
14,905

 
19.7

Residential
13,585

 
17.3

 
12,427

 
16.4

Total recorded investment
78,675

 
100.1

 
75,795

 
100.1

Valuation allowances
(350
)
 
(0.5
)
 
(342
)
 
(0.5
)
Subtotal mortgage loans, net
78,325

 
99.6

 
75,453

 
99.6

Residential — FVO
276

 
0.4

 
299

 
0.4

Total mortgage loans, net
$
78,601

 
100.0
 %
 
$
75,752

 
100.0
 %
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential mortgage loans — FVO is presented in Note 7. The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis.
The amount of net discounts, included within total recorded investment, primarily attributable to residential mortgage loans, was $1.0 billion and $944 million at March 31, 2019 and December 31, 2018, respectively.
Purchases of mortgage loans, primarily residential, were $1.4 billion and $307 million for the three months ended March 31, 2019 and 2018, respectively.
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:
 
 
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
 
 
(In millions)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$

 
$

 
$

 
$

 
$

 
$
49,960

 
$
245

 
$

Agricultural
 
31

 
31

 
3

 
93

 
92

 
15,007

 
44

 
120

Residential
 

 

 

 
447

 
400

 
13,185

 
58

 
400

Total
 
$
31


$
31


$
3


$
540


$
492


$
78,152


$
347


$
520

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$

 
$

 
$

 
$

 
$

 
$
48,463

 
$
238

 
$

Agricultural
 
31

 
31

 
3

 
169

 
169

 
14,705

 
43

 
197

Residential
 

 

 

 
431

 
386

 
12,041

 
58

 
386

Total
 
$
31


$
31


$
3


$
600


$
555


$
75,209


$
339


$
583


25

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $0, $161 million and $393 million, respectively, for the three months ended March 31, 2019; and $0, $84 million and $331 million, respectively, for the three months ended March 31, 2018.
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
Commercial
 
Agricultural
 
Residential
 
Total
 
Commercial
 
Agricultural
 
Residential
 
Total
 
(In millions)
Balance, beginning of period
$
238

 
$
46

 
$
58

 
$
342

 
$
214

 
$
41

 
$
59

 
$
314

Provision (release)
7

 
1

 
2

 
10

 
14

 

 

 
14

Charge-offs, net of recoveries

 

 
(2
)
 
(2
)
 

 

 
(1
)
 
(1
)
Balance, end of period
$
245


$
47


$
58


$
350


$
228


$
41


$
58


$
327


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
 
 
 
% of
Total
 
 
 
> 1.20x
 
1.00x - 1.20x
 
< 1.00x
 
Total
 
 
 
(Dollars in millions)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
41,921

 
$
800

 
$
132

 
$
42,853

 
85.8
%
 
$
43,759

 
86.0
%
65% to 75%
 
5,682

 
26

 
1

 
5,709

 
11.4

 
5,758

 
11.3

76% to 80%
 
397

 
268

 
55

 
720

 
1.4

 
698

 
1.4

Greater than 80%
 
502

 
176

 

 
678

 
1.4

 
646

 
1.3

Total
 
$
48,502


$
1,270


$
188


$
49,960


100.0
%

$
50,861


100.0
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
40,360

 
$
827

 
$
101

 
$
41,288

 
85.2
%
 
$
41,599

 
85.3
%
65% to 75%
 
5,790

 

 
25

 
5,815

 
12.0

 
5,849

 
12.0

76% to 80%
 
423

 
209

 
56

 
688

 
1.4

 
664

 
1.4

Greater than 80%
 
496

 
176

 

 
672

 
1.4

 
635

 
1.3

Total
 
$
47,069


$
1,212


$
182


$
48,463

 
100.0
%
 
$
48,747

 
100.0
%

26

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
 
 
March 31, 2019
 
December 31, 2018
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
 
Less than 65%
 
$
14,091

 
93.1
%
 
$
13,704

 
92.0
%
65% to 75%
 
1,018

 
6.7

 
1,145

 
7.7

76% to 80%
 

 

 
33

 
0.2

Greater than 80%
 
21

 
0.2

 
23

 
0.1

Total
 
$
15,130

 
100.0
%
 
$
14,905

 
100.0
%
The estimated fair value of agricultural mortgage loans was $15.2 billion and $14.9 billion at March 31, 2019 and December 31, 2018, respectively.
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
 
March 31, 2019
 
December 31, 2018
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
 
Performing
 
$
13,102

 
96.4
%
 
$
11,956

 
96.2
%
Nonperforming (1)
 
483

 
3.6

 
471

 
3.8

Total
 
$
13,585

 
100.0
%
 
$
12,427

 
100.0
%
__________________
(1)
Includes residential mortgage loans in process of foreclosure of $140 million at both March 31, 2019 and December 31, 2018.
The estimated fair value of residential mortgage loans was $13.9 billion and $12.7 billion at March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018. 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
 
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Commercial
 
$
1

 
$
9

 
$
1

 
$
9

 
$
176

 
$
176

Agricultural
 
134

 
204

 
39

 
109

 
105

 
105

Residential
 
483

 
471

 
40

 
35

 
443

 
436

Total
 
$
618

 
$
684

 
$
80

 
$
153

 
$
724

 
$
717


27

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Real Estate and Real Estate Joint Ventures
The Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, operating income and equity method income from real estate joint ventures. Real estate investments, by income type, as well as income earned, are as follows at and for the periods indicated:
 
March 31, 2019
 
December 31, 2018
 
Three Months
Ended
March 31,
 
 
 
2019
 
2018
 
Carrying Value
 
Income
 
(In millions)
Leased real estate investments
$
4,372

 
$
4,132

 
$
92

 
$
104

Other real estate investments
476

 
461

 
34

 
33

Real estate joint ventures
5,174

 
5,105

 
4

 
31

Total real estate and real estate joint ventures
$
10,022

 
$
9,698

 
$
130

 
$
168

The carrying value of real estate investments acquired through foreclosure was $44 million and $45 million at March 31, 2019 and December 31, 2018, respectively. Depreciation expense on real estate investments was $23 million and $26 million for the three months ended March 31, 2019 and 2018, respectively. Real estate investments were net of accumulated depreciation of $963 million and $931 million at March 31, 2019 and December 31, 2018, respectively.
Leases
Leased Real Estate Investments - Operating Leases
The Company, as lessor, leases investment real estate, principally commercial real estate for office and retail use, through a variety of operating lease arrangements, which typically include tenant reimbursement for property operating costs and options to renew or extend the lease. In some circumstances, leases may include an option for the lessee to purchase the property. In addition, certain leases of retail space may stipulate that a portion of the income earned is contingent upon the level of the tenants’ revenues. The Company has elected a practical expedient of not separating non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs have the same timing and pattern of transfer as the related lease component, because they are incurred over the same period of time as the operating lease. Therefore, the combined component is accounted for as an operating lease. Risk is managed through lessee credit analysis, property type diversification, and geographic diversification, primarily across the United States. Leased real estate investments and income earned, by property type, are as follows at and for the periods indicated:
 
March 31, 2019
 
December 31, 2018
 
Three Months
Ended
March 31,
 
 
 
2019
 
2018
 
Carrying Value
 
Income
 
(In millions)
Leased real estate investments:
 
 
 
 
 
 
 
Office
$
2,124

 
$
1,999

 
$
44

 
$
45

Retail
1,090

 
1,006

 
24

 
26

Apartment
250

 
253

 
5

 
18

Industrial
275

 
223

 
11

 
9

Land
473

 
489

 
5

 
5

Hotel
93

 
94

 
2

 

Other
67

 
68

 
1

 
1

Total leased real estate investments
$
4,372

 
$
4,132

 
$
92

 
$
104


28

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Future contractual receipts under operating leases at March 31, 2019 are $228 million for the remainder of 2019, $243 million in 2020, $191 million in 2021, $162 million in 2022, $140 million in 2023, $974 million thereafter, and in total are $1.9 billion.
Leveraged and Direct Financing Leases
The Company has diversified leveraged lease and direct financing lease portfolios. Its leveraged leases principally include renewable energy generation facilities, rail cars, commercial real estate and commercial aircraft, and its direct financing leases principally include commercial real estate. These assets are leased through a variety of lease arrangements, which may include options to renew or extend the lease and options for the lessee to purchase the property. Residual values are estimated using available third-party data at inception of the lease. Risk is managed through lessee credit analysis, asset allocation, geographic diversification, and ongoing reviews of estimated residual values, using available third-party data and, in certain leases, linking the amount of future rental receipts to changes in inflation rates. Generally, estimated residual values are not guaranteed by the lessee or a third party.
Investment in leveraged and direct financing leases consisted of the following at:
 
March 31, 2019
 
December 31, 2018
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
(In millions)
Lease receivables, net (1)
$
711

 
$
1,951

 
$
715

 
$
1,855

Estimated residual values
807

 
42

 
807

 
42

Subtotal
1,518

 
1,993

 
1,522

 
1,897

Unearned income
(403
)
 
(716
)
 
(414
)
 
(705
)
Investment in leases
$
1,115

 
$
1,277

 
$
1,108

 
$
1,192

__________________
(1)
Future contractual receipts under direct financing leases at March 31, 2019 are $84 million for the remainder of 2019, $106 million in 2020, $105 million in 2021, $109 million in 2022, $102 million in 2023, $1.4 billion thereafter, and in total $2.0 billion.
Lease 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 generally range from one to 25 years but in certain circumstances can be over 25 years. For lease receivables, the primary credit quality indicator is whether the lease receivable is performing or nonperforming, which is assessed monthly. The Company generally defines nonperforming lease receivables as those that are 90 days or more past due. At both March 31, 2019 and December 31, 2018, all leveraged lease receivables were performing and over 99% of direct financing lease receivables were performing.
The Company’s deferred income tax liability related to leveraged leases was $515 million and $519 million at March 31, 2019 and December 31, 2018, respectively.

29

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

The components of income from investment in leveraged and direct financing leases, excluding net investment gains (losses), were as follows:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
Leveraged Leases
 
Direct Financing Leases
 
Leveraged Leases
 
Direct Financing Leases
 
(In millions)
Lease investment income
$
12

 
$
19

 
$
11

 
$
20

Less: Income tax expense
4

 
4

 
4

 
4

Lease investment income, net of income tax
$
8

 
$
15

 
$
7

 
$
16

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 $8.0 billion and $9.0 billion at March 31, 2019 and December 31, 2018, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities AFS and derivatives and the effect on DAC, VOBA, deferred sales inducements (“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:
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Fixed maturity securities AFS
 
$
19,723

 
$
11,356

Fixed maturity securities AFS with noncredit OTTI losses included in AOCI
 
29

 
25

Total fixed maturity securities AFS
 
19,752

 
11,381

Derivatives
 
2,114

 
2,127

Other
 
266

 
290

Subtotal
 
22,132

 
13,798

Amounts allocated from:
 
 
 
 
Future policy benefits
 
(222
)
 
31

DAC, VOBA and DSI
 
(1,912
)
 
(1,231
)
Policyholder dividend obligation
 
(1,116
)
 
(428
)
Subtotal
 
(3,250
)
 
(1,628
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
 
(4
)
 
(3
)
Deferred income tax benefit (expense)
 
(5,004
)
 
(3,502
)
Net unrealized investment gains (losses)
 
13,874

 
8,665

Net unrealized investment gains (losses) attributable to noncontrolling interests
 
(12
)
 
(10
)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
 
$
13,862

 
$
8,655


30

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

The changes in net unrealized investment gains (losses) were as follows:
 
Three Months
Ended
March 31, 2019
 
(In millions)
Balance, beginning of period
$
8,655

Cumulative effects of changes in accounting principles, net of income tax (Note 1)
21

Fixed maturity securities AFS on which noncredit OTTI losses have been recognized
4

Unrealized investment gains (losses) during the period
8,304

Unrealized investment gains (losses) relating to:
 
Future policy benefits
(253
)
DAC, VOBA and DSI
(681
)
Policyholder dividend obligation
(688
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
(1
)
Deferred income tax benefit (expense)
(1,497
)
Net unrealized investment gains (losses)
13,864

Net unrealized investment gains (losses) attributable to noncontrolling interests
(2
)
Balance, end of period
$
13,862

Change in net unrealized investment gains (losses)
$
5,209

Change in net unrealized investment gains (losses) attributable to noncontrolling interests
(2
)
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
$
5,207

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, at estimated fair value at March 31, 2019 and December 31, 2018, were in fixed income securities of the Japanese government and its agencies of $31.7 billion and $30.2 billion, respectively, and in fixed income securities of the South Korean government and its agencies of $7.2 billion and $7.1 billion, respectively.
Securities Lending and Repurchase Agreements
Securities, Collateral and Reinvestment Portfolio
A summary of the securities lending and repurchase agreements transactions is as follows:
 
March 31, 2019
 
December 31, 2018
 
Securities on Loan (1)
 
 
 
 
 
Securities on Loan (1)
 
 
 
Amortized Cost
 
Estimated Fair Value
 
Cash Collateral Received from Counterparties (2), (3)
 
Reinvestment Portfolio at Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
 
Cash Collateral Received from Counterparties (2), (3)
 
Reinvestment Portfolio at Estimated Fair Value
 
(In millions)
Securities lending
$
16,716

 
$
17,923

 
$
18,283

 
$
18,319

 
$
16,969

 
$
17,724

 
$
18,005

 
$
18,074

Repurchase agreements
$
1,838

 
$
1,965

 
$
1,930

 
$
1,945

 
$
1,033

 
$
1,093

 
$
1,067

 
$
1,069

__________________
(1)
Securities on loan in connection with securities lending are included within fixed maturities securities AFS and short-term investments and securities on loan in connection with repurchase agreements are included within fixed maturities securities AFS and short-term investments.

31

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

(2)
In connection with securities lending, in addition to cash collateral received, the Company received from counterparties security collateral of $71 million and $78 million at March 31, 2019 and December 31, 2018, respectively, which may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.
(3)
The securities lending liability for cash collateral is included within payables for collateral under securities loaned and other transactions, and the repurchase agreements liability for cash collateral is included within payables for collateral under securities loaned and other transactions and other liabilities.
Contractual Maturities
A summary of the remaining contractual maturities of securities lending agreements and repurchase agreements is as follows:
 
March 31, 2019
 
December 31, 2018
 
Remaining Maturities
 
 
 
Remaining Maturities
 
 
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities lending:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
3,532

 
$
5,000

 
$
8,650

 
$
17,182

 
$
2,736

 
$
8,995

 
$
5,220

 
$
16,951

Foreign government

 
204

 
818

 
1,022

 

 
214

 
761

 
975

Agency RMBS

 
79

 

 
79

 

 
79

 

 
79

Total
$
3,532

 
$
5,283

 
$
9,468

 
$
18,283

 
$
2,736

 
$
9,288

 
$
5,981

 
$
18,005

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$

 
$
1,860

 
$

 
$
1,860

 
$

 
$
1,000

 
$

 
$
1,000

All other corporate and government

 

 
70

 
70

 

 

 
67

 
67

Total
$

 
$
1,860

 
$
70

 
$
1,930

 
$

 
$
1,000

 
$
67

 
$
1,067

__________________
(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. The estimated fair value of the securities on loan related to this cash collateral at March 31, 2019 was $3.5 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.
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 securities lending and repurchase agreements reinvestment portfolios acquired with the cash collateral consisted principally of high quality, liquid, publicly-traded fixed maturity securities AFS, 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.

32

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Federal Home Loan Bank of Boston Advance Agreements
At both March 31, 2019 and December 31, 2018, a subsidiary of the Company had pledged municipals with an estimated fair value of $1.2 billion, as collateral and received $800 million, in cash advances under short-term advance agreements with the Federal Home Loan Bank (“FHLB”) of Boston. The liability to return the cash advances is included within payables for collateral under securities loaned and other transactions. The estimated fair value of the reinvestment portfolio acquired with the cash advances was $812 million and $799 million at March 31, 2019 and December 31, 2018, respectively, and consisted primarily of Structured Securities, U.S. and foreign corporate securities and U.S. government and agency securities. At both March 31, 2019 and December 31, 2018, the reinvestment portfolio also included a $33 million, at redemption value, required investment in FHLB of 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.
The cash advance liability by loaned security type and remaining contractual maturities of the agreements was as follows at:
 
 
March 31, 2019
 
December 31, 2018
 
 
Remaining Maturities
 
 
 
Remaining Maturities
 
 
 
 
1 Month
or Less
 
Over
1 to 6 Months
 
6 Months to 1 Year
 
Total
 
1 Month
or Less
 
Over
1 to 6 Months
 
6 Months to 1 Year
 
Total
 
 
(In millions)
Cash advance liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipals
 
$
275

 
$
525

 
$

 
$
800

 
$
150

 
$
650

 
$

 
$
800

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:
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Invested assets on deposit (regulatory deposits)
 
$
1,898

 
$
1,788

Invested assets held in trust (collateral financing arrangement and reinsurance agreements)
 
3,262

 
2,971

Invested assets pledged as collateral (1)
 
24,471

 
24,168

Total invested assets on deposit, held in trust and pledged as collateral
 
$
29,631


$
28,927

__________________
(1)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements, secured debt, a collateral financing arrangement (see Notes 4, 12 and 13 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report) and derivative transactions (see Note 6).
See “— Securities Lending and Repurchase Agreements” for information regarding securities supporting securities lending and repurchase agreement transactions and Note 4 for information regarding investments designated to the closed block. In addition, the restricted investment in FHLB common stock was $793 million, at redemption value, at both March 31, 2019 and December 31, 2018.
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.

33

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

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:
 
 
March 31, 2019
 
December 31, 2018
 
 
Total
Assets
 
Total
Liabilities
 
Total
Assets
 
Total
Liabilities
 
 
(In millions)
Renewable energy partnership (1)
 
$
103

 
$

 
$
102

 
$

Investment funds (2)
 
117

 
1

 
79

 
1

Other investments (1)
 
20

 
5

 
21

 
5

Total
 
$
240


$
6


$
202


$
6

__________________
(1)
Assets of the renewable energy partnership and other investments primarily consisted of other invested assets.
(2)
Assets of the investment funds primarily consisted of other invested assets at March 31, 2019 and cash and cash equivalents at December 31, 2018.
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:
 
 
March 31, 2019
 
December 31, 2018
 
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
 
(In millions)
Fixed maturity securities AFS:
 
 
 
 
 
 
 
 
Structured Securities (2)
 
$
48,865

 
$
48,865

 
$
47,874

 
$
47,874

U.S. and foreign corporate
 
1,127

 
1,127

 
932

 
932

Foreign government
 
137

 
137

 

 

Other limited partnership interests
 
5,772

 
10,573

 
5,641

 
9,888

Other invested assets
 
1,825

 
1,960

 
1,906

 
2,063

Other investments
 
349

 
421

 
296

 
300

Total
 
$
58,075


$
63,083


$
56,649


$
61,057

__________________
(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 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 $76 million and $94 million at March 31, 2019 and December 31, 2018, 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.
As described in Note 14, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs for both the three months ended March 31, 2019 and 2018.

34

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Net Investment Income
The components of net investment income were as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
(In millions)
Investment income:
 
 
 
 
Fixed maturity securities AFS
 
$
2,939

 
$
2,896

Equity securities
 
17

 
16

FVO Securities (1)
 
55

 
6

Mortgage loans
 
912

 
792

Policy loans
 
128

 
124

Real estate and real estate joint ventures
 
130

 
168

Other limited partnership interests
 
123

 
207

Cash, cash equivalents and short-term investments
 
128

 
72

Operating joint ventures
 
18

 
13

Other
 
78

 
106

Subtotal
 
4,528

 
4,400

Less: Investment expenses
 
356

 
302

Subtotal, net
 
4,172

 
4,098

Unit-linked investments (1)
 
736

 
(353
)
Net investment income
 
$
4,908

 
$
3,745

__________________
(1)
Changes in estimated fair value subsequent to purchase for investments still held as of the end of the respective periods included in net investment income were principally from contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit-linked investments”), and were $648 million and ($373) million for the three months ended March 31, 2019 and 2018, respectively.
The Company invests in real estate joint ventures, other limited partnership interests and tax credit and renewable energy partnerships, and also does business through certain operating joint ventures, the majority of which are accounted for under the equity method. Net investment income from other limited partnership interests and operating joint ventures, accounted for under the equity method, and real estate joint ventures and tax credit and renewable energy partnerships, primarily accounted for under the equity method, totaled $89 million and $205 million for the three months ended March 31, 2019 and 2018, respectively.

35

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Net Investment Gains (Losses)
Components of Net Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
(In millions)
Total gains (losses) on fixed maturity securities AFS:
 
 
 
 
Total OTTI losses recognized — by sector and industry:
 
 
 
 
U.S. and foreign corporate securities — by industry:
 
 
 
 
Industrial
 
$
(8
)
 
$

Total U.S. and foreign corporate securities
 
(8
)
 

RMBS
 
(2
)
 

OTTI losses on fixed maturity securities AFS recognized in earnings
 
(10
)
 

Fixed maturity securities AFS — net gains (losses) on sales and disposals
 
(14
)
 
(95
)
Total gains (losses) on fixed maturity securities AFS
 
(24
)
 
(95
)
Total gains (losses) on equity securities:
 
 
 
 
Equity securities — net gains (losses) on sales and disposals
 
43

 
102

Change in estimated fair value of equity securities (1)
 
64

 
(133
)
Total gains (losses) on equity securities
 
107

 
(31
)
Mortgage loans
 
(15
)
 
(21
)
Real estate and real estate joint ventures
 
5

 
25

Other (2)
 
(68
)
 
(130
)
Subtotal
 
5

 
(252
)
Change in estimated fair value of other limited partnership interests and real estate joint ventures
 
(15
)
 
(5
)
Non-investment portfolio gains (losses) (3)
 
25

 
(76
)
Subtotal
 
10

 
(81
)
Total net investment gains (losses)
 
$
15

 
$
(333
)
__________________
(1)
Changes in estimated fair value subsequent to purchase for equity securities still held as of the end of the period included in net investment gains (losses) were $97 million and ($37) million for the three months ended March 31, 2019 and 2018, respectively.
(2)
Other gains (losses) for the three months ended March 31, 2019, included tax credit partnership impairment losses of ($78) million and renewable energy partnership disposal gains of $46 million. Other gains (losses) for the three months ended March 31, 2018, included leveraged lease impairment losses of ($105) million.
(3)
Non-investment portfolio gains (losses) for the three months ended March 31, 2018, included a loss of $168 million which represents the change in estimated fair value of Brighthouse Financial, Inc. common stock held by the Company.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were $14 million and $65 million for the three months ended March 31, 2019 and 2018, respectively.

36

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)

Sales or Disposals and Impairments of Fixed Maturity Securities AFS
Sales of securities are determined on a specific identification basis. Proceeds from sales or disposals and the components of net investment gains (losses) were as shown in the table below:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Proceeds
$
15,825

 
$
19,070

Gross investment gains
$
205

 
$
106

Gross investment losses
(219
)
 
(201
)
OTTI losses
(10
)
 

Net investment gains (losses)
$
(24
)
 
$
(95
)
Credit Loss Rollforward of Fixed Maturity Securities AFS
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities AFS still held for which a portion of the OTTI loss was recognized in OCI:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Balance, beginning of period
$
89

 
$
138

Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI
(3
)
 
(9
)
Increase in cash flows — accretion of previous credit loss OTTI
(1
)
 
(1
)
Balance, end of period
$
85

 
$
128


37

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

6. Derivatives
Accounting for Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivative’s carrying value in other invested assets or other liabilities.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in net derivative gains (losses) except as follows:
Statement of Operations Presentation:
Derivative:
Policyholder benefits and claims
Economic hedges of variable annuity guarantees included in future policy benefits
Net investment income
Economic hedges of equity method investments in joint ventures
 
Derivatives held within 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 the same line item as the earnings effect of the hedged item. The carrying value of the hedged recognized asset or liability is adjusted for changes in its estimated fair value due to the hedged risk.
Cash flow hedge - a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability - in OCI and reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
Net investment in a foreign operation (“NIFO”) hedge - in OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation.
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. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.

38

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurring, 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 of occurring are recognized immediately in net investment gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company 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.
Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
See Note 7 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.

39

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

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 securities AFS. 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 a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.
A synthetic 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 contractholder owns the underlying assets. The Company guarantees a rate of return on those assets for a premium. Synthetic GICs are not designated as hedging instruments.

40

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

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, NIFO hedges 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 non-U.S. subsidiaries. The Company utilizes currency options in NIFO hedges 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.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency, or other fixed maturity securities AFS. These credit default swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.

41

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

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 a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.

42

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. 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:
 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
Primary Underlying Risk Exposure
 
Gross
Notional
Amount
 
Estimated Fair Value
 
Gross
Notional
Amount
 
Estimated Fair Value
 
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
 
(In millions)
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
$
2,421

 
$
2,355

 
$
2

 
$
2,446

 
$
2,197

 
$
2

Foreign currency swaps
 
Foreign currency exchange rate
 
1,380

 
34

 
9

 
1,233

 
54

 

Foreign currency forwards
 
Foreign currency exchange rate
 
2,007

 
1

 
30

 
2,140

 
28

 
18

Subtotal
 
 
 
5,808

 
2,390

 
41

 
5,819

 
2,279

 
20

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
3,882

 
164

 
6

 
3,515

 
143

 
1

Interest rate forwards
 
Interest rate
 
2,935

 

 
117

 
3,022

 

 
216

Foreign currency swaps
 
Foreign currency exchange rate
 
34,976

 
1,520

 
1,598

 
35,931

 
1,796

 
1,831

Subtotal
 
 
 
41,793

 
1,684

 
1,721

 
42,468

 
1,939

 
2,048

NIFO hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forwards
 
Foreign currency exchange rate
 
782

 
9

 
35

 
960

 
4

 
27

Currency options
 
Foreign currency exchange rate
 
3,180

 
12

 
97

 
5,137

 
3

 
202

Subtotal
 
 
 
3,962

 
21

 
132

 
6,097

 
7

 
229

Total qualifying hedges
 
51,563

 
4,095

 
1,894

 
54,384

 
4,225

 
2,297

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
54,331

 
2,144

 
145

 
54,891

 
1,796

 
175

Interest rate floors
 
Interest rate
 
12,701

 
106

 

 
12,701

 
102

 

Interest rate caps
 
Interest rate
 
51,138

 
82

 

 
54,575

 
154

 
1

Interest rate futures
 
Interest rate
 
2,099

 

 
4

 
2,353

 
1

 
3

Interest rate options
 
Interest rate
 
26,689

 
532

 

 
26,690

 
416

 

Interest rate forwards
 
Interest rate
 
235

 
2

 
11

 
234

 
1

 
15

Interest rate total return swaps
 
Interest rate
 
1,048

 
44

 

 
1,048

 
33

 
2

Synthetic GICs
 
Interest rate
 
26,501

 

 

 
25,700

 

 

Foreign currency swaps
 
Foreign currency exchange rate
 
13,109

 
830

 
618

 
11,388

 
884

 
458

Foreign currency forwards
 
Foreign currency exchange rate
 
13,064

 
58

 
264

 
13,417

 
198

 
213

Currency futures
 
Foreign currency exchange rate
 
860

 

 
3

 
847

 
4

 

Currency options
 
Foreign currency exchange rate
 
1,980

 
4

 

 
2,040

 
7

 

Credit default swaps — purchased
 
Credit
 
2,248

 
17

 
63

 
1,903

 
25

 
39

Credit default swaps — written
 
Credit
 
11,409

 
198

 
3

 
11,391

 
95

 
13

Equity futures
 
Equity market
 
3,687

 
3

 
18

 
2,992

 
13

 
77

Equity index options
 
Equity market
 
27,880

 
663

 
649

 
27,707

 
884

 
550

Equity variance swaps
 
Equity market
 
2,269

 
43

 
92

 
2,269

 
40

 
87

Equity total return swaps
 
Equity market
 
767

 
1

 
52

 
929

 
91

 

Total non-designated or nonqualifying derivatives
 
252,015

 
4,727

 
1,922

 
253,075

 
4,744

 
1,633

Total
 
 
 
$
303,578

 
$
8,822

 
$
3,816

 
$
307,459

 
$
8,969

 
$
3,930


43

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. 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 March 31, 2019 and December 31, 2018. 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.

44

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

The Effects of Derivatives on the Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
The following table presents the consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow, NIFO, nonqualifying hedging relationships and embedded derivatives:
 
 
Three Months Ended March 31, 2019
 
 
Net Investment Income
 
Net Investment Gains (Losses)
 
Net Derivative Gains (Losses)
 
Policyholder Benefits and Claims
 
Interest Credited to Policyholder Account Balances
 
Other Expenses
 
OCI
 
 
(In millions)
Gain (Loss) on Fair Value Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments (1)
 
$
(3
)
 
$

 
$

 
$
127

 
$

 
$

 
N/A

Hedged items
 
3

 

 

 
(128
)
 

 

 
N/A

Foreign currency exchange rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments (1)
 
(30
)
 
(14
)
 

 

 

 

 
N/A

Hedged items
 
29

 
12

 

 

 

 

 
N/A

Amount excluded from the assessment of hedge effectiveness
 

 
(16
)
 

 

 

 

 
N/A

Subtotal
 
(1
)

(18
)



(1
)
 

 

 
N/A

Gain (Loss) on Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
252

Amount of gains (losses) reclassified from AOCI into income
 
5

 
(6
)
 

 

 

 
1

 

Foreign currency exchange rate derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(241
)
Amount of gains (losses) reclassified from AOCI into income
 
(2
)
 
25

 

 

 

 

 
(23
)
Foreign currency transaction gains (losses) on hedged items
 

 
(35
)
 

 

 

 

 

Credit derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 

Amount of gains (losses) reclassified from AOCI into income
 

 
1

 

 

 

 

 
(1
)
Subtotal
 
3

 
(15
)
 

 

 

 
1

 
(13
)
Gain (Loss) on NIFO Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange rate derivatives (1)
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(6
)
Subtotal
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(6
)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives (1)
 
(1
)
 

 
409

 
19

 

 

 
N/A

Foreign currency exchange rate derivatives (1)
 

 

 
(142
)
 
3

 

 

 
N/A

Credit derivatives — purchased (1)
 

 

 
(15
)
 

 

 

 
N/A

Credit derivatives — written (1)
 

 

 
136

 

 

 

 
N/A

Equity derivatives (1)
 

 

 
(667
)
 
(96
)
 

 

 
N/A

Foreign currency transaction gains (losses) on hedged items
 

 

 
82

 

 

 

 
N/A

Subtotal
 
(1
)
 

 
(197
)
 
(74
)
 

 

 
N/A

Earned income on derivatives
 
56

 

 
119

 
32

 
(32
)
 

 

Embedded derivatives (2)
 
N/A

 
N/A

 
193

 

 
N/A

 
N/A

 
N/A

Total
 
$
57

 
$
(33
)
 
$
115

 
$
(43
)
 
$
(32
)
 
$
1

 
$
(19
)

45

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

 
 
Three Months Ended March 31, 2018
 
 
Net Investment Income
 
Net Investment Gains (Losses)
 
Net Derivative Gains (Losses)
 
Policyholder Benefits and Claims
 
Interest Credited to Policyholder Account Balances
 
Other Expenses
 
OCI
 
 
(In millions)
Gain (Loss) on Fair Value Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments (1)
 
$

 
$

 
$
(210
)
 
$

 
$

 
$

 
N/A

Hedged items
 

 

 
210

 

 

 

 
N/A

Foreign currency exchange rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments (1)
 

 

 
170

 

 

 

 
N/A

Hedged items
 

 

 
(159
)
 

 

 

 
N/A

Amount excluded from the assessment of hedge effectiveness
 

 

 
(8
)
 

 

 

 
N/A

Subtotal
 

 

 
3

 

 

 

 
N/A

Gain (Loss) on Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
(277
)
Amount of gains (losses) reclassified from AOCI into income
 
4

 

 
21

 

 

 

 
(25
)
Foreign currency exchange rate derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(75
)
Amount of gains (losses) reclassified from AOCI into income
 

 

 
139

 

 

 
1

 
(140
)
Foreign currency transaction gains (losses) on hedged items
 

 

 
(138
)
 

 

 

 

Credit derivatives: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) deferred in AOCI
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 

Amount of gains (losses) reclassified from AOCI into income
 

 

 

 

 

 

 

Subtotal
 
4

 

 
22

 

 

 
1

 
(517
)
Gain (Loss) on NIFO Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange rate derivatives (1)
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(157
)
Subtotal
 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
(157
)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives (1)
 
4

 

 
(235
)
 
(7
)
 

 

 
N/A

Foreign currency exchange rate derivatives (1)
 

 

 
387

 
2

 

 

 
N/A

Credit derivatives — purchased (1)
 

 

 
(3
)
 

 

 

 
N/A

Credit derivatives — written (1)
 

 

 
(44
)
 

 

 

 
N/A

Equity derivatives (1)
 
1

 

 
98

 
12

 

 

 
N/A

Foreign currency transaction gains (losses) on hedged items
 

 

 
(49
)
 

 

 

 
N/A

Subtotal
 
5

 

 
154

 
7

 

 

 
N/A

Earned income on derivatives
 
81

 

 
133

 
2

 
(23
)
 
(2
)
 

Embedded derivatives (2)
 
N/A

 
N/A

 
37

 

 
N/A

 
N/A

 
N/A

Total
 
$
90

 
$

 
$
349

 
$
9

 
$
(23
)
 
$
(1
)
 
$
(674
)
__________________
(1)
Excludes earned income on derivatives.
(2)
The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were ($62) million and $20 million for the three months ended March 31, 2019 and 2018, respectively.

46

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (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.
The following table presents the balance sheet classification, carrying amount and cumulative fair value hedging adjustments for items designated and qualifying as hedged items in fair value hedges:
 
 
March 31, 2019
Balance Sheet Line Item
 
Carrying Amount
 of the Hedged
Assets/(Liabilities)
 
Cumulative Amount
of Fair Value Hedging Adjustments
Included in the Carrying Amount of Hedged
Assets/(Liabilities) (1)
 
 
(In millions)
Fixed maturity securities AFS
 
$
2,227

 
$
(1
)
Mortgage loans
 
$
1,245

 
$
(1
)
Future policy benefits
 
$
(5,399
)
 
$
(667
)
Policyholder account balances
 
$
(81
)
 
$

__________________
(1)
Includes ($1) million of hedging adjustments on discontinued hedging relationships.
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. The Company has elected to record changes in estimated fair value of excluded components in earnings. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (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.
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 investment gains (losses). These amounts were $1 million and $0 for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019 and December 31, 2018, 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 nine years and four years, respectively.
At both March 31, 2019 and December 31, 2018, the balance in AOCI associated with cash flow hedges was $2.1 billion.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At March 31, 2019, the Company expected to reclassify $71 million of deferred net gains (losses) on derivatives in AOCI to earnings within the next 12 months.
NIFO Hedges
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 assesses hedge effectiveness on these derivatives based upon the change in forward rates, and all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

47

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.
At March 31, 2019 and December 31, 2018, the cumulative foreign currency translation gain (loss) recorded in AOCI related to NIFO hedges was $178 million and $184 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 at both March 31, 2019 and December 31, 2018. 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 March 31, 2019 and December 31, 2018, the Company would have received $195 million and $82 million, respectively, to terminate all of these contracts.
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:
 
 
March 31, 2019
 
December 31, 2018
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)
 
$
5

 
$
391

 
1.5

 
$
4

 
$
354

 
1.7

Credit default swaps referencing indices
 
33

 
2,317

 
2.4

 
28

 
2,154

 
2.5

Subtotal
 
38

 
2,708

 
2.3

 
32

 
2,508

 
2.4

Baa
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
3

 
404

 
1.4

 
3

 
482

 
1.5

Credit default swaps referencing indices
 
133

 
7,957

 
5.3

 
40

 
8,056

 
5.0

Subtotal
 
136

 
8,361

 
5.1

 
43

 
8,538

 
4.8

Ba
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 

 
10

 
1.2

 

 
15

 
2.0

Credit default swaps referencing indices
 

 

 

 

 

 

Subtotal
 

 
10

 
1.2

 

 
15

 
2.0

B
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 

 

 

 

 

 

Credit default swaps referencing indices
 
21

 
330

 
5.2

 
7

 
330

 
5.0

Subtotal
 
21

 
330

 
5.2

 
7

 
330

 
5.0

Total
 
$
195

 
$
11,409

 
4.4

 
$
82

 
$
11,391

 
4.3

__________________
(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 Global Ratings (“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.

48

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

(3)
Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or state and political subdivisions.
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.
The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties 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 7 for a description of the impact of credit risk on the valuation of derivatives.

49

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
 
 
March 31, 2019
 
December 31, 2018
Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement 
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
(In millions)
Gross estimated fair value of derivatives:
 
 
 
 
 
 
 
 
OTC-bilateral (1)
 
$
8,485

 
$
3,747

 
$
8,805

 
$
3,758

OTC-cleared (1)
 
435

 
37

 
245

 
33

Exchange-traded
 
3

 
25

 
18

 
80

Total gross estimated fair value of derivatives presented on the interim condensed consolidated balance sheets (1)
 
8,923

 
3,809

 
9,068

 
3,871

Gross amounts not offset on the interim condensed consolidated balance sheets:
 
 
 
 
 
 
 
 
Gross estimated fair value of derivatives: (2)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(2,590
)
 
(2,590
)
 
(2,570
)
 
(2,570
)
OTC-cleared
 
(22
)
 
(22
)
 
(25
)
 
(25
)
Exchange-traded
 

 

 
(1
)
 
(1
)
Cash collateral: (3), (4)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(3,613
)
 

 
(4,709
)
 

OTC-cleared
 
(390
)
 
(6
)
 
(145
)
 

Exchange-traded
 

 
(12
)
 

 
(57
)
Securities collateral: (5)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(2,080
)
 
(1,126
)
 
(1,266
)
 
(1,134
)
OTC-cleared
 

 
(7
)
 

 
(8
)
Exchange-traded
 

 
(12
)
 

 
(7
)
Net amount after application of master netting agreements and collateral
 
$
228

 
$
34

 
$
352

 
$
69

__________________
(1)
At March 31, 2019 and December 31, 2018, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $101 million and $99 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of ($7) million and ($59) million, respectively.
(2)
Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
(3)
Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.
(4)
The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At March 31, 2019 and December 31, 2018, the Company received excess cash collateral of $139 million and $135 million, respectively, and provided excess cash collateral of $275 million and $226 million, respectively, which is not included in the table above due to the foregoing limitation.

50

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)

(5)
Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at March 31, 2019, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At March 31, 2019 and December 31, 2018, the Company received excess securities collateral with an estimated fair value of $74 million and $70 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At March 31, 2019 and December 31, 2018, the Company provided excess securities collateral with an estimated fair value of $173 million and $212 million, respectively, for its OTC-bilateral derivatives, and $639 million and $601 million, respectively, for its OTC-cleared derivatives, and $115 million and $90 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. 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. 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. At March 31, 2019, the amount of collateral not provided by the Company due to the existence of these thresholds was $15 million.
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. OTC-bilateral derivatives that are not subject to collateral agreements are excluded from this table.
 
 
March 31, 2019
 
December 31, 2018
 
 
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)
 
$
1,135

 
$
21

 
$
1,156

 
$
1,148

 
$
40

 
$
1,188

Estimated Fair Value of Collateral Provided:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities AFS
 
$
1,223

 
$
9

 
$
1,232

 
$
1,218

 
$
9

 
$
1,227

Cash
 
$

 
$

 
$

 
$
6

 
$

 
$
6

__________________
(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 and fixed annuities with equity-indexed returns.

51

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. 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:
 
 
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
 
 
 
 
(In millions)
Embedded derivatives within asset host contracts:
 
 
 
 
 
 
Ceded guaranteed minimum benefits
 
Premiums, reinsurance and other receivables
 
$
69

 
$
71

Embedded derivatives within liability host contracts:
 
 
 
 
 
 
Direct guaranteed minimum benefits
 
Policyholder account balances
 
$
182

 
$
298

Assumed guaranteed minimum benefits
 
Policyholder account balances
 
393

 
495

Funds withheld on ceded reinsurance
 
Other liabilities
 
4

 
(41
)
Fixed annuities with equity indexed returns
 
Policyholder account balances
 
95

 
58

Embedded derivatives within liability host contracts
 
$
674

 
$
810

7. Fair Value
When developing estimated fair values, 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.

52

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:
 
 
March 31, 2019
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities AFS:
 
 
 
 
 
 
 
 
U.S. corporate
 
$

 
$
75,935

 
$
4,211

 
$
80,146

Foreign government
 

 
64,798

 
157

 
64,955

Foreign corporate
 

 
53,194

 
6,751

 
59,945

U.S. government and agency
 
21,022

 
19,986

 

 
41,008

RMBS
 
20

 
25,102

 
3,238

 
28,360

ABS
 

 
12,167

 
464

 
12,631

Municipals
 

 
11,898

 

 
11,898

CMBS
 

 
9,100

 
367

 
9,467

Total fixed maturity securities AFS
 
21,042

 
272,180

 
15,188

 
308,410

Equity securities
 
901

 
97

 
434

 
1,432

Unit-linked and FVO Securities (1)
 
10,780

 
2,008

 
457

 
13,245

Short-term investments (2)
 
1,487

 
2,195

 
138

 
3,820

Residential mortgage loans — FVO
 

 

 
276

 
276

Other investments
 
81

 
134

 
168

 
383

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 

 
5,385

 
44

 
5,429

Foreign currency exchange rate
 

 
2,400

 
68

 
2,468

Credit
 

 
185

 
30

 
215

Equity market
 
3

 
652

 
55

 
710

Total derivative assets
 
3

 
8,622

 
197

 
8,822

Embedded derivatives within asset host contracts (4)
 

 

 
69

 
69

Separate account assets (5)
 
84,812

 
100,049

 
904

 
185,765

Total assets (6)
 
$
119,106

 
$
385,285

 
$
17,831

 
$
522,222

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
4

 
$
164

 
$
117

 
$
285

Foreign currency exchange rate
 
3

 
2,595

 
56

 
2,654

Credit
 

 
65

 
1

 
66

Equity market
 
18

 
701

 
92

 
811

Total derivative liabilities
 
25

 
3,525

 
266

 
3,816

Embedded derivatives within liability host contracts (4)
 

 

 
674

 
674

Separate account liabilities (5)
 
1

 
23

 
7

 
31

Total liabilities
 
$
26

 
$
3,548

 
$
947

 
$
4,521


53

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

 
 
December 31, 2018
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities AFS:
 
 
 
 
 
 
 
 
U.S. corporate
 
$

 
$
74,874

 
$
4,074

 
$
78,948

Foreign government
 

 
62,150

 
138

 
62,288

Foreign corporate
 

 
50,310

 
6,393

 
56,703

U.S. government and agency
 
19,656

 
19,666

 

 
39,322

RMBS
 

 
24,734

 
3,227

 
27,961

ABS
 

 
11,775

 
697

 
12,472

Municipals
 

 
11,533

 

 
11,533

CMBS
 

 
8,696

 
342

 
9,038

Total fixed maturity securities AFS
 
19,656

 
263,738

 
14,871

 
298,265

Equity securities
 
916

 
105

 
419

 
1,440

Unit-linked and FVO Securities (1)
 
10,216

 
1,995

 
405

 
12,616

Short-term investments (2)
 
1,470

 
1,746

 
33

 
3,249

Residential mortgage loans — FVO
 

 

 
299

 
299

Other investments
 
80

 
118

 
39

 
237

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 
1

 
4,809

 
33

 
4,843

Foreign currency exchange rate
 
4

 
2,922

 
52

 
2,978

Credit
 

 
91

 
29

 
120

Equity market
 
13

 
956

 
59

 
1,028

Total derivative assets
 
18

 
8,778

 
173

 
8,969

Embedded derivatives within asset host contracts (4)
 

 

 
71

 
71

Separate account assets (5)
 
79,726

 
94,886

 
944

 
175,556

Total assets (6)
 
$
112,082

 
$
371,366

 
$
17,254

 
$
500,702

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
3

 
$
194

 
$
218

 
$
415

Foreign currency exchange rate
 

 
2,660

 
89

 
2,749

Credit
 

 
48

 
4

 
52

Equity market
 
77

 
550

 
87

 
714

Total derivative liabilities
 
80

 
3,452

 
398

 
3,930

Embedded derivatives within liability host contracts (4)
 

 

 
810

 
810

Separate account liabilities (5)
 
1

 
20

 
7

 
28

Total liabilities
 
$
81

 
$
3,472

 
$
1,215

 
$
4,768

__________________
(1)
Unit-linked and FVO Securities were primarily comprised of Unit-linked investments at both March 31, 2019 and December 31, 2018.
(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.

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Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

(3)
Derivative assets are presented within other invested assets on the interim condensed consolidated balance sheets and derivative liabilities are presented within other liabilities on the interim condensed consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the interim condensed consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.
(4)
Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and other invested assets on the interim condensed consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities on the interim condensed consolidated balance sheets.
(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.
(6)
Total assets included in the fair value hierarchy excluded other limited partnership interests that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient. At March 31, 2019 and December 31, 2018, the estimated fair value of such investments was $113 million and $145 million, respectively.
The following describes the valuation methodologies used to measure assets and liabilities at fair value.
Investments
Securities, Short-term Investments and Other Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management’s judgment.
When quoted prices in active markets are not available, the determination of estimated fair value 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 other investments is determined on a basis consistent with the methodologies described herein for securities.
The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below. The primary valuation approaches are the market approach, which considers recent prices from market transactions involving identical or similar assets or liabilities, and the income approach, which converts expected future amounts (i.e., cash flows) to a single current, discounted amount. The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable inputs.


55

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Fixed maturity securities AFS
U.S. corporate and Foreign corporate securities
 
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market approach.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
illiquidity premium
 
benchmark yields; spreads off benchmark yields; new issuances; issuer 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 securities, U.S. government and agency securities and Municipals
 
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
 
 

56

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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
Unit-linked and FVO Securities, Short-term investments and Other investments
 
Unit-linked and FVO Securities 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.
Unit-linked and FVO Securities, short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS and equity securities described above; accordingly, the valuation approaches and unobservable inputs used in their valuation are also similar to those described above.
 
Short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS 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 adjusting, if appropriate.
 
 
 
Key Inputs:
 
 
 
liquidity; bid/ask spreads; performance record of the fund manager
 
 
 
other relevant variables that may impact the exit value of the particular partnership interest
__________________
(1)
Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, other limited partnership interests, 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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Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 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 Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 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, projecting future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.

59

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 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 Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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:
 
 
 
 
 
 
 
March 31, 2019
 
December 31, 2018
 
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 AFS (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate and foreign corporate
Matrix pricing
 
Offered quotes (4)
 
88
-
140
 
108
 
85
-
134
 
104
 
Increase
 
Market pricing
 
Quoted prices (4)
 
25
-
583
 
114
 
25
-
638
 
110
 
Increase
 
Consensus pricing
 
Offered quotes (4)
 
97
-
110
 
102
 
100
-
110
 
102
 
Increase
RMBS
Market pricing
 
Quoted prices (4)
 
-
108
 
95
 
-
106
 
94
 
Increase (5)
ABS
Market pricing
 
Quoted prices (4)
 
3
-
118
 
98
 
3
-
116
 
97
 
Increase (5)
 
Consensus pricing
 
Offered quotes (4)
 
98
-
104
 
101
 
100
-
103
 
101
 
Increase (5)
Derivatives
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Interest rate
Present value techniques
 
Swap yield (6)
 
240
-
322
 
 
 
268
-
317
 
 
 
Increase (7)
 
 
 
 
Repurchase rates (8)
 
(3)
-
20
 
 
 
(5)
-
6
 
 
 
Decrease (7)
Foreign currency exchange rate
Present value techniques
 
Swap yield (6)
 
(23)
-
328
 
 
 
(20)
-
328
 
 
 
Increase (7)
Credit
Present value techniques
 
Credit spreads (9)
 
97
-
101
 
 
 
97
-
103
 
 
 
Decrease (7)
 
Consensus pricing
 
Offered quotes (10)
 
 

 
 
 
 
 
 
 
 
 
 
 
Equity market
Present value techniques or option pricing models
 
Volatility (11)
 
14%
-
23%
 
 
 
21%
-
26%
 
 
 
Increase (7)
 
 
 
 
Correlation (12)
 
10%
-
30%
 
 
 
10%
-
30%
 
 
 
 
Embedded derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct, assumed and ceded guaranteed minimum benefits
Option pricing techniques
 
Mortality rates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ages 0 - 40
 
0%
-
0.18%
 
 
 
0%
-
0.18%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 41 - 60
 
0.03%
-
0.80%
 
 
 
0.03%
-
0.80%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 61 - 115
 
0.12%
-
100%
 
 
 
0.12%
-
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
 
6.18%
-
30%
 
 
 
7.16%
-
30%
 
 
 
Increase (17)
 
 
 
 
Nonperformance risk spread
 
0%
-
1.53%
 
 
 
0.04%
-
1.77%
 
 
 
Decrease (18)
__________________
(1)
The weighted average for fixed maturity securities AFS is determined based on the estimated fair value of the securities.
(2)
The impact of a decrease in input would have resulted in 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 have resulted in substantially lower (higher) valuations.
(4)
Range and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars of par.

62

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

(5)
Changes in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
(6)
Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(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 March 31, 2019 and December 31, 2018, 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.

63

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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, embedded derivatives within funds withheld related to certain ceded reinsurance, and other investments, 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 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 AFS
 
 
 
 
 
Corporate (1)
 
Foreign
Government
 
Structured
Securities
 
Equity
Securities
 
Unit-linked and FVO
Securities
 
 
(In millions)
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
10,467

 
$
138

 
$
4,266

 
$
419

 
$
405

Total realized/unrealized gains (losses) included in net income (loss) (2), (3)
 
9

 

 
14

 
30

 
14

Total realized/unrealized gains (losses) included in AOCI
 
394

 

 
22

 

 

Purchases (4)
 
463

 
20

 
264

 
6

 
41

Sales (4)
 
(270
)
 
(1
)
 
(139
)
 
(21
)
 
(3
)
Issuances (4)
 

 

 

 

 

Settlements (4)
 

 

 

 

 

Transfers into Level 3 (5)
 
284

 

 
1

 

 
4

Transfers out of Level 3 (5)
 
(385
)
 

 
(359
)
 

 
(4
)
Balance, end of period
 
$
10,962

 
$
157

 
$
4,069

 
$
434

 
$
457

Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
11,219

 
$
209

 
$
4,841

 
$
428

 
$
362

Total realized/unrealized gains (losses) included in net income (loss) (2), (3)
 
7

 
1

 
23

 
(6
)
 
5

Total realized/unrealized gains (losses) included in AOCI
 
(68
)
 
(3
)
 
24

 

 

Purchases (4)
 
512

 
2

 
657

 
1

 
27

Sales (4)
 
(542
)
 
(2
)
 
(324
)
 
(1
)
 
(59
)
Issuances (4)
 

 

 

 

 

Settlements (4)
 

 

 

 

 

Transfers into Level 3 (5)
 
46

 

 
45

 

 

Transfers out of Level 3 (5)
 
(364
)
 
(28
)
 
(684
)
 

 
(49
)
Balance, end of period
 
$
10,810

 
$
179

 
$
4,582

 
$
422

 
$
286

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2019 (6)
 
$
(1
)
 
$

 
$
13

 
$
23

 
$
15

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2018 (6)
 
$
1

 
$
1

 
$
21

 
$

 
$
4


64

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Short-term
Investments
 
Residential
Mortgage
Loans — FVO
 
Other Investments
 
Net
Derivatives (7)
 
Net Embedded
Derivatives (8)
 
Separate
Accounts (9)
 
 
(In millions)
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
33

 
$
299

 
$
39

 
$
(225
)
 
$
(739
)
 
$
937

Total realized/unrealized gains (losses) included in net income (loss) (2), (3)
 

 
2

 

 
70

 
193

 
3

Total realized/unrealized gains (losses) included in AOCI
 
1

 

 

 
97

 
7

 

Purchases (4)
 
110

 

 
129

 

 

 
80

Sales (4)
 
(6
)
 
(16
)
 

 

 

 
(122
)
Issuances (4)
 

 

 

 

 

 
2

Settlements (4)
 

 
(9
)
 

 
(11
)
 
(66
)
 
(1
)
Transfers into Level 3 (5)
 

 

 

 

 

 

Transfers out of Level 3 (5)
 

 

 

 

 

 
(2
)
Balance, end of period
 
$
138

 
$
276

 
$
168

 
$
(69
)
 
$
(605
)
 
$
897

Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
33

 
$
520

 
$

 
$
(132
)
 
$
(274
)
 
$
959

Total realized/unrealized gains (losses) included in net income (loss) (2), (3)
 

 
2

 

 
11

 
36

 
2

Total realized/unrealized gains (losses) included in AOCI
 

 

 

 
(104
)
 
(16
)
 

Purchases (4)
 
605

 

 

 

 

 
409

Sales (4)
 
(3
)
 
(64
)
 

 

 

 
(124
)
Issuances (4)
 

 

 

 

 

 
1

Settlements (4)
 

 
(20
)
 

 
43

 
(74
)
 
(1
)
Transfers into Level 3 (5)
 

 

 

 

 

 
53

Transfers out of Level 3 (5)
 
(20
)
 

 

 

 

 
(75
)
Balance, end of period
 
$
615

 
$
438

 
$

 
$
(182
)
 
$
(328
)
 
$
1,224

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2019 (6)
 
$

 
$

 
$

 
$
69

 
$
192

 
$

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2018 (6)
 
$

 
$
(8
)
 
$

 
$
48

 
$
31

 
$

__________________
(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 derivative 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)
Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(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).

65

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

(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.
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Unpaid principal balance
 
$
324

 
$
344

Difference between estimated fair value and unpaid principal balance
 
(48
)
 
(45
)
Carrying value at estimated fair value
 
$
276

 
$
299

Loans in nonaccrual status
 
$
79

 
$
89

Loans more than 90 days past due
 
$
34

 
$
41

Loans in nonaccrual status or more than 90 days past due, or both — difference between aggregate estimated fair value and unpaid principal balance
 
$
(35
)
 
$
(36
)
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.

66

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)

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:
 
 
March 31, 2019
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
78,325

 
$

 
$

 
$
79,936

 
$
79,936

Policy loans
 
$
9,670

 
$

 
$
335

 
$
11,121

 
$
11,456

Other invested assets
 
$
1,154

 
$

 
$
793

 
$
361

 
$
1,154

Premiums, reinsurance and other receivables
 
$
3,760

 
$

 
$
1,018

 
$
2,901

 
$
3,919

Other assets
 
$
314

 
$

 
$
153

 
$
177

 
$
330

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
116,767

 
$

 
$

 
$
118,800

 
$
118,800

Long-term debt
 
$
12,836

 
$

 
$
14,298

 
$

 
$
14,298

Collateral financing arrangement
 
$
1,048

 
$

 
$

 
$
851

 
$
851

Junior subordinated debt securities
 
$
3,148

 
$

 
$
3,958

 
$

 
$
3,958

Other liabilities
 
$
3,287

 
$

 
$
1,666

 
$
2,258

 
$
3,924

Separate account liabilities
 
$
109,926

 
$

 
$
109,926

 
$

 
$
109,926

 
 
December 31, 2018
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
75,453

 
$

 
$

 
$
76,379

 
$
76,379

Policy loans
 
$
9,699

 
$

 
$
338

 
$
11,028

 
$
11,366

Other invested assets
 
$
1,177

 
$

 
$
793

 
$
383

 
$
1,176

Premiums, reinsurance and other receivables
 
$
3,658

 
$

 
$
903

 
$
2,894

 
$
3,797

Other assets
 
$
326

 
$

 
$
164

 
$
186

 
$
350

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
114,040

 
$

 
$

 
$
114,924

 
$
114,924

Long-term debt
 
$
12,820

 
$

 
$
13,611

 
$

 
$
13,611

Collateral financing arrangement
 
$
1,060

 
$

 
$

 
$
853

 
$
853

Junior subordinated debt securities
 
$
3,147

 
$

 
$
3,738

 
$

 
$
3,738

Other liabilities
 
$
2,963

 
$

 
$
1,324

 
$
2,194

 
$
3,518

Separate account liabilities
 
$
104,010

 
$

 
$
104,010

 
$

 
$
104,010


67

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

8. Leases
The Company, as lessee, has entered into various lease and sublease agreements for office space and other equipment. At contract inception, the Company determines that an arrangement contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For contracts that contain a lease, the Company recognizes the ROU asset in Other assets and the lease liability in Other liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are determined using the Company’s incremental borrowing rate based upon information available at commencement date to recognize the present value of lease payments over the lease term. The ROU asset also includes lease payments and excludes lease incentives. Lease terms may include options to extend or terminate the lease and are included in the lease measurement when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components. The Company elected the practical expedient to not separate lease and non-lease components and accounted for these items as a single lease component for all asset classes.
The majority of the Company’s leases and subleases are operating leases related to office space. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.
The Company has operating leases with remaining lease terms of one year to 13 years. The remaining lease terms for the subleases are one year to 11 years.
ROU Asset and Lease Liability
The ROU assets and lease liabilities for operating leases were:


March 31, 2019


(In millions)
ROU asset (1)

$
1,521

Lease liability (1)

$
1,673

__________________
(1)
Assets and liabilities include amounts recognized upon adoption of new guidance. See Note 1.
Lease Costs
The components of operating lease costs were as follows:


Three Months Ended March 31, 2019


(In millions)
Operating lease cost

$
72

Variable lease cost

8

Sublease income

(21
)
Net lease cost

$
59

Operating lease expense and non-cancelable sublease income were $86 million and $12 million, respectively, for the three months ended March 31, 2018.
 

68

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8. Leases (continued)


Other Information
Supplemental other information related to operating leases was as follows:
 
 
March 31, 2019
 
 
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liability - operating cash flows
 
$
74

ROU assets obtained in exchange for new lease liabilities
 
$
153

Weighted-average remaining lease term
 
8 years

Weighted-average discount rate
 
3.3
%
Maturities of Lease Liabilities
Maturities of operating lease liabilities were as follows:
 
 
March 31, 2019
 
 
(In millions)
Remainder of 2019
 
$
209

2020
 
265

2021
 
240

2022
 
209

2023
 
196

Thereafter
 
825

Total undiscounted cash flows
 
1,944

Less: interest
 
271

Present value of lease liability
 
$
1,673

Future minimum gross rental payments relating to lease arrangements in effect as determined prior to the adoption of ASU 2016-02 are as follows:
 
 
December 31, 2018
 
 
(In millions)
2019
 
$
292

2020
 
282

2021
 
260

2022
 
224

2023
 
209

Thereafter
 
859

Total
 
$
2,126

See Note 5 for information about the Company’s investments in leased real estate, leveraged leases and direct financing leases.


69

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

9. Equity
Preferred Stock
Preferred stock authorized, issued and outstanding was as follows at both March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
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

5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D
 
500,000

 
500,000

 
500,000

5.625% Non-Cumulative Preferred Stock, Series E
 
32,200

 
32,200

 
32,200

Series A Junior Participating Preferred Stock
 
10,000,000

 

 

Not designated
 
160,367,800

 

 

Total
 
200,000,000

 
26,032,200

 
26,032,200

The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for MetLife, Inc.’s preferred stock were as follows for the three months ended March 31, 2019 and 2018:
Declaration Date
 
Record Date
 
Payment Date
 
Preferred Stock Dividend
Series A
 
Series C
 
Series D
 
Series E
Per 
Share
 
Aggregate
 
Per
Share
 
Aggregate
 
Per
Share
 
Aggregate
 
Per
Share
 
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
March 5, 2019
 
February 28, 2019
 
March 15, 2019
 
$
0.250

 
$
6

 
$

 
$

 
$

 
$

 
$

 
$

February 15, 2019
 
February 28, 2019
 
March 15, 2019
 

 

 

 

 
29.375

 
15

 
351.563

 
11

Total
 
 
 
 
 
$
0.250

 
$
6


$

 
$

 
$
29.375

 
$
15

 
$
351.563

 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 5, 2018
 
February 28, 2018
 
March 15, 2018
 
$
0.250

 
$
6

 
$

 
$

 
$

 
$

 
$

 
$

Common Stock
For the three months ended March 31, 2019 and 2018, MetLife, Inc. repurchased 11,198,634 shares and 21,405,327 shares of its common stock, respectively, through open market purchases for $500 million and $1.0 billion, respectively.
MetLife, Inc. announced that its Board of Directors authorized common stock repurchases as follows:
Announcement Date
 
Authorization Amount
 
Authorization Remaining
At March 31, 2019
 
 
(In millions)
November 1, 2018
 
$
2,000

 
$
770

May 22, 2018
 
$
1,500

 
$

November 1, 2017
 
$
2,000

 
$

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 subject to the discretion of MetLife, Inc.’s Board of Directors and will depend upon 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, applicable regulatory approvals, and other legal and accounting factors.

70

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Equity (continued)

The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for MetLife, Inc.’s common stock were as follows for the three months ended March 31, 2019 and 2018:
Declaration Date
 
Record Date
 
Payment Date
 
Common Stock Dividend
Per Share
 
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
January 7, 2019
 
February 5, 2019
 
March 13, 2019
 
$
0.420

 
$
405

January 5, 2018
 
February 5, 2018
 
March 13, 2018
 
$
0.400

 
$
416

See Note 15 for information on a common stock dividend declared subsequent to March 31, 2019.
Stock-Based Compensation Plans
Performance Shares and Performance Units
Final Performance Shares are paid in shares of MetLife, Inc. common stock. Final Performance Units are payable in cash equal to the closing price of MetLife, Inc. common stock on a date following the last day of the three-year performance period. The performance factor for the January 1, 2016 – December 31, 2018 performance period was 87.7%, which was determined within a possible range from 0% to 175%. This factor has been applied to the 1,594,846 Performance Shares and 212,464 Performance Units associated with that performance period that vested on December 31, 2018. As a result, in the first quarter of 2019, MetLife, Inc. issued 1,398,680 shares of its common stock (less withholding for taxes and other items, as applicable), excluding shares that payees choose to defer, and MetLife, Inc. or its affiliates paid the cash value of 186,331 Performance Units (less withholding for taxes and other items, as applicable).

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. 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:
 
 
Three Months
Ended
March 31, 2019
 
 
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, beginning of period
 
$
7,042

 
$
1,613

 
$
(4,905
)
 
$
(2,028
)
 
$
1,722

OCI before reclassifications
 
6,721

 
(11
)
 
(36
)
 
1

 
6,675

Deferred income tax benefit (expense)
 
(1,516
)
 
6

 
(6
)
 

 
(1,516
)
AOCI before reclassifications, net of income tax
 
12,247

 
1,608

 
(4,947
)
 
(2,027
)
 
6,881

Amounts reclassified from AOCI
 
(2
)
 
(24
)
 

 
29

 
3

Deferred income tax benefit (expense)
 

 
12

 

 
(6
)
 
6

Amounts reclassified from AOCI, net of income tax
 
(2
)
 
(12
)
 

 
23

 
9

Cumulative effects of changes in accounting principles
 
4

 
22

 

 

 
26

Deferred income tax benefit (expense), cumulative effects of changes in accounting principles
 
(1
)
 
(4
)
 

 

 
(5
)
Cumulative effects of changes in accounting principles, net of income tax (2)
 
3

 
18

 

 

 
21

Balance, end of period
 
$
12,248

 
$
1,614

 
$
(4,947
)
 
$
(2,004
)
 
$
6,911

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
Ended
March 31, 2018
 
 
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, beginning of period
 
$
12,757

 
$
905

 
$
(4,390
)
 
$
(1,845
)
 
$
7,427

OCI before reclassifications
 
(3,811
)
 
(352
)
 
552

 
(4
)
 
(3,615
)
Deferred income tax benefit (expense)
 
835

 
58

 
3

 
1

 
897

AOCI before reclassifications, net of income tax
 
9,781

 
611

 
(3,835
)
 
(1,848
)
 
4,709

Amounts reclassified from AOCI
 
45

 
(165
)
 

 
31

 
(89
)
Deferred income tax benefit (expense)
 
(10
)
 
27

 

 
(7
)
 
10

Amounts reclassified from AOCI, net of income tax
 
35

 
(138
)
 

 
24

 
(79
)
Cumulative effects of changes in accounting principles
 
(425
)
 

 

 

 
(425
)
Deferred income tax benefit (expense), cumulative effects of changes in accounting principles (3)
 
1,473

 
210

 
36

 
(382
)
 
1,337

Cumulative effects of changes in accounting principles, net of income tax (3)
 
1,048

 
210

 
36

 
(382
)
 
912

Sale of subsidiary (4)
 

 

 
92

 

 
92

Balance, end of period
 
$
10,864

 
$
683

 
$
(3,707
)
 
$
(2,206
)
 
$
5,634

__________________
(1)
See Note 5 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the policyholder dividend obligation.
(2)
See Note 1 for further information on adoption of new accounting pronouncements.
(3)
See Note 1 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for further information on adoption of new accounting pronouncements.
(4)
See Note 3 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. 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 and
Comprehensive Income (Loss)
Locations
 
 
Three Months
Ended
March 31,
 
 
 
 
2019

2018
 
 
 
 
(In millions)
 
 
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized investment gains (losses)
 
$
(24
)
 
$
(101
)
 
Net investment gains (losses)
Net unrealized investment gains (losses)
 
4

 
3

 
Net investment income
Net unrealized investment gains (losses)
 
22

 
53

 
Net derivative gains (losses)
Net unrealized investment gains (losses), before income tax
 
2

 
(45
)
 
 
Income tax (expense) benefit
 

 
10

 
 
Net unrealized investment gains (losses), net of income tax
 
2

 
(35
)
 
 
Unrealized gains (losses) on derivatives - cash flow hedges:
 
 
 
 
 
 
Interest rate derivatives
 
5

 
4

 
Net investment income
Interest rate derivatives
 
(6
)
 

 
Net investment gains (losses)
Interest rate derivatives
 

 
21

 
Net derivative gains (losses)
Interest rate derivatives
 
1

 

 
Other expenses
Foreign currency exchange rate derivatives
 
(2
)
 

 
Net investment income
Foreign currency exchange rate derivatives
 
25

 

 
Net investment gains (losses)
Foreign currency exchange rate derivatives
 

 
139

 
Net derivative gains (losses)
Foreign currency exchange rate derivatives
 

 
1

 
Other expenses
Credit derivatives
 
1

 

 
Net investment gains (losses)
Gains (losses) on cash flow hedges, before income tax
 
24

 
165

 
 
Income tax (expense) benefit
 
(12
)
 
(27
)
 
 
Gains (losses) on cash flow hedges, net of income tax
 
12

 
138

 
 
Defined benefit plans adjustment: (1)
 
 
 
 
 
 
Amortization of net actuarial gains (losses)
 
(36
)
 
(36
)
 
 
Amortization of prior service (costs) credit
 
7

 
5

 
 
Amortization of defined benefit plan items, before income tax
 
(29
)
 
(31
)
 
 
Income tax (expense) benefit
 
6

 
7

 
 
Amortization of defined benefit plan items, net of income tax
 
(23
)
 
(24
)
 
 
Total reclassifications, net of income tax
 
$
(9
)
 
$
79

 
 
__________________
(1)
These AOCI components are included in the computation of net periodic benefit costs. See Note 11.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)

10. Other Revenues and Other Expenses
Other Revenues
Information on other revenues, which primarily includes fees related to service contracts from customers, was as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
 
(In millions)
Prepaid legal plans
 
$
86

 
$
73

Fee-based investment management
 
77

 
71

Recordkeeping and administrative services (1)
 
50

 
58

Administrative services-only contracts
 
53

 
56

Other revenue from service contracts from customers
 
71

 
64

Total revenues from service contracts from customers
 
337

 
322

Other
 
157

 
152

Total other revenues
 
$
494

 
$
474

__________________
(1)
Related to products and businesses no longer actively marketed by the Company.
Other Expenses
Information on other expenses was as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
 
(In millions)
Employee related costs
 
$
922

 
$
937

Third party staffing costs
 
369

 
380

General and administrative expenses
 
223

 
243

Pension, postretirement and postemployment benefit costs
 
56

 
49

Premium taxes, other taxes, and licenses & fees
 
170

 
179

Commissions and other variable expenses
 
1,449

 
1,416

Capitalization of DAC
 
(812
)
 
(796
)
Amortization of DAC and VOBA
 
624

 
693

Amortization of negative VOBA
 
(10
)
 
(22
)
Interest expense on debt
 
234

 
286

Total other expenses
 
$
3,225

 
$
3,365


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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
10. Other Revenues and 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:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
 
Severance
 
 
(In millions)
Balance, beginning of period
 
$
23

 
$
22

Restructuring charges
 
7

 
9

Cash payments
 
(13
)
 
(12
)
Balance, end of period
 
$
17

 
$
19

Total restructuring charges incurred since inception of initiative
 
$
143

 
$
82

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 March 31, 2019.
11. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer a U.S. qualified and various U.S. and non-U.S. nonqualified defined benefit pension plans and other postretirement employee benefit plans covering employees who meet specified eligibility requirements. These subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for U.S. and non-U.S. retired employees.
The components of net periodic benefit costs, reported in other expenses, were as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
 
 
Pension
Benefits
 
Other
Postretirement
Benefits
 
Pension
Benefits
 
Other
Postretirement
Benefits
 
 
(In millions)
Service costs
 
$
58

 
$
1

 
$
60

 
$
1

Interest costs
 
104

 
13

 
96

 
11

Expected return on plan assets
 
(122
)
 
(16
)
 
(133
)
 
(18
)
Amortization of net actuarial (gains) losses
 
48

 
(12
)
 
44

 
(8
)
Amortization of prior service costs (credit)
 
(4
)
 
(3
)
 

 
(5
)
Net periodic benefit costs (credit)
 
$
84


$
(17
)

$
67


$
(19
)


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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)

12. Income Tax
The Company’s effective tax rates differ from the U.S. statutory rate typically due to non-taxable investment income, tax credits and foreign earnings taxed at different rates than the U.S. statutory rate. For the three months ended March 31, 2019, the Company’s provision for income tax expense (benefit) includes benefits of $9 million related to the effect of sequestration on the alternative minimum tax credit and $8 million related to the corporate tax deduction for stock compensation. For the three months ended March 31, 2018, the Company’s provision for income tax expense (benefit) includes a tax charge of $17 million related to a tax adjustment in Chile and a $5 million tax charge in Colombia to establish a deferred tax liability due to a change in tax status.
13. Earnings Per Common Share
The following table presents the weighted average shares, basic earnings per common share and diluted earnings per common share:
 
 
Three Months
Ended
March 31,
 
 
2019

2018
 
 
(In millions, except per share data)
Weighted Average Shares:
 
 
 
 
Weighted average common stock outstanding - basic
 
956.5

 
1,035.9

Incremental common shares from assumed exercise or issuance of stock-based awards
 
6.8

 
8.5

Weighted average common stock outstanding - diluted
 
963.3

 
1,044.4

Net Income (Loss):
 
 
 
 
Net income (loss)
 
$
1,385

 
$
1,257

Less: Net income (loss) attributable to noncontrolling interests
 
4

 
4

Less: Preferred stock dividends
 
32

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1,349

 
$
1,247

Basic
 
$
1.41

 
$
1.20

Diluted
 
$
1.40

 
$
1.19


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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)

14. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed below and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor, broker-dealer, and taxpayer.
The Company also receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities and Exchange Commission (“SEC”); federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority, as well as from local and national regulators and government authorities in jurisdictions outside the United States where the Company conducts business. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries.
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.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. 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 March 31, 2019. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to estimate a reasonably possible range of loss. For matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of March 31, 2019, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $550 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 Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
14. 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.
As reported in the 2018 Annual Report, MLIC received approximately 3,359 asbestos-related claims in 2018. For the three months ended March 31, 2019 and 2018, MLIC received approximately 843 and 823 new asbestos-related claims, respectively. See Note 20 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for historical information concerning asbestos claims and MLIC’s update in its recorded liability at December 31, 2018. 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.
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.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
14. Contingencies, Commitments and Guarantees (continued)

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 United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. 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 March 31, 2019.
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 principle 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.
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. 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 (the “Ontario Litigation”). 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. In September 2018, the Court of Appeal for Ontario affirmed the lower court’s decision to not certify the sales practices claims in the Ontario Litigation. 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.
City of Westland Police and Fire Retirement System v. MetLife, Inc., et. al. (S.D.N.Y., filed January 12, 2012)
Plaintiff filed this class action on behalf of a class of persons who either purchased MetLife, Inc. common shares between February 9, 2011, and October 6, 2011, or purchased or acquired MetLife, Inc. common stock in the Company’s August 3, 2010 offering or the Company’s March 4, 2011 offering. 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 purportedly been paid to beneficiaries or escheated to the states. 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 Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
14. Contingencies, Commitments and Guarantees (continued)

Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of persons for whom MLIC established a Total Control Account (“TCA”) to pay death benefits under an Employee Retirement Income Security Act of 1974 (“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.
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. Plaintiffs assert causes of action for declaratory relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiffs seek 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 appealed this ruling to the United States Court of Appeals for the Ninth Circuit. The Company intends to defend this action vigorously.
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, on behalf of herself and all persons over age 65 who selected a Reduced Pay at Age 65 payment feature on their long-term care insurance policies and whose premium rates were increased after age 65. 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 to dismiss the action. Plaintiff appealed this ruling and the United States Court of Appeals for the Seventh Circuit reversed and remanded the case to the district court for further proceedings. The Company 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. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On March 22, 2018, the Court conditionally certified the case as a collective action, requiring that notice be mailed to LTD claims specialists who worked for the Company from February 8, 2014 to the present. The Company intends 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 December 27, 2017)
Total Asset Recovery Services (“The Relator”) brought an action under the qui tam provision of the New York False Claims Act (the “Act”) on behalf of itself and the State of New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator alleges that MetLife, Inc., MLIC, and several other insurance companies violated the Act by filing false unclaimed property reports with the State of New York from 1986 to 2017, to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part of their demutualizations in the late 1990s. The Relator seeks treble damages and other relief. On April 3, 2019, the Court granted MetLife, Inc.’s and MLIC’s motion to dismiss and dismissed the complaint in its entirety. The Relator filed a notice of appeal with the Appellate Division of the New York State Supreme Court, First Division.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
14. Contingencies, Commitments and Guarantees (continued)

Regulatory and Litigation Matters Related to Group Annuity Benefits
In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the practices and procedures for estimating reserves for certain group annuity benefits. The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions relating to these issues. 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.
Regulatory Matters
The Division of Enforcement of the SEC is investigating this issue and several additional regulators have made similar inquiries. It is possible that other jurisdictions may pursue similar investigations or inquiries.
Litigation Matters
Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018)
Plaintiff filed this putative class action seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through January 29, 2018. 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 financial statements. Plaintiff alleges that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiff seeks unspecified compensatory damages and other relief. Defendants intend to defend this action vigorously.
Derivative Actions and Demands
Kates v. Kandarian, et al. (E.D.N.Y., filed January 18, 2019)
A shareholder seeking to sue derivatively on behalf of MetLife, Inc. commenced an action in federal court against certain current and former members of the MetLife, Inc. Board of Directors. Plaintiff asserts claims for breach of fiduciary duty, gross mismanagement, waste of corporate assets, as well as securities fraud claims. Plaintiff alleges that the defendants disseminated or approved public statements that failed to disclose that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiff alleges that because of the defendants’ breaches of duty, MetLife, Inc. has incurred damage to its reputation and has suffered other unspecified damages. The defendants intend to defend this action vigorously.
Felt, et al. v. Grise, et al. (D. Del., filed April 29, 2019)
Two shareholders seeking to sue derivatively on behalf of MetLife, Inc. commenced an action in federal court against certain current and former members of the MetLife, Inc. Board of Directors and certain current and former officers of MetLife, Inc. Plaintiffs assert, among other things, claims for breach of fiduciary duty, gross mismanagement, waste of corporate assets, as well as securities fraud claims. Plaintiffs allege that the defendants disseminated or approved public statements that failed to disclose that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiffs allege that because of the defendants’ breaches of duty, MetLife, Inc. has incurred damage to its reputation and has suffered other unspecified damages. The defendants intend to defend this action vigorously.
Demands
The MetLife, Inc. Board of Directors received five letters, dated March 28, 2018, May 11, 2018, July 16, 2018, December 20, 2018 and February 5, 2019, written on behalf of individual stockholders, demanding that MetLife, Inc. take action against current and former directors and officers for alleged breaches of fiduciary duty and/or investigate, remediate, and recover damages allegedly suffered by the Company as a result of (i) the Company’s allegedly inadequate practices and procedures for estimating reserves for certain group annuity benefits, (ii) the Company’s allegedly inadequate internal controls over financial reporting and corporate governance practices and procedures, and (iii) the alleged dissemination of false or misleading information related to these issues. The MetLife, Inc. Board of Directors appointed a special committee to investigate the allegations set forth in these five letters.

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MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
14. Contingencies, Commitments and Guarantees (continued)

Regulatory Inquiry Related to Assumed Variable Annuity Guarantee Reserves
In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the calculation of reserves associated with certain variable annuity guarantees assumed from the former operating joint venture in Japan. The Division of Enforcement of the SEC is investigating this issue and the Company has informed other regulators. It is possible that other regulators may pursue similar investigations or inquiries. The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions relating to these issues. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable laws or regulations. The Company could incur significant costs in connection with these actions.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $3.5 billion and $4.0 billion at March 31, 2019 and December 31, 2018, 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 $7.0 billion and $7.7 billion at March 31, 2019 and December 31, 2018, 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 $767 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.
The Company also has minimum fund yield requirements on certain pension funds. 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 $7 million at both March 31, 2019 and December 31, 2018 for indemnities, guarantees and commitments.
15. Subsequent Events
Common Stock Dividend
On April 23, 2019, the MetLife, Inc. Board of Directors declared a second quarter 2019 common stock dividend of $0.44 per share payable on June 13, 2019 to shareholders of record as of May 7, 2019. The Company estimates that the aggregate dividend payment will be $419 million.

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Item 2. 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. This discussion should be read in conjunction with MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), the cautionary language regarding forward-looking statements included below, the “Risk Factors” set forth in Part II, Item 1A, and the additional risk factors referred to therein, “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s interim condensed consolidated financial statements included elsewhere herein.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Note Regarding Forward-Looking Statements” for cautionary language regarding forward-looking statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, adjusted earnings and adjusted earnings available to common shareholders, that are not based on accounting principles generally accepted in the United States of America (“GAAP”). 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.
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; 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 Note 2 of the Notes to the Interim Condensed 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.
Current Period Highlights
During the three months ended March 31, 2019, overall sales increased compared to the prior period primarily from improved sales in our Retirement and Income Solutions (“RIS”) business and in Japan. While positive net flows drove an increase in our investment portfolio, investment yields declined and interest credited rates were higher. Underwriting experience was favorable compared to the prior period. A favorable change in net investment gains (losses) was primarily due to prior period losses resulting from the change in estimated fair value of Brighthouse Financial, Inc. common stock, as well as a decrease in mark-to-market losses on equity securities. An unfavorable change in net derivative gains (losses) was primarily the result of changes in key equity index levels, interest rates and foreign currency exchange rates.

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The following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the three months ended March 31, 2019:
segmentchart.jpg__________________    
(1)
Excludes Corporate & Other adjusted loss available to common shareholders of $193 million.
(2)
Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. For additional information, see Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
qtdchart.jpg
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.’s common shareholders up $102 million:
 
 
Favorable change in net investment gains (losses) of $348 million ($275 million, net of income tax)
 
 
Unfavorable change in net derivative gains (losses) of $234 million ($185 million, net of income tax)

 
 
Adjusted earnings available to common shareholders essentially unchanged

 
 
 
 
 


 
 
(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 Highlights
Adjusted earnings available to common shareholders essentially unchanged:
Our results for the three months ended March 31, 2019 included the following:
 
expenses associated with our previously announced unit cost initiative of $55 million, net of income tax
Our results for the three months ended March 31, 2018 included the following:
 
expenses associated with our previously announced unit cost initiative of $34 million, net of income tax
 
favorable reserve adjustment of $62 million, net of income tax, relating to certain variable annuity guarantees assumed from a former joint venture in Japan
For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results,” “— Results of Operations — Consolidated Results — Adjusted Earnings” and “— Results of Operations — Segment Results and Corporate & Other.”
Industry Trends
The following information on industry trends should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends” in Part II, Item 7, of the 2018 Annual Report.
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 Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition” in the 2018 Annual Report.

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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. For example, MetLife is the largest provider of benefits to Mexican federal government personnel and public officials, however, the new administration of President López Obrador of Mexico is implementing an austerity plan which, among other measures, has eliminated benefits such as major medical insurance and contributions to additional savings benefit insurance for such individuals. See “Business — Regulation — Fiscal Measures” and “Risk Factors — Economic Environment and Capital Markets Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition — Currency Exchange Rate Risk” in the 2018 Annual Report.
We are closely monitoring political and economic conditions that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives. For example, events following the United Kingdom’s (“U.K.”) referendum on June 23, 2016 and the uncertainties, including foreign currency exchange risks, associated with its planned withdrawal from the European Union (“EU”), have contributed to global market volatility. These factors could contribute to weakening Gross Domestic Product growth, primarily in the U.K. and, to a lesser degree, in 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 and Sector Investments.” We are also monitoring the imposition of tariffs or other barriers to international trade, changes to international trade agreements, and their potential impacts on our business, results of operations and financial condition. In addition, the possibility of additional government shutdowns or a failure to raise the debt ceiling, due to a policy impasse or otherwise, could adversely impact our business and liquidity. See “— Regulatory Developments — Regulation — Cross-Border Trade,” as well as “Business — Regulation — Cross-Border Trade” and “Business — Regulation — Fiscal Measures” in the 2018 Annual Report. See also “Risk Factors — Economic Environment and Capital Markets Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition” and “Risk Factors — Business Risks — The Global Nature of Our Operations Exposes Us to a Variety of Political, Legal, Operational, Economic and Other Risks” in the 2018 Annual Report.
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 Board of Governors of the Federal Reserve System (“Federal Reserve Board”) has continued along its stated path of 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 2018. Similarly, recognizing the economic recovery, the European Central Bank ended quantitative easing in December 2018 and left interest rates unchanged. 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 October 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 sustained periods of low 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 deferred policy acquisition costs (“DAC”) and value of business acquired (“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.

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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.
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 to 4.25% by 2026. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” included in the 2018 Annual Report for further information.
Competitive Pressures
The life insurance industry remains highly competitive. See “Business — Competition” in the 2018 Annual Report. 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. Insurers are increasingly seeking alternative sources of revenue; there is a focus on monetization of assets, fee-based services, and opportunities to offer comprehensive solutions, which include providing value-added services along with traditional products. Financial strength and flexibility and technology modernization are prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information technology and have the 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 “— Industry Trends — Regulatory Developments,” as well as “Business — Regulation” in the 2018 Annual Report, as amended or supplemented 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.” 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.
Regulatory Developments
The following discussion on regulatory developments should be read in conjunction with “Business — Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Regulatory Developments” in the 2018 Annual Report, as amended or supplemented 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.”
Regulation
Insurance Regulation
NAIC
In 2015, the National Association of Insurance Commissioners (“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. Following several public exposures of the consultant’s recommendations, the NAIC adopted a new variable annuity framework, which is designed to reduce the level and volatility of the non-economic aspect of reserve and risk-based capital requirements for variable annuity products. The NAIC is now preparing technical language to be included in various NAIC manuals and guidelines to implement the new framework. We cannot predict the impact of this framework on our business until such technical requirements of the framework are completed, and we cannot predict if state insurance regulators will adopt standards different from the NAIC framework. The New York Department of Financial Services (“NYDFS”) is also pursuing a similar initiative that may deviate from the NAIC work product. At this time, we cannot predict the changes the NYDFS will propose in new variable annuity reserving standards or quantify the impact on Metropolitan Life Insurance Company (“MLIC”).

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Cybersecurity and Privacy Regulation
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 has only been adopted by a few states. As adopted by these states, and if adopted as state legislation elsewhere, the Cybersecurity Model Law would impose significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. A drafting note in the Cybersecurity Model Law states that a licensee’s compliance with the New York cybersecurity regulation is intended to constitute compliance with the Cybersecurity Model Law.
Cross-Border Trade
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 “Article 50 Notification”). The member withdrawal provisions in the applicable EU treaty provide that the U.K. and the EU will negotiate a withdrawal agreement during a two-year period, unless such period is extended by unanimous vote of the other EU member states or the U.K. withdraws its Article 50 Notification. In April 2019, the Article 50 negotiation period was extended until October 31, 2019. 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. If the U.K. does not approve and conclude a withdrawal agreement with the EU by the end of the Article 50 negotiating period, the U.K. may cease to be a member of the EU, without an agreement governing its future relationship with the EU. In such a scenario, MetLife expects to maintain its existing operating model, including as an inbound EEA-insurer under the U.K.’s Temporary Permissions Regime, which is due to last for at least three years and will permit MetLife to carry on its insurance business in the U.K. during that period. Operating expenses within our businesses could increase as a result of such changes.
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Interim Condensed Consolidated Financial Statements. The most critical estimates include those used in determining:
(i)
liabilities for future policy benefits and the accounting for reinsurance;
(ii)
capitalization and amortization of 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 the aforementioned critical accounting estimates. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.
The above critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates” and Note 1 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.

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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, net income (loss), 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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Results of Operations
Consolidated Results
Business Overview. Overall sales for the three months ended March 31, 2019 increased over prior period levels reflecting higher sales in the majority of our businesses. Sales increased in all of the businesses in our U.S. segment, primarily driven by our RIS business due to increases in funding agreements and sales of structured settlement products. In addition, Group Benefits sales improved in both our voluntary and core businesses. Growth in sales of accident & health products, as well as foreign currency-denominated life and annuities products, in Japan were the primary drivers of higher sales in our Asia segment. In our Latin America segment, higher sales of individual and group accident & health products in Mexico were partially offset by a decline in sales in Chile and Brazil. In our EMEA segment, increases in our employee benefits business in the U.K. and our credit life business in Turkey were partially offset by a decline in sales of our life insurance business in the Gulf.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Revenues
 
 
 
Premiums
$
9,405

 
$
9,178

Universal life and investment-type product policy fees
1,365

 
1,392

Net investment income
4,908

 
3,745

Other revenues
494

 
474

Net investment gains (losses)
15

 
(333
)
Net derivative gains (losses)
115

 
349

Total revenues
16,302

 
14,805

Expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
9,372

 
9,015

Interest credited to policyholder account balances
1,961

 
769

Capitalization of DAC
(812
)
 
(796
)
Amortization of DAC and VOBA
624

 
693

Amortization of negative VOBA
(10
)
 
(22
)
Interest expense on debt
234

 
286

Other expenses
3,189

 
3,204

Total expenses
14,558

 
13,149

Income (loss) before provision for income tax
1,744

 
1,656

Provision for income tax expense (benefit)
359

 
399

Net income (loss)
1,385

 
1,257

Less: Net income (loss) attributable to noncontrolling interests
4

 
4

Net income (loss) attributable to MetLife, Inc.
1,381

 
1,253

Less: Preferred stock dividends
32

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
$
1,349

 
$
1,247

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
During the three months ended March 31, 2019, net income (loss) increased $128 million from the prior period, primarily driven by a favorable change in net investment gains (losses), partially offset by an unfavorable change in net derivative gains (losses).

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Management of Investment Portfolio and Hedging Market Risks with Derivatives. We manage our investment portfolio using disciplined asset/liability management (“ALM”) principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted 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 available-for-sale (“AFS”) and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities. In addition, our general account investment portfolio includes, within contractholder-directed equity securities and fair value option securities (collectively, “Unit-linked and FVO Securities”), contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit-linked investments”), which do not qualify as separate account assets. The returns on these 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 portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions.
Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. Ongoing refinement of the strategy may be required to take advantage of NAIC rules related to a statutory accounting election for derivatives that mitigate interest rate sensitivity related to variable annuity guarantees. The restructured hedge strategy is classified as a macro hedge program, included in the non-VA program derivatives section of the table below, 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.” All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives.” The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
 
Three Months Ended March 31,
 
2019
 
2018
 
(In millions)
Non-VA program derivatives
 
 
 
Interest rate
$
427

 
$
(97
)
Foreign currency exchange rate
(2
)
 
287

Credit
137

 
(29
)
Equity
(226
)
 
17

Non-VA embedded derivatives
(83
)
 
26

Total non-VA program derivatives
253

 
204

VA program derivatives
 
 
 
Market risks in embedded derivatives
385

 
(4
)
Nonperformance risk adjustment on embedded derivatives
(62
)
 
20

Other risks in embedded derivatives
(47
)
 
(5
)
Total embedded derivatives
276

 
11

Freestanding derivatives hedging embedded derivatives
(414
)
 
134

Total VA program derivatives
(138
)
 
145

Net derivative gains (losses)
$
115

 
$
349

The favorable change in net derivative gains (losses) on non-VA program derivatives was $49 million ($39 million, net of income tax). This was primarily due to a favorable change in interest rate impact due to: (i) long-term U.S. interest rates decreasing in the current period and increasing in the prior period, favorably impacting receive fixed interest rate swaps, total rate of return swaps and options; and (ii) mid-term rates decreasing in the current period and increasing in the prior period, negatively impacting interest rate caps. In addition, credit spreads narrowed in the current period and widened in the prior period, favorably impacting written credit default swaps used in replications. These favorable impacts were partially offset by the unfavorable impact of the Japanese yen weakening relative to the U.S. dollar in the current period versus strengthening in the prior period unfavorably impacting foreign currency forwards that primarily hedge foreign currency-denominated bonds. Also, equity markets increased in the current period and decreased in the prior period, unfavorably impacting equity options acquired primarily as part of our macro hedge program. There was also a change in the value of the underlying assets, unfavorably impacting non-VA embedded derivatives related to funds withheld on a certain reinsurance agreement. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the items being hedged.
The unfavorable change in net derivative gains (losses) on VA program derivatives was $283 million ($224 million, net of income tax). This was due to an unfavorable change of $159 million ($126 million, net of income tax) in freestanding derivatives hedging market risks in embedded derivatives, net of market risks in embedded derivatives, an unfavorable change of $82 million ($65 million, net of income tax) in the nonperformance risk adjustment on embedded derivatives, and an unfavorable change of $42 million, ($33 million, net of income tax) in other risks in embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.
The aforementioned $159 million ($126 million, net of income tax) unfavorable change reflects a $548 million ($433 million, net of income tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives, partially offset by a $389 million ($307 million, net of income tax) favorable change in market risks in embedded derivatives.

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The primary changes in market factors are summarized as follows:
Key equity index levels increased in the current period and decreased in the prior period, 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 13% in the current period and decreased 1% in the prior period.
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 U.S. dollar by 1% in the current period and strengthened by 6% in the prior period.
Long-term U.S. interest rates decreased in the current period and increased in the prior period, contributing to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives. For example, the 30-year U.S. swap rate decreased 26 basis points in the current period and increased 28 basis points in the prior period.
The aforementioned $42 million ($33 million, net of income tax) unfavorable change in other risks in embedded derivatives reflects increased guarantee claims costs and a combination of other factors, which include fees being deducted from accounts, changes in the benefit base, premiums, lapses, withdrawals and deaths.
The aforementioned $82 million ($65 million, net of income tax) unfavorable change in the nonperformance risk adjustment on embedded derivatives resulted from an unfavorable change of $34 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 $48 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 favorable change in net investment gains (losses) of $348 million ($275 million, net of income tax) primarily reflects prior period losses representing the change in estimated fair value of Brighthouse Financial, Inc. common stock, as well as a decrease in mark-to-market losses on equity securities, both of which were measured at fair value through net income. Additionally, there were lower losses on sales of fixed maturity securities AFS in the current period versus the prior period.
Taxes. Income tax expense for the three months ended March 31, 2019 was $359 million, or 21% of income (loss) before provision for income tax, compared with $399 million, or 24% of income (loss) before provision for income tax, for the three months ended March 31, 2018. The Company’s effective tax rates differ from the U.S. statutory rate of 21% typically due to non-taxable investment income, tax credits for investments in low income housing, and foreign earnings taxed at different rates than the U.S. statutory rate. Our current period results include benefits of $9 million related to the effect of sequestration on the alternative minimum tax credit and $8 million related to the corporate tax deduction for stock compensation. Our prior period results include tax charges of $17 million related to a tax adjustment in Chile and $5 million to establish a deferred tax liability due to a change in tax status in Colombia.

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Adjusted Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings and other financial measures based on adjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings should not be viewed as a substitute for net income (loss). Adjusted earnings available to common shareholders and adjusted earnings available to common shareholders on a constant currency basis should not be viewed as substitutes for net income (loss) available to MetLife, Inc.’s common shareholders. Adjusted earnings available to common shareholders were essentially unchanged at $1.4 billion, net of income tax, for both the three months ended March 31, 2019 and 2018.

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Reconciliation of net income (loss) to adjusted earnings available to common shareholders
Three Months Ended March 31, 2019
 
 
U.S.
 
Asia
 
Latin America
 
EMEA
 
MetLife Holdings
 
Corporate& Other
 
Total
 
 
(In millions)
Net income (loss)
$
756

 
$
455

 
$
162

 
$
79

 
$
120

 
$
(187
)
 
$
1,385

Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
Net investment gains (losses)
(37
)
 
7

 
31

 
(11
)
 
24

 
1

 
15

 
Net derivative gains (losses)
137

 
165

 
75

 
(11
)
 
(220
)
 
(31
)
 
115

 
Premiums

 

 

 

 

 

 

 
Universal life and investment-type product policy fees

 
1

 

 
4

 
22

 

 
27

 
Net investment income
(56
)
 
113

 
9

 
590

 
(32
)
 
3

 
627

 
Other revenues

 
2

 

 

 

 
68

 
70

Expenses:
 
Policyholder benefits and claims and policyholder dividends
(6
)
 

 
(69
)
 
21

 
(77
)
 

 
(131
)
 
Interest credited to policyholder account balances
3

 
(133
)
 
(19
)
 
(564
)
 

 

 
(713
)
 
Capitalization of DAC

 

 

 

 

 

 

 
Amortization of DAC and VOBA

 
(4
)
 

 
1

 
34

 

 
31

 
Amortization of negative VOBA

 

 

 

 

 

 

 
Interest expense on debt

 

 

 

 

 

 

 
Other expenses

 
(1
)
 
3

 
(21
)
 

 
(69
)
 
(88
)
 
Goodwill impairment

 

 

 

 

 

 

Provision for income tax (expense) benefit
(9
)
 
(51
)
 
(2
)
 
(16
)
 
52

 
2

 
(24
)
Adjusted earnings
$
724

 
$
356

 
$
134

 
$
86

 
$
317

 
(161
)
 
1,456

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
32

 
32

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(193
)
 
$
1,424


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Three Months Ended March 31, 2018
 
 
U.S.
 
Asia
 
Latin America
 
EMEA
 
MetLife Holdings
 
Corporate& Other
 
Total
 
 
(In millions)
Net income (loss)
$
489

 
$
564

 
$
186

 
$
87

 
$
344

 
$
(413
)
 
$
1,257

Less: adjustments from net income (loss) to adjusted earnings available to common shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
Net investment gains (losses)
(110
)
 
78

 
3

 
(6
)
 
(106
)
 
(192
)
 
(333
)
 
Net derivative gains (losses)
(54
)
 
259

 
149

 
1

 
34

 
(40
)
 
349

 
Premiums

 

 

 

 

 

 

 
Universal life and investment-type product policy fees

 
(4
)
 
7

 
6

 
23

 

 
32

 
Net investment income
(54
)
 
(86
)
 
(7
)
 
(293
)
 
(39
)
 
5

 
(474
)
 
Other revenues

 
4

 

 

 

 
79

 
83

Expenses:
 
Policyholder benefits and claims and policyholder dividends
8

 

 
(49
)
 
5

 
(11
)
 

 
(47
)
 
Interest credited to policyholder account balances
1

 
74

 
(16
)
 
289

 

 

 
348

 
Capitalization of DAC

 

 
1

 

 

 

 
1

 
Amortization of DAC and VOBA

 
7

 

 
1

 
(4
)
 

 
4

 
Amortization of negative VOBA

 
1

 

 

 

 

 
1

 
Interest expense on debt

 

 

 

 

 

 

 
Other expenses

 
(4
)
 

 
(4
)
 

 
(86
)
 
(94
)
 
Goodwill impairment

 

 

 

 

 

 

Provision for income tax (expense) benefit
45

 
(92
)
 
(42
)
 
7

 
22

 
18

 
(42
)
Adjusted earnings
$
653

 
$
327

 
$
140

 
$
81

 
$
425

 
(197
)
 
1,429

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
6

 
6

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(203
)
 
$
1,423

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings available to common shareholders on a constant currency basis
$
653

 
$
316

 
$
135

 
$
70

 
$
425

 
$
(203
)
 
$
1,396



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Consolidated Results —Adjusted Earnings
Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. Adjusted earnings were essentially unchanged as compared to the prior period due to offsetting variances as discussed below.
Foreign Currency. Changes in foreign currency exchange rates had a $27 million negative impact on adjusted earnings for the first quarter of 2019 compared to the prior period. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. We benefited from positive net flows from many of our businesses, which increased our invested asset base. Growth in the investment portfolios of our U.S., Asia, and Latin America segments resulted in higher net investment income. However, this was partially offset by a corresponding increase in interest credited expenses on certain insurance-related liabilities. Higher fee income in our Asia and Latin America segments was largely offset by lower fee income in our MetLife Holdings segment. In our U.S. segment, an increase in average premium per policy in our auto business improved adjusted earnings. Business growth also drove an increase in commissions, which was largely offset by higher DAC capitalization. A decrease in expenses was primarily due to the 2019 abatement of the annual health insurer fee under the Patient Protection and Affordable Care Act (”PPACA”). The combined impact of the items affecting our business growth resulted in a $78 million increase 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. Excluding the impact of changes in foreign currency exchange rates on net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields decreased. Investment yields were negatively affected by lower returns on both private equities and real estate investments, as well as lower income on derivatives. These decreases were partially offset by higher returns on fair value option securities (“FVO Securities”) and higher yields on mortgage loans and fixed income securities. In addition, the impact of higher average interest credited rates on both our long-duration and deposit-type liabilities drove an increase in interest credited expenses. The changes in market factors discussed above, partially offset by lower DAC amortization, resulted in a $40 million decrease in adjusted earnings.
Underwriting and Other Insurance Adjustments. Favorable underwriting resulted in a $33 million increase in adjusted earnings primarily as a result of favorable morbidity and mortality, driven by our U.S. segment, as well as lower catastrophe losses. These favorable results were partially offset by unfavorable claims experience in our Asia segment, less favorable mortality experience in our MetLife Holdings segment and unfavorable mortality experience in our Latin America segment. Refinements to DAC and certain insurance-related liabilities, which were recorded in both periods, resulted in a $64 million decrease in adjusted earnings, most notably in our MetLife Holdings segment.
Interest Expense on Debt. Interest expense on debt decreased by $41 million, primarily due to the exchange of senior notes for Brighthouse Financial, Inc. common stock and the redemption of senior notes for cash in 2018.
Preferred Stock Dividends. Preferred stock dividends increased $26 million as a result of the issuance of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (“Series D preferred stock”) in March 2018 and Non-Cumulative Preferred Stock, Series E (“Series E preferred stock”) in June 2018.
Expenses. Expenses increased $11 million as a result of higher costs associated with corporate initiatives and projects, including the continued investment in our unit cost initiative, partially offset by lower interest on uncertain tax positions.
Taxes. Our effective tax rates differ from the U.S. statutory rate of 21% typically due to nontaxable investment income, tax credits for investments in low income housing, and foreign earnings taxed at different rates than the U.S. statutory rate. Lower utilization of tax preferenced items decreased adjusted earnings by $23 million from the prior period. Our current period results include benefits of $9 million related to the effect of sequestration on the alternative minimum tax credit and $8 million related to the corporate tax deduction for stock compensation. Our prior period results include tax charges of $17 million related to a tax adjustment in Chile and $5 million to establish a deferred tax liability due to a change in tax status in Colombia.

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Segment Results and Corporate & Other
U.S.
Business Overview. Sales increased across the segment for the three months ended March 31, 2019 compared to the prior period, primarily driven by our RIS business, primarily due to increases in funding agreements and higher sales of structured settlement products. Changes in premiums for the RIS business were almost entirely offset by the related changes in policyholder benefits and claims. Sales increased in our Group Benefits business as compared to the prior period, as sales in both our voluntary and core products improved. In our Property & Casualty business, sales improved over the prior period, primarily in our homeowners business.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
5,567

 
$
5,217

Universal life and investment-type product policy fees
270

 
258

Net investment income
1,719

 
1,662

Other revenues
221

 
204

Total adjusted revenues
7,777

 
7,341

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
5,373

 
5,138

Interest credited to policyholder account balances
501

 
407

Capitalization of DAC
(114
)
 
(106
)
Amortization of DAC and VOBA
114

 
115

Interest expense on debt
2

 
2

Other expenses
993

 
961

Total adjusted expenses
6,869

 
6,517

Provision for income tax expense (benefit)
184

 
171

Adjusted earnings
$
724

 
$
653

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Net investment income improved as a result of higher average invested assets, primarily due to the impact of prior year pension risk transfer sales. However, consistent with the growth in average invested assets from increased premiums, interest credited expenses on long-duration liabilities increased. An increase in average premium per policy in our auto business, partially offset by a decrease in exposures, improved adjusted earnings. Higher volume-related and premium tax expenses were partially offset by lower direct expenses, including certain employee-related expenses. This net increase in expenses, mostly offset by the decrease due to the 2019 abatement of the annual health insurer fee under the PPACA, were more than offset by a corresponding increase in premiums, fees and other revenues. The combined impact of the items affecting our business growth increased adjusted earnings by $44 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 returns on private equities and real estate investments, as well as lower income from derivatives, partially offset by higher yields on mortgage loans. The net increase in investment yields was more than offset by the impact of higher average interest credited rates on both our long-duration and deposit-type liabilities, which drove an increase in interest credited expenses. The changes in market factors discussed above resulted in a $63 million decrease in adjusted earnings.

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Underwriting and Other Insurance Adjustments. Favorable claims experience in our Group Benefits business resulted in a $47 million increase in adjusted earnings. This was primarily driven by lower claim severity, favorable renewal results and an increase in recoveries in our group disability business. The impact of growth in the business and favorable claims experience in both our accident & health and individual disability businesses also contributed to the increase in adjusted earnings. Mortality results improved $32 million as compared to the prior period as a result of favorable claims experience in our term life business (primarily due to the unfavorable impact of the influenza virus in the prior period), favorable prior period development and lower incidence, partially offset by less favorable mortality in our universal life, accidental death & dismemberment and pension risk transfer businesses. In our Property & Casualty business, adjusted earnings decreased by $6 million as lower catastrophe-related losses were more than offset by higher commercial losses and loss adjustment expenses. Non-catastrophe claim costs in our auto and homeowner businesses were flat, with higher severities being offset by lower frequencies. Refinements to certain insurance and other liabilities, which were recorded in both periods, resulted in a $22 million increase in adjusted earnings.
Asia
Business Overview. Sales for the three months ended March 31, 2019 increased compared to the prior period, primarily driven by growth in sales of accident & health products, as well as foreign currency-denominated life and annuities products, in Japan.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
1,699

 
$
1,748

Universal life and investment-type product policy fees
406

 
394

Net investment income
880

 
795

Other revenues
16

 
15

Total adjusted revenues
3,001

 
2,952

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
1,319

 
1,343

Interest credited to policyholder account balances
403

 
351

Capitalization of DAC
(479
)
 
(465
)
Amortization of DAC and VOBA
307

 
314

Amortization of negative VOBA
(9
)
 
(15
)
Other expenses
955

 
952

Total adjusted expenses
2,496

 
2,480

Provision for income tax expense (benefit)
149

 
145

Adjusted earnings
$
356

 
$
327

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $11 million for the first quarter of 2019 compared to the prior period, primarily due to the weakening of the Japanese yen and 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, fees and other revenues increased slightly as compared to the prior period as higher sales of fee-based foreign currency-denominated life and annuities products and accident & health products was largely offset by a decline in sales of premium-based yen-denominated life products. The decrease in premiums from yen-denominated life products was partially offset by a related decline in policyholder benefits. Positive net flows in Japan and Korea resulted in higher average invested assets, which improved net investment income. The increase in net investment income was partially offset by a corresponding increase in interest credited expenses on certain insurance liabilities. The combined impact of the items affecting our business growth improved adjusted earnings by $44 million.

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Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment results were favorably impacted by an increase in higher-yielding fixed income securities supporting U.S. dollar-denominated products sold in Japan, partially offset by lower yields on fixed income securities in Korea. In addition, higher returns from real estate investments and derivatives improved net investment income. The changes in market factors discussed above increased adjusted earnings by $22 million.
Underwriting and Other Insurance Adjustments. Higher claims and lapses in Japan decreased adjusted earnings by $24 million. Refinements to certain insurance liabilities and other liabilities in the current period also resulted in a $4 million decrease in adjusted earnings.
Latin America
Business Overview. Sales for the three months ended March 31, 2019 increased compared to the prior period, primarily driven by higher sales of individual and group accident & health products in Mexico, partially offset by a decline in sales in Chile and Brazil.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
646

 
$
699

Universal life and investment-type product policy fees
284

 
282

Net investment income
296

 
276

Other revenues
12

 
8

Total adjusted revenues
1,238

 
1,265

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
597

 
646

Interest credited to policyholder account balances
94

 
98

Capitalization of DAC
(94
)
 
(94
)
Amortization of DAC and VOBA
78

 
60

Interest expense on debt
1

 
2

Other expenses
366

 
338

Total adjusted expenses
1,042

 
1,050

Provision for income tax expense (benefit)
62

 
75

Adjusted earnings
$
134

 
$
140

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $5 million for the first quarter of 2019 compared to the prior period mainly due to the weakening of the Mexican and Chilean 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 primarily within Mexico. This growth resulted in increased premiums and policy fee income, which was largely offset by related changes in policyholder benefits. Positive net flows, primarily from Chile and Argentina, resulted in an increase in average invested assets and generated higher net investment income. Although business growth drove an increase in commissions, net of DAC capitalization, this was more than offset by decreases in interest credited expense on certain insurance liabilities and other variable expenses. The combined impact of the items affecting business growth, partially offset by higher DAC amortization, increased adjusted earnings by $14 million.

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Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields increased, driven by higher yields on FVO Securities, due to the favorable impact of equity markets in our Chilean encaje, and fixed income securities in Mexico and Argentina. These increases in investment yields were partially offset by lower derivative income in Chile. The changes in market factors discussed above increased adjusted earnings by $30 million.
Underwriting and Other Insurance Adjustments. Unfavorable underwriting resulted in a $7 million decrease to adjusted earnings primarily driven by higher claims experience in Mexico. Refinements to certain insurance liabilities and other adjustments in both periods, primarily in Brazil, Chile and Mexico, resulted in a $3 million increase to adjusted earnings.
Expenses and Taxes. A $45 million increase in expenses was primarily the result of a prior period reduction of a litigation reserve in Argentina, along with various other expense increases. Certain tax-related adjustments in both periods, primarily related to foreign exchange volatility in Argentina, resulted in a net decrease in adjusted earnings of $16 million. Prior period results also include tax expenses of $20 million primarily driven by a $17 million tax charge related to a tax adjustment in Chile and a $5 million tax charge in Colombia to establish a deferred tax liability due to a change in tax status.
EMEA
Business Overview. Sales for the three months ended March 31, 2019 increased compared to the prior period, primarily driven by increases in our employee benefits business in the U.K. and our credit life business in Turkey, partially offset by a decline in sales of our life insurance business in the Gulf.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
542

 
$
551

Universal life and investment-type product policy fees
103

 
112

Net investment income
74

 
75

Other revenues
14

 
16

Total adjusted revenues
733

 
754

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
284

 
294

Interest credited to policyholder account balances
24

 
25

Capitalization of DAC
(117
)
 
(118
)
Amortization of DAC and VOBA
92

 
106

Amortization of negative VOBA
(1
)
 
(6
)
Other expenses
338

 
351

Total adjusted expenses
620

 
652

Provision for income tax expense (benefit)
27

 
21

Adjusted earnings
$
86

 
$
81

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $11 million for the first quarter of 2019 as compared to the prior period, primarily driven by the strengthening of the U.S. dollar against the Turkish lira, the euro, the Polish zloty and the British pound. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Growth from our accident & health and credit life businesses in Turkey and across several European markets increased adjusted earnings by $4 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, impacted our results favorably by $7 million primarily due to higher yields in Turkey and Ukraine.

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Underwriting and Other Insurance Adjustments. Favorable underwriting, primarily in our accident & health business in the Gulf and Turkey, as well as favorable underwriting in our employee benefits business in the Gulf, increased adjusted earnings by $8 million. In addition, adjusted earnings increased by $3 million due to current period refinements to certain liabilities recorded in our life insurance business in the Czech Republic.
Taxes. Adjusted earnings decreased by $4 million due to an unfavorable revision to a tax asset in Greece.
MetLife Holdings
Business Overview. Our MetLife Holdings segment consists of operations relating to products and businesses, previously included in our former retail business, that we no longer actively market in the United States. We anticipate an average decline in premiums, fees and other revenues of approximately 5% per year from expected business run-off.
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
927

 
$
950

Universal life and investment-type product policy fees
274

 
314

Net investment income
1,287

 
1,352

Other revenues
67

 
67

Total adjusted revenues
2,555

 
2,683

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
1,648

 
1,550

Interest credited to policyholder account balances
226

 
236

Capitalization of DAC
(6
)
 
(10
)
Amortization of DAC and VOBA
63

 
100

Interest expense on debt
2

 
2

Other expenses
227

 
276

Total adjusted expenses
2,160

 
2,154

Provision for income tax expense (benefit)
78

 
104

Adjusted earnings
$
317

 
$
425

Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
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, primarily in fixed income securities, decreased adjusted earnings. The reduced invested asset base is primarily the result of negative net flows in our deferred annuities and life businesses. This decline was partially offset by invested asset growth from our long-term care business. The negative net flows in our deferred annuities business and a decrease in universal life deposits resulted in lower fee income. The combined impact of the items affecting our business growth, partially offset by lower DAC amortization, resulted in a $27 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 lower returns on private equities and real estate investments. Yields on fixed income securities also decreased. The decline in investment yields was partially offset by increased returns on FVO Securities. The changes in market factors discussed above, partially offset by lower DAC amortization, resulted in a $23 million decrease in adjusted earnings.
Underwriting and Other Insurance Adjustments. Adjusted earnings decreased $17 million, primarily driven by less favorable underwriting in our traditional life and annuity businesses. Refinements to DAC and certain insurance-related liabilities that were recorded in the prior period resulted in an $88 million decrease in adjusted earnings. This includes a prior period favorable reserve adjustment relating to certain variable annuity guarantees assumed from a former joint venture in Japan.

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Expenses. Adjusted earnings increased by $40 million as a result of lower expenses, primarily due to declines in employee-related costs, as well as lower expenses as a result of enterprise-wide initiatives.
Corporate & Other
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
24

 
$
13

Universal life and investment-type product policy fees
1

 

Net investment income
25

 
59

Other revenues
94

 
81

Total adjusted revenues
144

 
153

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
20

 
(3
)
Capitalization of DAC
(2
)
 
(2
)
Amortization of DAC and VOBA
1

 
2

Interest expense on debt
229

 
280

Other expenses
222

 
232

Total adjusted expenses
470

 
509

Provision for income tax expense (benefit)
(165
)
 
(159
)
Adjusted earnings
(161
)
 
(197
)
Less: Preferred stock dividends
32

 
6

Adjusted earnings available to common shareholders
$
(193
)
 
$
(203
)
The table below presents adjusted earnings available to common shareholders by source:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Business activities
$
13

 
$
6

Net investment income
29

 
57

Interest expense on debt
(239
)
 
(293
)
Corporate initiatives and projects
(100
)
 
(39
)
Other
(29
)
 
(87
)
Provision for income tax (expense) benefit and other tax-related items

165

 
159

Preferred stock dividends
(32
)
 
(6
)
Adjusted earnings available to common shareholders
$
(193
)
 
$
(203
)
Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Activities. Adjusted earnings from business activities increased $6 million. This was primarily related to improved results from our start-up operations.
Net Investment Income. Losses on private equities and higher losses on tax credit partnerships in the current period were partially offset by an increase in yields on fixed income securities and higher returns on hedge funds, resulting in a decrease of $22 million in net investment income.

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Interest Expense on Debt. Interest expense on debt decreased by $43 million, primarily due to the exchange of senior notes for Brighthouse Financial, Inc. common stock and the redemption of senior notes for cash in 2018.
Corporate Initiatives and Projects. Adjusted earnings decreased $48 million due to higher expenses associated with corporate initiatives and projects, most notably, costs associated with the continued investment in our unit cost initiative, partially offset by lower costs associated with certain other enterprise-wide initiatives.
Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. Corporate & Other’s effective tax rate differs from the U.S. statutory rate of 21% typically due to benefits from the impact of certain permanent tax-preferenced items, including non-taxable investment income, tax credits for investments in low income housing and foreign earnings taxed at different rates than the U.S. statutory rate. Lower utilization of tax preferenced items decreased adjusted earnings by $5 million from the prior period. Our current period results include benefits of $9 million related to the effect of sequestration on the alternative minimum tax credit and $8 million related to the corporate tax deduction for stock compensation.
Other. Adjusted earnings increased $46 million, primarily as a result of lower interest expenses on tax positions, lower legal expenses and declines in various other expenses, partially offset by increases in certain corporate-related expenses.
Preferred Stock Dividends. Preferred stock dividends increased $26 million as a result of the issuance of Series D preferred stock in March 2018 and Series E preferred stock in June 2018.

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Investments
Investment Risks
Our primary investment objective is to optimize, net of income tax, risk-adjusted net 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 through the Investments Risk Committee using a risk control framework comprised of policies, procedures and limits. This committee reviews and monitors investment risk limits and tolerances. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Investment Risks” included in the 2018 Annual Report for an explanation of investment risks and our risk control framework.
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 Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition” included in the 2018 Annual Report.
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., France, Germany, the Netherlands, Poland, Ireland and Belgium. 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 AFS and perpetual hybrid securities classified as non-redeemable preferred stock are invested in a diversified portfolio of primarily non-financial services securities. At March 31, 2019, our exposure to European fixed maturity securities AFS, including loan-backed securities, totaled $42.4 billion, at estimated fair value, of which $8.3 billion was in sovereign and agency fixed maturity securities AFS. See “— Fixed Maturity Securities AFS and Equity Securities,” as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment — European Investments” included in the 2018 Annual Report for further information.
Selected Country and Sector Investments
We have exposure to country-specific volatility from both maintaining general account investments to support our insurance operations and related policyholder liabilities where we operate and through our global portfolio diversification. We have exposure to country-specific volatility in the U.K., Argentina and Turkey. Our exposure to sovereign and total fixed maturity securities AFS of those countries, on a country of risk basis, totaled $594 million and $17.0 billion, respectively, at estimated fair value, at March 31, 2019. The $17.0 billion exposure was comprised of securities of $17.0 billion net of purchased credit default swaps of $3 million. The notional value of the purchased credit default swaps was $23 million at March 31, 2019.
We also have sector specific exposure to volatility, including the impact of lower oil prices and variability in oil prices, on the energy sector. Our exposure to energy sector fixed maturity securities AFS was, at estimated fair value, $9.1 billion (comprised of securities of $9.2 billion, net of purchased credit default swaps of $4 million, both at estimated fair value) at March 31, 2019. The notional value of the purchased credit default swaps was $5 million at March 31, 2019.
We manage direct and indirect investment exposure in the selected countries and the energy sector 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 or the energy sector will have a material adverse effect on our results of operations or financial condition.

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Investment Portfolio Results
The reconciliation of net investment income under GAAP to net investment income, as reported on an adjusted earnings basis, is presented below.
 
For the Three Months Ended March 31,
 
2019
 
2018
 
(In millions)
Net investment income — GAAP basis
$
4,908

 
$
3,745

Investment hedge adjustments
105

 
110

Unit-linked contract income
(736
)
 
353

Other
4

 
11

Net investment income, as reported on an adjusted basis (1)
$
4,281

 
$
4,219

__________________
(1)
See “— Non-GAAP and Other Financial Disclosures — Adjusted earnings and related measures — Adjusted revenues and adjusted expenses — Net investment income” for a discussion of the adjustments made to net investment income under GAAP in calculating net investment income, as reported on an adjusted basis.
The following yield table presents our investment portfolio results for the periods indicated. We calculate yields on our investment portfolio using the non-GAAP performance metric of 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 Three Months Ended March 31,
 
2019
 
2018
 
Yield % (1)    
 
Amount        
 
Yield % (1)    
 
Amount        
 
(Dollars in millions)
Fixed maturity securities AFS (2), (3)
4.23

%
$
2,902

 
4.19

%
$
2,839

Mortgage loans (3)
4.73

%
912

 
4.53

%
792

Real estate and real estate joint ventures
2.04

%
50

 
3.39

%
83

Policy loans
5.28

%
128

 
5.12

%
124

Equity securities
5.43

%
16

 
3.79

%
16

Other limited partnership interests
7.59

%
127

 
15.10

%
219

Cash and short-term investments
3.08

%
79

 
1.87

%
46

Other invested assets
 
 
203

 
 
 
228

Investment income
4.44

%
4,417

 
4.50

%
4,347

Investment fees and expenses
(0.14
)
%
(136
)
 
(0.13
)
%
(128
)
Net investment income, as reported on an adjusted basis
4.30

%
$
4,281

 
4.37

%
$
4,219

__________________
(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”), Unit-linked investments and FVO Securities. 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 AFS includes amounts from FVO Securities of $55 million and $6 million for the three months ended March 31, 2019 and 2018, respectively.
(3)
Investment income from fixed maturity securities AFS and mortgage loans includes prepayment fees.
See “— Results of Operations — Consolidated Results — Adjusted Earnings” for an analysis of the period over period changes in investment portfolio results.

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Fixed Maturity Securities AFS and Equity Securities
The following table presents fixed maturity securities AFS and equity securities by type (public or private) and information about perpetual and redeemable securities held at:
 
March 31, 2019
 
December 31, 2018
 
 
Estimated Fair Value
 
% of Total
 
Estimated Fair Value
 
% of Total
 
 
(Dollars in millions)
 
Fixed maturity securities AFS
 
 
 
 
 
 
 
 
  Publicly-traded
$
256,903

 
83.3
%
$
249,595

 
83.7
%
  Privately-placed
51,507

 
16.7
 
48,670

 
16.3
 
    Total fixed maturity securities AFS
$
308,410

 
100.0
%
$
298,265

 
100.0
%
        Percentage of cash and invested assets
66.3
%
 
 
 
66.0
%
 
 
 
Equity securities
 
 
 
 
 
 
 
 
  Publicly-traded
$
1,277

 
89.2
%
$
1,282

 
89
%
  Privately-held
155

 
10.8
 
158

 
11
 
    Total equity securities
$
1,432

 
100.0
%
$
1,440

 
100.0
%
        Percentage of cash and invested assets
0.3
%
 
 
 
0.3
%
 
 
 
Perpetual and redeemable securities

 
 
 
 
 
 
 
 
  Perpetual securities included within fixed maturity securities AFS and equity securities
$
351

 
 
 
$
367

 
 
 
  Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS
$
491

 
 
 
$
911

 
 
 
Included within fixed maturity securities AFS are structured securities including residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Securities”).
Perpetual securities are included within fixed maturity securities AFS and equity securities. Upon acquisition, we classify perpetual securities that have attributes of both debt and equity as fixed maturity securities AFS 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 AFS. 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.
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS and Equity Securities — Valuation of Securities” included in the 2018 Annual Report for further information on the processes used to value securities and the related controls.

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Fair Value of Fixed Maturity Securities AFS and Equity Securities
Fixed maturity securities AFS and equity securities measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources are as follows:
 
March 31, 2019
 
Fixed Maturity
Securities AFS
 
 
Equity
Securities
 
(Dollars in millions)
 
Level 1
 
 
 
 
 
 
 
 
 
Quoted prices in active markets for identical assets
$
21,042

 
6.8
%
 
$
901

 
62.9
%
Level 2
 
 
 
 
 
 
 
 
 
Independent pricing sources
270,361

 
87.7
 
 
62

 
4.3
 
Internal matrix pricing or discounted cash flow techniques
1,819

 
0.6
 
 
35

 
2.4
 
Significant other observable inputs
272,180

 
88.3
 
 
97

 
6.7
 
Level 3
 
 
 
 
 
 
 
 
 
Independent pricing sources
11,206

 
3.6
 
 
329

 
23.0
 
Internal matrix pricing or discounted cash flow techniques
3,640

 
1.2
 
 
97

 
6.8
 
Independent broker quotations
342

 
0.1
 
 
8

 
0.6
 
Significant unobservable inputs
15,188

 
4.9
 
 
434

 
30.4
 
Total estimated fair value
$
308,410

 
100.0
%
 
$
1,432

 
100.0
%
See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for the fixed maturity securities AFS and equity securities fair value hierarchy.
The majority of the Level 3 fixed maturity securities AFS and equity securities were concentrated in three sectors: U.S. and foreign corporate securities and RMBS at March 31, 2019. During the three months ended March 31, 2019, Level 3 fixed maturity securities AFS increased by $317 million, or 2%. The increase was driven by an increase in estimated fair value recognized in other comprehensive income (loss) and by purchases in excess of sales, partially offset by transfers out of Level 3 in excess of transfers into Level 3.
See Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements for a rollforward of the fair value measurements for securities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs; transfers into and/or out of Level 3; and further information about the valuation approaches and inputs by level by major classes of invested assets that affect the amounts reported above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Estimated Fair Value of Investments” included in the 2018 Annual Report for further information on the estimates and assumptions that affect the amounts reported above.
Fixed Maturity Securities AFS
See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities; continuous gross unrealized losses, evaluation for other-than-temporary impairment (“OTTI”), evaluation of temporarily impaired securities, OTTI losses incurred and gross gains and gross losses on sales and disposals.
Fixed Maturity Securities AFS Credit Quality — Ratings
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS and Equity Securities — Fixed Maturity Securities Credit Quality — Ratings” included in the 2018 Annual Report for a discussion of the credit quality ratings assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”), credit quality designations assigned by and methodologies used by the Securities Valuation Office of the NAIC for fixed maturity securities AFS and the revised methodologies adopted by the NAIC for certain Structured Securities.

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The following table presents total fixed maturity securities AFS 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 well as the percentage, based on estimated fair value that each NAIC designation is comprised of at:
 
 
 
 
March 31, 2019
 
 
December 31, 2018
 
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
 
$
199,857

 
$
16,486

 
$
216,343

 
70.1
%
 
$
197,604

 
$
11,202

 
$
208,806

 
70.0
%
2
 
Baa
 
72,540

 
3,229

 
75,769

 
24.6
 
 
72,482

 
659

 
73,141

 
24.5
 
 
 
Subtotal investment grade
 
272,397


19,715


292,112

 
94.7
 
 
270,086

 
11,861

 
281,947

 
94.5
 
3
 
Ba
 
11,087

 
263

 
11,350

 
3.7
 
 
11,249

 
(91
)
 
11,158

 
3.7
 
4
 
B
 
4,422

 
(98
)
 
4,324

 
1.4
 
 
4,745

 
(247
)
 
4,498

 
1.6
 
5
 
Caa and lower
 
620

 
(29
)
 
591

 
0.2
 
 
720

 
(73
)
 
647

 
0.2
 
6
 
In or near default
 
33

 

 
33

 
 
 
16

 
(1
)
 
15

 
 
 
 
Subtotal below investment  grade
 
16,162


136


16,298

 
5.3
 
 
16,730

 
(412
)
 
16,318

 
5.5
 
 
 
Total fixed maturity securities AFS
 
$
288,559


$
19,851


$
308,410

 
100.0
%
 
$
286,816

 
$
11,449

 
$
298,265

 
100.0
%
The following tables present total fixed maturity securities AFS, 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:
 
Fixed Maturity Securities AFS — 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)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
35,549

 
$
35,697

 
$
5,543

 
$
2,807

 
$
550

 
$

 
$
80,146

Foreign government
56,604

 
5,283

 
2,412

 
650

 
5

 
1

 
64,955

Foreign corporate
23,761

 
32,517

 
2,890

 
746

 
31

 

 
59,945

U.S. government and agency
40,593

 
415

 

 

 

 

 
41,008

RMBS
27,672

 
405

 
154

 
95

 
2

 
32

 
28,360

ABS
11,406

 
930

 
266

 
26

 
3

 

 
12,631

Municipals
11,426

 
440

 
32

 

 

 

 
11,898

CMBS
9,332

 
82

 
53

 

 

 

 
9,467

Total fixed maturity securities AFS
$
216,343


$
75,769


$
11,350


$
4,324


$
591


$
33


$
308,410

Percentage of total
70.1
%
 
24.6
%
 
3.7
%
 
1.4
%
 
0.2
%
 
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
34,363

 
$
35,081

 
$
5,850

 
$
3,102

 
$
544

 
$
8

 
$
78,948

Foreign government
54,149

 
5,140

 
2,389

 
604

 
5

 
1

 
62,288

Foreign corporate
22,602

 
30,849

 
2,534

 
669

 
49

 

 
56,703

U.S. government and agency
38,915

 
407

 

 

 

 

 
39,322

RMBS
27,370

 
350

 
138

 
94

 
3

 
6

 
27,961

ABS
11,467

 
772

 
204

 
26

 
3

 

 
12,472

Municipals
11,056

 
439

 
38

 

 

 

 
11,533

CMBS
8,884

 
103

 
5

 
3

 
43

 

 
9,038

Total fixed maturity securities AFS
$
208,806


$
73,141


$
11,158


$
4,498


$
647


$
15


$
298,265

Percentage of total
70.0
%
 
24.5
%
 
3.7
%
 
1.6
%
 
0.2
%
 
%
 
100.0
%

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U.S. and Foreign Corporate Fixed Maturity Securities AFS
We maintain a diversified portfolio of corporate fixed maturity securities AFS 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% of total investments at both March 31, 2019 and December 31, 2018. The tables below present our U.S. and foreign corporate securities holdings by industry at:
 
March 31, 2019
 
December 31, 2018
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
(Dollars in millions)
Industrial
$
42,377

 
30.2
%
 
$
40,556

 
29.9
%
Finance
31,488

 
22.5

 
30,546

 
22.5

Consumer
30,518

 
21.8

 
30,140

 
22.2

Utility
23,240

 
16.6

 
22,206

 
16.4

Communications
10,628

 
7.6

 
10,406

 
7.7

Other
1,840

 
1.3

 
1,797

 
1.3

Total
$
140,091

 
100.0
%
 
$
135,651

 
100.0
%
Structured Securities 
We held $50.5 billion and $49.5 billion of Structured Securities, at estimated fair value, at March 31, 2019 and December 31, 2018, respectively, as presented in the RMBS, ABS and CMBS sections below.
RMBS
Our RMBS portfolio is diversified by security type and risk profile. The following table presents our RMBS portfolio by security type, risk profile and ratings profile at:
 
March 31, 2019
 
December 31, 2018
 
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
$
15,640

 
55.1
%
 
$
896

 
$
15,302

 
54.7
%
 
$
726

Pass-through mortgage-backed securities
12,720

 
44.9

 
25

 
12,659

 
45.3

 
(174
)
Total RMBS
$
28,360

 
100.0
%
 
$
921

 
$
27,961

 
100.0
%
 
$
552

By risk profile:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
19,973

 
70.4
%
 
$
316

 
$
19,834

 
70.9
%
 
$
5

Prime
1,146

 
4.0

 
54

 
1,123

 
4.0

 
47

Alt-A
3,294

 
11.6

 
302

 
3,361

 
12.0

 
277

Sub-prime
3,947

 
14.0

 
249

 
3,643

 
13.1

 
223

Total RMBS
$
28,360

 
100.0
%
 
$
921

 
$
27,961

 
100.0
%
 
$
552

Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
20,993

 
74.0
%
 
 
 
$
20,666

 
73.9
%
 
 
Designated NAIC 1
$
27,672

 
97.6
%
 
 
 
$
27,370

 
97.9
%
 
 
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS and Equity Securities — Structured Securities — RMBS” included in the 2018 Annual Report for further information about collateralized mortgage obligations and pass-through mortgage-backed securities, as well as agency, prime, alternative (“Alt-A”) and sub-prime RMBS.

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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). At March 31, 2019 and December 31, 2018, the estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $3.7 billion and $3.4 billion and unrealized gains (losses) were $222 million and $201 million, respectively.
ABS
Our ABS portfolio is diversified by collateral type and issuer. The following table presents our ABS portfolio by collateral type and ratings profile at:
 
March 31, 2019
 
December 31, 2018
 
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 obligations (1)
$
6,887

 
54.5
%
 
$
(56
)
 
$
6,724

 
53.9
%
 
$
(112
)
Student loans
1,384

 
11.0

 
13

 
1,256

 
10.1

 
13

Foreign residential loans
1,066

 
8.4

 
17

 
1,066

 
8.5

 
11

Automobile loans
852

 
6.7

 
3

 
895

 
7.2

 
1

Credit card loans
519

 
4.1

 
2

 
668

 
5.3

 

Consumer loans
625

 
5.0

 
8

 
580

 
4.7

 
4

Other loans
1,298

 
10.3

 
9

 
1,283

 
10.3

 
3

Total
$
12,631

 
100.0
%
 
$
(4
)
 
$
12,472

 
100.0
%
 
$
(80
)
Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
7,109

 
56.3
%
 
 
 
$
7,142

 
57.3
%
 
 
Designated NAIC 1
$
11,406

 
90.3
%
 
 
 
$
11,467

 
91.9
%
 
 
(1) Includes collateralized loan obligations and collateralized debt obligations

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CMBS
Our CMBS portfolio is comprised primarily of securities collateralized by multiple properties and our portfolio is diversified by property type, borrower, geography and vintage year. The following tables present our CMBS portfolio by NRSRO rating and vintage year at:
 
March 31, 2019
 
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)
2003-2012
$
468

 
$
491

 
$
343

 
$
345

 
$
139

 
$
140

 
$
7

 
$
7

 
$

 
$

 
$
957

 
$
983

2013
719

 
753

 
641

 
665

 
278

 
281

 

 

 
58

 
44

 
1,696

 
1,743

2014
381

 
389

 
486

 
493

 
128

 
130

 

 

 

 

 
995

 
1,012

2015
485

 
488

 
90

 
92

 
34

 
35

 

 

 

 

 
609

 
615

2016
337

 
340

 
73

 
72

 
53

 
53

 

 

 

 

 
463

 
465

2017
868

 
873

 
680

 
683

 
213

 
213

 
39

 
39

 

 

 
1,800

 
1,808

2018
1,451

 
1,503

 
691

 
709

 
286

 
294

 
22

 
23

 

 

 
2,450

 
2,529

2019
$
174

 
$
176

 
$
40

 
$
40

 
$
95

 
$
96

 
$

 
$

 
$

 
$

 
$
309

 
$
312

Total
4,883


5,013


3,044


3,099


1,226


1,242


68


69


58


44


9,279


9,467

Ratings Distribution
 
 
53.0
%
 
 
 
32.7
%
 
 
 
13.1
%
 
 
 
0.7
%
 
 
 
0.5
%
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
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 - 2012
$
488

 
$
508

 
$
266

 
$
264

 
$
229

 
$
227

 
$
7

 
$
6

 
$

 
$

 
$
990

 
$
1,005

2013
723

 
746

 
644

 
655

 
279

 
277

 

 

 
59

 
43

 
1,705

 
1,721

2014
381

 
379

 
488

 
485

 
128

 
127

 

 

 

 

 
997

 
991

2015
523

 
514

 
81

 
80

 
34

 
34

 

 

 

 

 
638

 
628

2016
345

 
339

 
84

 
80

 
46

 
46

 

 

 

 

 
475

 
465

2017
862

 
851

 
666

 
654

 
234

 
228

 
39

 
39

 

 

 
1,801

 
1,772

2018
1,434

 
1,445

 
690

 
695

 
292

 
293

 
23

 
23

 

 

 
2,439

 
2,456

Total
$
4,756


$
4,782


$
2,919


$
2,913


$
1,242


$
1,232


$
69


$
68


$
59


$
43


$
9,045


$
9,038

Ratings Distribution
 
 
52.9
%
 
 
 
32.2
%
 
 
 
13.6
%
 
 
 
0.8
%
 
 
 
0.5
%
 
 
 
100.0
%
The tables above reflect NRSRO ratings including Moody’s Investors Service, S&P, Fitch Ratings and Morningstar, Inc. CMBS designated NAIC 1 were 98.6% and 98.3% of total CMBS at March 31, 2019 and December 31, 2018, respectively.
Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS
See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for OTTI and evaluation of temporarily impaired fixed maturity securities AFS.
OTTI Losses on Fixed Maturity Securities AFS Recognized in Earnings
See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about OTTI losses and gross gains and gross losses on fixed maturity securities AFS sold.
Overview of Fixed Maturity Security AFS OTTI Losses Recognized in Earnings
Total impairments and credit-related impairments of fixed maturity securities AFS were $10 million and less than $1 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

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Overall OTTI losses recognized in earnings on fixed maturity securities AFS were $10 million for the three months ended March 31, 2019 as compared to less than $1 million for the three months ended March 31, 2018. The most significant increase in OTTI losses was in U.S. corporate securities, which comprised $8 million for the three months ended March 31, 2019. An increase of $8 million in OTTI losses on U.S. corporate securities was concentrated in industrial securities and was the result primarily of energy sector issuer specific factors in 2019.
Future Impairments
Future OTTI on fixed maturity securities AFS 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 and foreign currency exchange rates. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods. See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements for a description of new guidance to be adopted in 2020 regarding the measurement of credit losses on financial instruments.
Contractholder-Directed Equity Securities and Fair Value Option Securities
The estimated fair value of these investments, which are primarily comprised of Unit-linked investments, was $13.2 billion and $12.6 billion, or 2.8% and 2.8% of cash and invested assets, at March 31, 2019 and December 31, 2018, respectively. See Notes 5 and 7 of the Notes to the Interim Condensed Consolidated Financial Statements for a description of this portfolio, its fair value hierarchy and a rollforward of the fair value measurements for these investments measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.    
Securities Lending and Repurchase Agreements
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. In addition, we participate in short-term repurchase agreement transactions with unaffiliated financial institutions.
See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending,” “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Repurchase Agreements” and Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our securities lending program and our repurchase agreement transactions.
FHLB of Boston Advance Agreements
A subsidiary of the Company has entered into short-term advance agreements with the Federal Home Loan Bank of Boston (“FHLB of Boston”).
See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our FHLB of Boston advance agreement transactions.
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:
 
March 31, 2019
 
December 31, 2018
 
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded Investment
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded Investment
 
 
(Dollars in millions)
Commercial
 
$
49,960

 
63.5
%
 
$
245

 
0.5
%
 
$
48,463

 
63.9
%
 
$
238

 
0.5
%
Agricultural
 
15,130

 
19.2

 
47

 
0.3
%
 
14,905

 
19.7

 
46

 
0.3
%
Residential
 
13,585

 
17.3

 
58

 
0.4
%
 
12,427

 
16.4

 
58

 
0.5
%
Total
 
$
78,675

 
100.0
%
 
$
350

 
0.4
%
 
$
75,795

 
100.0
%
 
$
342

 
0.5
%
The information presented in the tables herein exclude mortgage loans where we elected the fair value option. Such amounts are presented in Notes 5 and 7 of the Notes to the Interim Condensed Consolidated Financial Statements. The carrying value of all mortgage loans, net of valuation allowance, was 16.9% and 16.8% of cash and invested assets at March 31, 2019 and December 31, 2018, respectively.

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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, 83% are collateralized by properties located in the United States, with the remaining 17% collateralized by properties located outside the United States, which included 5% of properties located in the U.K., at March 31, 2019. The carrying values of our commercial and agricultural mortgage loans located in California, New York and Texas were 18%, 11% and 7%, respectively, of total commercial and agricultural mortgage loans at March 31, 2019. 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 92% collateralized by properties located in the United States and the remaining 8% collateralized by properties located outside the United States at March 31, 2019. The carrying values of our residential mortgage loans located in California, Florida, and New York were 32%, 9%, and 6%, respectively, of total residential mortgage loans at March 31, 2019.
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:
 
March 31, 2019
 
December 31, 2018
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
(Dollars in millions)
Region
 
 
 
 
 
 
 
Pacific
$
10,683
 
 
21.4
%
 
$
10,884
 
 
22.5
%
International
9,727
 
 
19.5

 
9,281
 
 
19.1

Middle Atlantic
7,873
 
 
15.7

 
7,911
 
 
16.3

South Atlantic
6,427
 
 
12.9

 
6,347
 
 
13.1

West South Central
4,299
 
 
8.6

 
3,951
 
 
8.1

East North Central
3,269
 
 
6.5

 
2,840
 
 
5.9

New England
1,479
 
 
3.0

 
1,481
 
 
3.1

Mountain
1,501
 
 
3.0

 
1,387
 
 
2.9

West North Central
594
 
 
1.2

 
594
 
 
1.2

East South Central
563
 
 
1.1

 
564
 
 
1.2

Multi-Region and Other
3,545
 
 
7.1

 
3,223
 
 
6.6

Total recorded investment
49,960
 
 
100.0
%
 
48,463
 
 
100.0
%
  Less: valuation allowances
245
 
 
 
 
238
 
 
 
  Carrying value, net of valuation allowances
$
49,715
 
 
 
 
$
48,225
 
 
 
Property Type
 
 
 
 
 
 
 
Office
$
24,514
 
 
49.1
%
 
$
23,995
 
 
49.5
%
Retail
9,387
 
 
18.8

 
9,089
 
 
18.7

Apartment
6,943
 
 
13.9

 
7,018
 
 
14.5

Industrial
3,761
 
 
7.5

 
3,719
 
 
7.7

Hotel
3,716
 
 
7.4

 
3,479
 
 
7.2

Other
1,639
 
 
3.3

 
1,163
 
 
2.4

Total recorded investment
49,960
 
 
100.0
%
 
48,463
 
 
100.0
%
  Less: valuation allowances
245
 
 
 
 
238
 
 
 
  Carrying value, net of valuation allowances
$
49,715
 
 
 
 
$
48,225
 
 
 
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 5 of the Notes to the Interim Condensed Consolidated Financial Statements for tables that present mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans, impaired mortgage loans, as well as the carrying value of foreclosed mortgage loans and real estate joint ventures.

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We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, 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 included in the 2018 Annual Report for information on our evaluation of residential mortgage loans and related valuation allowance methodology.
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 55% at both March 31, 2019 and December 31, 2018 and our average debt service coverage ratio was 2.4 .x and 2.5x for March 31, 2019 and December 31, 2018, respectively. 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 46% at both March 31, 2019 and December 31, 2018. 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 Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how valuation allowances are established and monitored, and activity in and balances of the valuation allowance, as of and for the three months ended March 31, 2019 and 2018.
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. We diversify our real estate investments by both geographic region and property type to reduce risk of concentration. The carrying value of real estate and real estate joint ventures was $10.0 billion and $9.7 billion, or 2.2% and 2.1% of cash and invested assets, at March 31, 2019 and December 31, 2018, respectively. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for a summary of real estate investments and income earned, as well as for the portion of our real estate investments leased under operating leases, a summary of the leased real estate investments, by property type, and the related operating lease income earned.

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Other Limited Partnership Interests
Other limited partnership interests are comprised of investments in private funds, including private equity funds and hedge funds. At March 31, 2019 and December 31, 2018, the carrying value of other limited partnership interests was $6.8 billion and $6.6 billion, which included $570 million and $634 million of hedge funds, respectively. Other limited partnership interests were 1.5% of cash and invested assets at both March 31, 2019 and December 31, 2018. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Freestanding derivatives with positive estimated fair values
$
8,822

 
48.5
%
 
$
8,969

 
49.3
%
Tax credit and renewable energy partnerships
2,348

 
12.9

 
2,457

 
13.5

Annuities funding structured settlement claims
1,281

 
7.1

 
1,279

 
7.0

Direct financing leases
1,277

 
7.0

 
1,192

 
6.5

Leveraged leases
1,115

 
6.1

 
1,108

 
6.1

Operating joint ventures
831

 
4.6

 
796

 
4.4

FHLB common stock
793

 
4.4

 
793

 
4.4

Funds withheld
444

 
2.4

 
416

 
2.3

Other
1,264

 
7.0

 
1,180

 
6.5

Total
$
18,175

 
100.0
%
 
$
18,190

 
100.0
%
 
 
 
 
 
 
 
 
Percentage of cash and invested assets
3.9
%
 
 
 
4.0
%
 
 
For the three months ended March 31, 2019 and 2018, tax credit and renewable energy partnerships impairments were $78 million and $0 and leveraged lease impairments were $0 and $105 million, respectively.    
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for information regarding the components of other invested assets. See Notes 6 and 7 of the Notes to the Interim Condensed Consolidated Financial Statements for further information about freestanding derivatives with positive estimated fair values and lease investments.

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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 6 of the Notes to the Interim Condensed Consolidated Financial Statements for: 
A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various risks.
Information about the primary underlying risk exposure, gross notional amount, and estimated fair value of our derivatives by type of hedge designation, excluding embedded derivatives held at March 31, 2019 and December 31, 2018.
The statement of operations effects of derivatives in net investments in foreign operations, cash flow, fair value, or nonqualifying hedge relationships for the three months ended March 31, 2019 and 2018.
See “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures — Hedging Activities” included in the 2018 Annual Report for more information about our use of derivatives by major hedge program.
Fair Value Hierarchy
See Note 7 of the Notes to the Interim Condensed 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 March 31, 2019 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 March 31, 2019, less than 1% of the estimated fair value of our derivatives was priced through independent broker quotations.
See Note 7 of the Notes to the Interim Condensed 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 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.
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:
 
 
Three Months
Ended
March 31, 2019
Gain (loss) recognized in net income (loss)
 
$70 million
Approximate percentage of gain (loss) attributable to observable inputs
 
55%
Primary drivers of observable gain (loss)
 
Decreases in interest rates on interest rate total return swaps and, to a lesser extent, increases in certain equity index levels on equity derivatives.
Approximate percentage of gain (loss) attributable to unobservable inputs
 
45%

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Derivatives” included in the 2018 Annual Report for further information on the estimates and assumptions that affect derivatives.
Credit Risk
See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how we manage credit risk related to derivatives and for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.
Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. This policy applies to the recognition of derivatives on the consolidated balance sheets, and does not affect our legal right of offset.
Credit Derivatives
The following table presents the gross notional amount and estimated fair value of credit default swaps at:
 
 
March 31, 2019
 
December 31, 2018
Credit Default Swaps
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
 
(In millions)
Purchased
 
$
2,248

 
$
(46
)
 
$
1,903

 
$
(14
)
Written
 
11,409

 
195

 
11,391

 
82

Total
 
$
13,657

 
$
149

 
$
13,294

 
$
68

The following table presents the gross gains, gross losses and net gains (losses) recognized in net derivative gains (losses) for credit default swaps as follows:
 
 
Three Months
Ended
March 31,
 
 
2019
 
2018
Credit Default Swaps
 
Gross
Gains
 
Gross
Losses
 
Net
Gains
(Losses)
 
Gross
Gains
 
Gross
Losses
 
Net
Gains
(Losses)
 
 
(In millions)
Purchased (1)
 
$
3

 
$
(18
)
 
$
(15
)
 
$
1

 
$
(4
)
 
$
(3
)
Written (1)
 
137

 
(1
)
 
136

 
1

 
(45
)
 
(44
)
Total
 
$
140

 
$
(19
)
 
$
121

 
$
2

 
$
(49
)
 
$
(47
)
__________________
(1)
Gains (losses) do not include earned income (expense) on credit default swaps.
The unfavorable change in net gains (losses) on purchased credit default swaps of $12 million was due to certain credit spreads on credit default swaps hedging certain bonds narrowing more in the current period as compared to the prior period. The favorable change in net gains (losses) on written credit default swaps of $180 million was due to certain credit spreads on certain credit default swaps used as replications narrowing in the current period as compared to widening in the prior period.
The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by 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 7 of the Notes to the Interim Condensed Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value on a recurring basis and their corresponding fair value hierarchy and 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 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about the nonperformance risk adjustment included in the valuation of guaranteed minimum benefits accounted for as embedded derivatives.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Derivatives” included in the 2018 Annual Report for further information on the estimates and assumptions that affect embedded derivatives.
Off-Balance Sheet Arrangements
Credit and Committed Facilities
We maintain an unsecured revolving credit facility and certain 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 revolving credit and committed facilities and the nature of the associated liability for letters of credit issued and drawdowns on these facilities, see Note 12 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Collateral for Securities Lending, Third-Party Custodian Administered Repurchase Programs and Derivatives
We participate in a securities lending program and third-party custodian administered repurchase programs in the normal course of business for the purpose of enhancing the total return on our investment portfolio. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as “Summary of Significant Accounting Policies — Investments— Securities Lending and Repurchase Agreements” in Note 1 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for further discussion of our securities lending program and repurchase agreement transactions, the classification of revenues and expenses, and the nature of the secured financing arrangements and associated liabilities.
Securities lending: Periodically we receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not reflected on our consolidated balance sheets. The amount of this non-cash collateral was $71 million and $78 million at estimated fair value at March 31, 2019 and December 31, 2018, respectively.
Third-party custodian administered repurchase programs: We loan certain of our fixed maturity securities AFS to unaffiliated financial institutions and, in exchange, non-cash collateral is put on deposit by the unaffiliated financial institutions on our behalf with third-party custodians. The estimated fair value of securities loaned in connection with these transactions was $50 million and $78 million at March 31, 2019 and December 31, 2018, respectively. Non-cash collateral on deposit with third-party custodians on our behalf was $54 million and $84 million, at estimated fair value, at March 31, 2019 and December 31, 2018, respectively, which cannot be sold or re-pledged, and which is not reflected on our consolidated balance sheets.
Derivatives: We enter into derivatives to manage various risks relating to our ongoing business operations. We receive non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not reflected on our consolidated balance sheets. The amount of this non-cash collateral was $2.2 billion and $1.3 billion, at estimated fair value, at March 31, 2019 and December 31, 2018, respectively. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and Note 6 of the Notes to the Interim Condensed 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 and equipment. Our commitments under such lease agreements are included within the contractual obligations table. See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Contractual Obligations” and Note 20 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Guarantees
See “Guarantees” in Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.

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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 5 of the Notes to the Interim Condensed Consolidated Financial Statements for information on the investment income, investment expense, and gains and losses from such investments. See also “— Investments — Fixed Maturity Securities AFS and Equity Securities” and “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities AFS 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 14 of the Notes to the Interim Condensed 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.
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 interim condensed 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” included in the 2018 Annual Report.
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.
See “Business — Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” included in the 2018 Annual Report for further information regarding required analyses of the adequacy of statutory reserves of our insurance operations.
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 included in the 2018 Annual Report for additional information. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” included in the 2018 Annual Report and “— Variable Annuity Guarantees.” A discussion of future policy benefits by segment (as well as Corporate & Other) follows.

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U.S.
Amounts payable under insurance policies for this segment are comprised of group insurance and annuities, as well as property and 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 and 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.
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 and by the use of reinsurance.
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, applying various ALM strategies and by the use of reinsurance.
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 that 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 that are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for other reinsurance business.

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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” included in the 2018 Annual Report and “— Variable Annuity Guarantees.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report 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.
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 adversely impact liabilities and 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:
 
March 31, 2019
Guaranteed Minimum Crediting Rate
Account
Value
 
Account
Value at
Guarantee
 
(In millions)
Greater than 0% but less than 2%
$
4,765

 
$
4,641

Equal to or greater than 2% but less than 4%
$
1,750

 
$
1,713

Equal to or greater than 4%
$
745

 
$
715

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) London Interbank Offered Rate. 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.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Retirement and Income Solutions:
 
March 31, 2019
Guaranteed Minimum Crediting Rate
Account
Value
 
Account
Value at
Guarantee
 
(In millions)
Greater than 0% but less than 2%
$
144

 
$

Equal to or greater than 2% but less than 4%
$
1,086

 
$
91

Equal to or greater than 4%
$
4,621

 
$
4,618


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Asia
Policyholder account balances in this segment are held largely for fixed income retirement and savings plans, fixed deferred annuities, interest sensitive whole life products, universal life and, to a lesser degree, liability amounts for Unit-linked investments that do not meet the GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in certain countries in Asia that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on certain variable annuities in Asia are accounted for as embedded derivatives and recorded at estimated fair value and are also included within policyholder account balances. A sustained low interest rate environment could adversely impact liabilities and earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We mitigate our risks by applying various ALM strategies and with reinsurance. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated underlying investments, as the return on assets is generally passed directly to the policyholder.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
 
March 31, 2019
Guaranteed Minimum Crediting Rate
Account
Value
 
Account
Value at
Guarantee
 
(In millions)
Annuities
 
 
 
Greater than 0% but less than 2%
$
27,070

 
$
1,822

Equal to or greater than 2% but less than 4%
$
1,175

 
$
207

Equal to or greater than 4%
$
1

 
$
1

Life & Other
 
 
 
Greater than 0% but less than 2%
$
10,405

 
$
10,086

Equal to or greater than 2% but less than 4%
$
25,350

 
$
9,128

Equal to or greater than 4%
$
277

 
$
277

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 investments that do not meet the GAAP definition of separate accounts. The rest of the deferred annuities have minimum credited rate guarantees, which could adversely impact liabilities and earnings in a sustained low interest rate environment. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.
EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuity, pension products, and Unit-linked investments that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. A sustained low interest rate environment could adversely impact liabilities and earnings as a result of the minimum credited rate guarantees present in many of these policyholder account balances. We mitigate our risks by applying various ALM strategies. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.
MetLife Holdings
Life policyholder account balances 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 adversely impact liabilities and 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:
 
March 31, 2019
Guaranteed Minimum Crediting Rate
Account
Value
 
Account
Value at
Guarantee
 
(In millions)
Greater than 0% but less than 2%
$
1,455

 
$
1,358

Equal to or greater than 2% but less than 4%
$
18,494

 
$
15,845

Equal to or greater than 4%
$
8,051

 
$
5,497

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 Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report 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 Guaranteed Minimum Death Benefits (“GMDBs”), the life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”), elective guaranteed minimum income benefit (“GMIB”) annuitizations, and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero. These liabilities are accrued over the life of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At the end of each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.
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 guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk-neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value, see Note 7 of the Notes to the Interim Condensed Consolidated Financial Statements.

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The table below presents the carrying value for guarantees at: 
 
Future Policy
Benefits
 
Policyholder
Account Balances
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Asia
 
 
 
 
 
 
 
GMDB
$
3

 
$
3

 
$

 
$

GMAB

 

 
33

 
34

GMWB
81

 
81

 
151

 
143

EMEA
 
 
 
 
 
 
 
GMDB
3

 
7

 

 

GMAB

 

 
20

 
24

GMWB
48

 
70

 
(77
)
 
(82
)
MetLife Holdings
 
 
 
 
 
 
 
GMDB
291

 
289

 

 

GMIB
756

 
743

 
12

 
106

GMAB

 

 
1

 
5

GMWB
127

 
129

 
435

 
563

Total
$
1,309

 
$
1,322

 
$
575

 
$
793

The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $201 million and $263 million at March 31, 2019 and December 31, 2018, respectively. These nonperformance risk adjustments represent the impact of including a credit spread when discounting the underlying risk-neutral cash flows to determine the estimated fair values. The nonperformance risk adjustment does not have an economic impact on us as it cannot be monetized given the nature of these policyholder liabilities. The change in valuation arising from the nonperformance risk adjustment is not hedged.
The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity volatility, interest rates or foreign currency exchange rates. Carrying values are also impacted by our assumptions around mortality, separate account returns and policyholder behavior, including lapse rates.
As discussed below, we use a combination of product design, hedging strategies, reinsurance, and other risk management actions to mitigate the risks related to these benefits. Within each type of guarantee, there is a range of product offerings reflecting the changing nature of these products over time. Changes in product features and terms are in part driven by customer demand but, more importantly, reflect our risk management practices of continuously evaluating the guaranteed benefits and their associated asset-liability matching. We continue to diversify the concentration of income benefits in our portfolio by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities.
The sections below provide further detail by total account value for certain of our most popular guarantees. Total account values include amounts not reported on the consolidated balance sheets from assumed business, Unit-linked investments that do not qualify for presentation as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and assumed business, but exclude offsets from hedging or ceded reinsurance, if any.

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GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at March 31, 2019:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
Return of premium or five to seven year step-up
$
9,208

 
$
48,238

Annual step-up

 
3,239

Roll-up and step-up combination

 
5,781

Total
$
9,208

 
$
57,258

__________________
(1)
Total account value excludes $239 million for contracts with no GMDBs. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantees are not mutually exclusive.
Based on total account value, less than 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 March 31, 2019:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
GMIB
$

 
$
21,827

GMWB - non-life contingent (2)
2,220

 
2,661

GMWB - life-contingent
3,943

 
9,607

GMAB
2,201

 
353

Total
$
8,364

 
$
34,448

__________________
(1)
Total account value excludes $23.7 billion for contracts with no living benefit guarantees. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantee amounts are not mutually exclusive.
(2)
The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $945 million with a guarantee at annuitization.
In terms of total account value, GMIBs are our most significant living benefit guarantee. Our primary risk management strategy for our GMIB products is our derivatives hedging program as discussed below. Additionally, we have engaged in certain reinsurance agreements covering some of our GMIB business. As part of our overall risk management approach for living benefit guarantees, we continually monitor the reinsurance markets for the right opportunity to purchase additional coverage for our GMIB business. We stopped selling GMIBs in February 2016.

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The table below presents our GMIB associated total account values, by their guaranteed payout basis, at March 31, 2019:
 
Total Account Value
 
(In millions)
7-year setback, 2.5% interest rate
$
5,889

7-year setback, 1.5% interest rate
958

10-year setback, 1.5% interest rate
4,552

10-year mortality projection, 10-year setback, 1.0% interest rate
8,834

10-year mortality projection, 10-year setback, 0.5% interest rate
1,594

 
$
21,827

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, 42% of the $21.8 billion of GMIB total account value has been invested in managed volatility funds as of March 31, 2019. 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 March 31, 2019, only 20% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of four 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 3 of the Notes to the Interim Condensed 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 $424 million at March 31, 2019, of which $350 million was related to GMIBs. For those contracts with GMIB, the table below presents details of contracts that are in-the-money and out-of-the-money at March 31, 2019:
 
In-the-
Moneyness
 
Total
Account Value
 
% of Total

 
(In millions)
In-the-money
30% +
 
$
332

 
2
%
 
20% to 30%
 
229

 
1
%
 
10% to 20%
 
447

 
2
%
 
0% to 10%
 
855

 
4
%
 
 
 
1,863

 
 
Out-of-the-money
-10% to 0%
 
1,884

 
9
%
 
-20% to -10%
 
3,243

 
15
%
 
-20% +
 
14,837

 
68
%
 
 
 
19,964

 
 
Total GMIBs
 
 
$
21,827

 
 

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Derivatives Hedging Variable Annuity Guarantees
Our risk mitigating hedging strategy uses various over-the-counter 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:
 
 
Instrument Type
 
March 31, 2019
 
December 31, 2018
Primary Underlying
Risk Exposure
 
Gross Notional
Amount
 
Estimated Fair Value
 
Gross Notional
Amount
 
Estimated Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
 
(In millions)
Interest rate
 
Interest rate swaps
 
$
7,578

 
$
67

 
$
15

 
$
8,209

 
$
89

 
$
3

 
 
Interest rate futures
 
1,389

 
1

 
4

 
1,559

 
1

 
3

 
 
Interest rate options
 
838

 
186

 

 
838

 
163

 

Foreign currency exchange rate
 
Foreign currency forwards
 
2,280

 
18

 
9

 
1,815

 
44

 
9

Equity market
 
Equity futures
 
3,313

 
2

 
17

 
2,730

 
11

 
77

 
 
Equity index options
 
10,029

 
413

 
643

 
9,933

 
408

 
546

 
 
Equity variance swaps
 
2,269

 
43

 
92

 
2,269

 
40

 
87

 
 
Equity total return swaps
 
767

 
1

 
52

 
929

 
91

 

 
 
Total
 
$
28,463

 
$
731

 
$
832

 
$
28,282

 
$
847

 
$
725

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 $10.6 billion and $11.1 billion at March 31, 2019 and December 31, 2018, 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 $208.2 billion and $202.7 billion at March 31, 2019 and December 31, 2018, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with securities lending, repurchase agreements, derivatives, regulatory deposits, the collateral financing arrangement, funding agreements and secured borrowings, as well as amounts held in the closed block.
Capital Management
We have established several senior management committees as part of our capital management process. These committees, including the Capital Management Committee and the Enterprise Risk Committee (“ERC”), regularly review actual and projected capital levels (under a variety of scenarios including stress scenarios) and our annual capital plan in accordance with our capital policy. The Capital Management Committee is comprised of members of senior management, including MetLife, Inc.’s Chief Financial Officer (“CFO”), Treasurer, and Chief Risk Officer (“CRO”). The ERC is also comprised of members of senior management, including MetLife, Inc.’s CFO, CRO and Chief Investment Officer.
Our Board of Directors and senior management are directly involved in the development and maintenance of our capital policy. The capital policy sets forth, among other things, minimum and target capital levels and the governance of the capital management process. All capital actions, including proposed changes to the annual capital plan, capital targets or capital policy, are reviewed by the Finance and Risk Committee of the Board of Directors prior to obtaining full Board of Directors approval. The Board of Directors approves the capital policy and the annual capital plan and authorizes capital actions, as required.
See “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report 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 authorization.
The Company
Liquidity
Liquidity refers to the ability to generate adequate amounts of cash to meet our needs. 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.
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.

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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:
 
Three Months
Ended
March 31,
 
2019
 
2018
 
(In millions)
Sources:
 
 
 
Operating activities, net
$
2,072

 
$
1,296

Net change in policyholder account balances
2,987

 
414

Net change in payables for collateral under securities loaned and other transactions
388

 
592

Cash received for other transactions with tenors greater than three months


 
75

Long-term debt issued

 
14

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

 
37

Preferred stock issued, net of issuance costs

 
494

Other, net
4

 
100

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

 
197

Total sources
5,451

 
3,219

Uses:
 
 
 
Investing activities, net
5,699

 
485

Cash paid for other transactions with tenors greater than three months

75

 

Long-term debt repaid
10

 
32

Collateral financing arrangements repaid
12

 
13

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

29

 

Treasury stock acquired in connection with share repurchases
500

 
1,041

Dividends on preferred stock
32

 
6

Dividends on common stock
405

 
416

Effect of change in foreign currency exchange rates on cash and cash equivalents
4

 

Total uses
6,766

 
1,993

Net increase (decrease) in cash and cash equivalents
$
(1,315
)
 
$
1,226

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 and 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.
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.

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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 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 Company’s primary sources of liquidity and capital are set forth below.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-term debt, the collateral financing arrangement, junior subordinated debt securities, preferred securities, equity securities and equity-linked securities. MetLife, Inc. maintains a shelf registration statement with the U.S Securities and Exchange Commission (“SEC”) that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, MetLife, Inc.’s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:
Preferred Stock
See Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Common Stock
During the three months ended March 31, 2019 and 2018, MetLife, Inc. issued 2,766,548 and 1,934,114 new shares of its common stock, respectively, for $92 million and $74 million, respectively, to satisfy various stock option exercises and other stock-based awards.
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. and MetLife Funding, Inc. (“MetLife Funding”), a subsidiary of MLIC, 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 U.S. insurance subsidiaries are members of a regional Federal Home Loan Bank (“FHLB”). During the three months ended March 31, 2019 and 2018, we issued $8.1 billion and $6.5 billion, respectively, and repaid $8.1 billion and $6.5 billion, respectively, under funding agreements with certain regional FHLBs. At both March 31, 2019 and December 31, 2018, total obligations outstanding under these funding agreements were $15.1 billion. See Note 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Federal Home Loan Bank Advance Agreements, Reported in Payables for Collateral Under Securities Loaned and Other Transactions
During the three months ended March 31, 2019 and 2018, we issued $675 million and $800 million, respectively, and repaid $675 million and $300 million, respectively, under advance agreements with a regional FHLB. At both March 31, 2019 and December 31, 2018, total obligations outstanding under these advance agreements were $800 million. See Note 5 of the Notes to the Interim Condensed 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 three months ended March 31, 2019 and 2018, we issued $10.2 billion and $12.9 billion, respectively, and repaid $8.5 billion and $13.9 billion, respectively, under such funding agreements. At March 31, 2019 and December 31, 2018, total obligations outstanding under these funding agreements were $34.2 billion and $32.3 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Federal Agricultural Mortgage Corporation Funding Agreements, Reported in Policyholder Account Balances
We have issued funding agreements to a subsidiary of the Federal Agricultural Mortgage Corporation (“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 each of the three months ended March 31, 2019 and 2018, we issued $125 million and repaid $125 million, under such funding agreements. At both March 31, 2019 and December 31, 2018, total obligations outstanding under these funding agreements were $2.6 billion. See Note 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Credit and Committed Facilities
At March 31, 2019, we maintained a $3.0 billion unsecured revolving credit facility and certain committed facilities aggregating $3.3 billion, of which MetLife, Inc. is a party and/or guarantor. 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 March 31, 2019, we had outstanding $446 million in letters of credit and no drawdowns against this facility. Remaining availability was $2.6 billion at March 31, 2019.
The committed facilities are used as collateral for certain of our affiliated reinsurance liabilities. At March 31, 2019, we had outstanding $2.8 billion in letters of credit and no drawdowns against these facilities. Remaining availability was $481 million at March 31, 2019.
See Note 12 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for further information about these facilities.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these facilities. As commitments under our credit and committed facilities may expire unused, these amounts do not necessarily reflect our actual future cash funding requirements.
Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt, excluding long-term debt relating to CSEs, at:
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Short-term debt (1)
$
289

 
$
268

Long-term debt (2)
$
12,845

 
$
12,824

Collateral financing arrangement
$
1,048

 
$
1,060

Junior subordinated debt securities
$
3,148

 
$
3,147

__________________
(1)
Includes $190 million and $168 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at March 31, 2019 and December 31, 2018, respectively. Certain subsidiaries have pledged assets to secure this debt.
(2)
Includes $415 million and $422 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at March 31, 2019 and December 31, 2018, respectively. Certain investment subsidiaries have pledged assets to secure this debt.

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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 financial covenants at March 31, 2019.
Liquidity and Capital Uses
In addition to the general description of liquidity and capital uses in “— Summary of the Company’s Primary Sources and Uses of Liquidity and Capital,” the Company’s primary uses of liquidity and capital are set forth below.
Common Stock Repurchases
See Note 9 of the Notes to the Interim Condensed 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 three months ended March 31, 2019 and 2018, and the amount remaining under such authorizations at March 31, 2019.
Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, and other legal and accounting factors. Restrictions on the payment of dividends that may arise under so-called “Dividend Stopper” provisions would also restrict MetLife, Inc.’s ability to repurchase common stock. See “Business — Regulation,” “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Dividends
During the three months ended March 31, 2019 and 2018, MetLife, Inc. paid dividends on its preferred stock of $32 million and $6 million, respectively. During the three months ended March 31, 2019 and 2018, MetLife, Inc. paid $405 million and $416 million, respectively, of dividends on its common stock. See Note 9 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the calculation and timing of these dividend payments.
Dividends are paid quarterly on MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock, Series A. Dividends are paid semi-annually on MetLife, Inc.’s 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, until June 15, 2020 and, thereafter, will be paid quarterly. Dividends are paid semi-annually on MetLife, Inc.’s 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D, in September and March until March 15, 2028 and, thereafter, will be paid quarterly. Dividends are paid quarterly on MetLife, Inc.’s 5.625% Non-Cumulative Preferred Stock, Series E.
The declaration and payment of common stock dividends are 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 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for additional information. See also Note 15 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding a common stock dividend declared subsequent to March 31, 2019.
Dividend Restrictions
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Dividends — ‘Dividend Stopper’ Provisions in MetLife’s Preferred Stock and Junior Subordinated Debentures,” “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.

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Debt Repayments
During the three months ended March 31, 2019 and 2018, following regulatory approval, MetLife Reinsurance Company of Charleston, a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $12 million and $13 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets.
Debt Repurchases, Redemptions and Exchanges
We may from time to time seek to retire or purchase our outstanding debt through cash purchases, redemptions and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases, redemptions, or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not to repurchase or redeem any debt and the size and timing of any such repurchases or redemptions will be determined at our discretion.
Support Agreements
MetLife, Inc. and several of its subsidiaries (each, an “Obligor”) are parties to various capital support commitments and guarantees with subsidiaries. Under these arrangements, each Obligor has agreed to cause the applicable entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquidity and Capital Uses — Support Agreements” included in the 2018 Annual Report.
Insurance Liabilities
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, property and 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 three months ended March 31, 2019 and 2018, general account surrenders and withdrawals from annuity products were $497 million and $450 million, respectively. In the RIS business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the RIS business products that provide customers with limited rights to accelerate payments, at March 31, 2019 there were funding agreements totaling $139 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 March 31, 2019 and December 31, 2018, we had received pledged cash collateral from counterparties of $4.1 billion and $5.0 billion, respectively. At March 31, 2019 and December 31, 2018, we had pledged cash collateral to counterparties of $293 million and $283 million, respectively. See Note 6 of the Notes to the Interim Condensed 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.
We pledge collateral from time to time in connection with funding agreements and advance agreements. See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements, as well as Note 4 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.

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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 $18.3 billion and $18.0 billion at March 31, 2019 and December 31, 2018, respectively. Of these amounts, $3.5 billion and $2.7 billion at March 31, 2019 and December 31, 2018, 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 March 31, 2019 was $3.5 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 5 of the Notes to the Interim Condensed 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 $1.9 billion and $1.1 billion at March 31, 2019 and December 31, 2018, respectively. The estimated fair value of the securities on loan at March 31, 2019 was $2.0 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 5 of the Notes to the Interim Condensed Consolidated Financial Statements.
Litigation
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts accrued, when such an estimate can be made. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods. See Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.
Contractual Obligations
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Contractual Obligations” included in the 2018 Annual Report for additional information regarding the Company’s contractual obligations.
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Rating Agencies” in the 2018 Annual Report.

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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.” See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchases.
Liquid Assets
At March 31, 2019 and December 31, 2018, MetLife, Inc. and other MetLife holding companies had $3.2 billion and $3.0 billion, respectively, in liquid assets. Of these amounts, $2.7 billion and $2.4 billion were held by MetLife, Inc. and $534 million and $607 million were held by other MetLife holding companies at March 31, 2019 and December 31, 2018, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include amounts received in connection with derivatives and a collateral financing arrangement.
Liquid assets held in non-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 disclosed our intent to repatriate approximately $3.0 billion of pre-2017 earnings. See Note 18 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report for information on the taxation of such cumulative earnings. The Company repatriated $2.6 billion in the fourth quarter of 2017 and the remaining $400 million in the second quarter of 2018. As a result of the Tax Cuts and Jobs Act of 2017, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquid Assets” included in the 2018 Annual Report for additional information on the sources and uses of liquid assets, as well as sources and uses of liquid assets included in free cash flow for MetLife, Inc. and other MetLife holding companies.
Liquidity and Capital Sources
In addition to the description of liquidity and capital sources in “— The Company — Summary of the Company’s Primary Sources and Uses of Liquidity and Capital” and “— The Company — Liquidity and Capital Sources,” MetLife, Inc.’s primary sources of liquidity and capital are set forth below.
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.

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The table below sets forth the dividends permitted to be paid in 2019 by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory approval and the actual dividends paid during the three months ended March 31, 2019:
Company
 
Paid (1)
 
 
Permitted Without
Approval (2)
 
 
(In millions)
Metropolitan Life Insurance Company
 
$
1,400

(3)
 
$
3,065

American Life Insurance Company
 
$

 
 
$

Metropolitan Property and Casualty Insurance Company
 
$

 
 
$
171

Metropolitan Tower Life Insurance Company
 
$

 
 
$
154

__________________
(1)
Reflects all amounts paid, including those where regulatory approval was obtained as required.
(2)
Reflects dividend amounts that may be paid during 2019 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 2019, some or all of such dividends may require regulatory approval.
(3)
In February 2019, the MLIC Board of Directors declared a dividend of up to $2.1 billion, of which $1.4 billion was paid in cash. The unpaid portion, $746 million, was recorded as an accrued dividend.
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 Japan’s Financial Services Agency, 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 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 included in the 2018 Annual Report.
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 March 31, 2019 or December 31, 2018.
Preferred Stock
For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Uses — Dividends,” as well as Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.
Credit and Committed Facilities
See “— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” for further information regarding the Company’s unsecured revolving credit facility and certain committed facilities.

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Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt of MetLife, Inc. at:
 
March 31, 2019
 
December 31, 2018
 
(In millions)
Long-term debt — unaffiliated
$
11,868

 
$
11,844

Long-term debt — affiliated
$
1,940

 
$
1,957

Junior subordinated debt securities
$
2,457

 
$
2,456

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 financial covenants at March 31, 2019.
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 stock, preferred stock and debt 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 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,” MetLife, Inc.’s primary uses of liquidity and capital are set forth below.
Affiliated Capital and Debt Transactions
During the three months ended March 31, 2019 and 2018, MetLife, Inc. invested a net amount of $38 million and $4 million, respectively, in various subsidiaries.
MetLife, Inc. lends funds, as necessary, through credit agreements or otherwise to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements or to provide liquidity. MetLife, Inc. had loans to subsidiaries outstanding of $100 million at both March 31, 2019 and December 31, 2018.
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.”
Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements.
Future Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Interim Condensed 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.

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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 earnings
(i)
net income (loss)
(ii)
adjusted earnings available to common shareholders
(ii)
net income (loss) available to MetLife, Inc.’s common shareholders
(iii)
adjusted earnings available to common shareholders on a constant currency basis

(iii)
net income (loss) available to MetLife, Inc.’s common shareholders
Reconciliations of these non-GAAP measures to the most directly comparable historical GAAP measures are included in the results of operations, see “— Results of Operations.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are not accessible on a forward-looking basis because we believe it is not possible without unreasonable effort to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income.
Our definitions of 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;
adjusted earnings available to common shareholders; and
adjusted earnings available to common shareholders on a constant currency basis.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings 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, net of income tax. Adjusted loss is defined as negative adjusted earnings. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends.
Adjusted revenues and adjusted expenses
The financial measures of adjusted revenues and adjusted expenses 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. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.

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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 (“Investment hedge adjustments”), (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 equity securities (“Unit-linked contract income”), (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP; and
Other revenues is adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”).
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 certain amounts related to net investment income earned on contractholder-directed equity securities;
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. Other expenses includes TSA fees.
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.
Allocated equity:
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 accumulated other comprehensive income other than foreign currency translation adjustments.
The above measure represents 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 most recent period being compared and applied to the comparable prior period (“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.
Subsequent Events
See Note 15 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We regularly analyze our exposure to interest rate, equity market price and foreign currency exchange rate risks. 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 changes in the equity markets. We have exposure to market risk through our insurance operations and investment activities. We use a variety of strategies to manage interest rate, foreign currency exchange rate and equity market risk, including the use of derivatives. A description of our market risk exposures may be found under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, of the 2018 Annual Report.

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Item 4. Controls and Procedures
Management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that these disclosure controls and procedures are effective.
There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II — Other Information
Item 1. Legal Proceedings
See Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
Certain factors that may affect the Company’s business or operations are described under “Risk Factors” in Part I, Item 1A, of the 2018 Annual Report, as amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q under Item 1A. Risk Factors. There have been no material changes to our risk factors from the risk factors previously disclosed in the 2018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 March 31, 2019 are set forth below:
Period
 
Total Number
of Shares Purchased (1)
 
Average Price Paid per Share
 
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
 
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under the
Plans or Programs (2)
January 1 — January 31, 2019
 

 
$

 

 
$
1,270,341,498

February 1 — February 28, 2019
 
9,311,185

 
$
44.54

 
9,311,185

 
$
855,610,141

March 1 — March 31, 2019
 
1,889,671

 
$
45.18

 
1,887,449

 
$
770,341,529

Total
 
11,200,856

 
 
 
11,198,634

 


__________________
(1)
Except for the foregoing, there were no shares of MetLife, Inc. common stock repurchased by MetLife, Inc. During the periods January 1 through January 31, 2019, February 1 through February 28, 2019 and March 1 through March 31, 2019, separate account index funds purchased 0 shares, 0 shares and 2,222 shares, respectively, of MetLife, Inc. common stock on the open market in non-discretionary transactions.
(2)
In November 2018, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. At March 31, 2019, MetLife, Inc. had $770 million of common stock repurchases remaining under this 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.” See also “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report.

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Item 6. Exhibits
(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1
 
 
8-K
 
001-15787
 
10.1
 
March 5, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.2
 

 
8-K
 
001-15787
 
10.2
 
March 5, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.


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Signatures
Pursuant to the requirements 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. 
METLIFE, INC.
 
 
 
By:
 
/s/ Tamara L. Schock
 
 
Name:  Tamara L. Schock
Title:    Executive Vice President
             and Chief Accounting Officer
             (Authorized Signatory and Principal
              Accounting Officer)
Date: May 7, 2019

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