Document
 
 
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, 2018
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer (Do not check if a smaller reporting company)
¨

Smaller reporting company
¨

 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No þ
At April 30, 2018, 1,016,530,764 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
 
 



Table of Contents
 
 
Page
 
Item 1.
Financial Statements (at March 31, 2018 (Unaudited) and December 31, 2017 and for the Three Months Ended March 31, 2018 and 2017 (Unaudited))
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will be,” “will not,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) adverse effects which may arise in connection with the material weaknesses in our internal control over financial reporting or our failure to promptly remediate them; (2) difficult conditions in the global capital markets; (3) increased volatility and disruption of the global capital and credit markets, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities, generate fee income and market-related revenue and finance statutory reserve requirements and may require us to pledge collateral or make payments related to declines in value of specified assets, including assets supporting risks ceded to certain of our captive reinsurers or hedging arrangements associated with those risks; (4) exposure to global financial and capital market risks, including as a result of the United Kingdom’s notice of withdrawal from the European Union or other disruption in global political, security or economic conditions; (5) impact on us of comprehensive financial services regulation reform; (6) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how we conduct our business, including those compelling the liquidation of certain financial institutions; (7) regulatory, legislative or tax changes relating to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (8) adverse results or other consequences from litigation, arbitration or regulatory investigations; (9) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (10) investment losses and defaults, and changes to investment valuations; (11) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (12) impairments of goodwill and realized losses or market value impairments to illiquid assets; (13) defaults on our mortgage loans; (14) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (15) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (16) downgrades in our claims paying ability, financial strength or credit ratings; (17) a deterioration in the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (18) availability and effectiveness of reinsurance, hedging or indemnification arrangements, as well as any default or failure of counterparties to perform; (19) differences between actual claims experience and underwriting and reserving assumptions; (20) ineffectiveness of risk management policies and procedures; (21) catastrophe losses; (22) increasing cost and limited market capacity for statutory life insurance reserve financings; (23) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, and for personnel; (24) exposure to losses related to variable annuity guarantee benefits, including from significant and sustained downturns or extreme volatility in equity markets, reduced interest rates, unanticipated policyholder behavior, mortality or longevity, and any adjustment for nonperformance risk; (25) our ability to address difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from (a) business acquisitions and integrating and managing the growth of such acquired businesses, (b) dispositions of businesses via sale, initial public offering, spin-off or otherwise, including failure to achieve projected operational benefit from such transactions and any restrictions, liabilities, losses or indemnification obligations arising from any transitional services or tax arrangements related to the separation of any business, or from the failure of such a separation to qualify for any intended tax-free treatment, (c) entry into joint ventures, or (d) legal entity reorganizations; (26) unanticipated or adverse developments that could adversely affect our achieving expected operational or other benefits from the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”); (27) our equity market exposure to Brighthouse Financial, Inc.; (28) liabilities, losses or indemnification obligations arising from our transitional services, investment management or tax arrangements or other agreements with Brighthouse; (29) failure of the separation of Brighthouse to qualify for intended tax-free treatment; (30) legal, regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (31) MetLife, Inc.’s and its subsidiary holding companies’ primary reliance, as holding companies, on dividends from subsidiaries to meet free cash flow targets and debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (32) the possibility that MetLife, Inc.’s Board of Directors may influence the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (33) changes in accounting standards, practices and/or policies; (34) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (35) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (36) difficulties in marketing and distributing products through our distribution channels; (37) provisions of laws and our incorporation documents that may delay, deter or prevent takeovers and corporate combinations involving MetLife; (38) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery systems, cyber- or other information security systems and management continuity planning; (39) any failure to protect the confidentiality of client information; (40) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; (41) the impact of technological changes on our businesses; and (42) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission.
MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S. Securities and Exchange Commission.
Corporate Information
We announce financial and other information about MetLife to our investors through the MetLife Investor Relations web page at www.metlife.com, as well as U.S. Securities and Exchange Commission filings, 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.

2

Table of Contents


Part I — Financial Information
Item 1. Financial Statements
MetLife, Inc.
Interim Condensed Consolidated Balance Sheets
March 31, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)
 
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $287,099 and $286,069, respectively)
 
$
304,711

 
$
308,931

Equity securities, at estimated fair value
 
1,544

 
2,513

Contractholder-directed equity securities and fair value option securities, at estimated fair value (includes $6 and $6, respectively, relating to variable interest entities)
 
16,444

 
16,745

Mortgage loans (net of valuation allowances of $327 and $314, respectively; includes $438 and $520, respectively, under the fair value option)
 
71,055

 
68,731

Policy loans
 
9,744

 
9,669

Real estate and real estate joint ventures (includes $699 and $25, respectively, of real estate held-for-sale)
 
9,862

 
9,637

Other limited partnership interests
 
5,876

 
5,708

Short-term investments, principally at estimated fair value
 
5,121

 
4,870

Other invested assets (includes $123 and $125, respectively, relating to variable interest entities)
 
17,486

 
17,263

Total investments
 
441,843

 
444,067

Cash and cash equivalents, principally at estimated fair value (includes $7 and $12, respectively, relating to variable interest entities)
 
13,927

 
12,701

Accrued investment income
 
3,638

 
3,524

Premiums, reinsurance and other receivables (includes $2 and $3, respectively, relating to variable interest entities)
 
19,368

 
18,423

Deferred policy acquisition costs and value of business acquired
 
19,330

 
18,419

Goodwill
 
9,733

 
9,590

Other assets (includes $3 and $2, respectively, relating to variable interest entities)
 
8,387

 
8,167

Separate account assets
 
196,358

 
205,001

Total assets
 
$
712,584

 
$
719,892

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Future policy benefits
 
$
180,348

 
$
177,974

Policyholder account balances
 
184,289

 
182,518

Other policy-related balances
 
16,023

 
15,515

Policyholder dividends payable
 
672

 
682

Policyholder dividend obligation
 
1,277

 
2,121

Payables for collateral under securities loaned and other transactions
 
26,151

 
25,723

Short-term debt
 
526

 
477

Long-term debt (includes $5 and $6, respectively, at estimated fair value, relating to variable interest entities)
 
15,707

 
15,686

Collateral financing arrangement
 
1,108

 
1,121

Junior subordinated debt securities
 
3,145

 
3,144

Current income tax payable
 
155

 
311

Deferred income tax liability
 
6,304

 
6,767

Other liabilities (includes $2 and $3, respectively, relating to variable interest entities)
 
24,013

 
23,982

Separate account liabilities
 
196,358

 
205,001

Total liabilities
 
656,076

 
661,022

Contingencies, Commitments and Guarantees (Note 14)
 

 

Equity
 
 
 
 
MetLife, Inc.’s stockholders’ equity:
 
 
 
 
Preferred stock, par value $0.01 per share; $2,600 and $2,100 aggregate liquidation preference, respectively
 

 

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,170,644,215 and 1,168,710,101 shares issued, respectively; 1,024,117,183 and 1,043,588,396 shares outstanding, respectively
 
12

 
12

Additional paid-in capital
 
31,653

 
31,111

Retained earnings
 
26,453

 
26,527

Treasury stock, at cost; 146,527,032 and 125,121,705 shares, respectively
 
(7,442
)
 
(6,401
)
Accumulated other comprehensive income (loss)
 
5,634

 
7,427

Total MetLife, Inc.’s stockholders’ equity
 
56,310

 
58,676

Noncontrolling interests
 
198

 
194

Total equity
 
56,508

 
58,870

Total liabilities and equity
 
$
712,584

 
$
719,892

See accompanying notes to the interim condensed consolidated financial statements.

3

Table of Contents
MetLife, Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions, except per share data)

 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
Revenues
 
 
 
 
Premiums
 
$
9,178

 
$
8,965

Universal life and investment-type product policy fees
 
1,392

 
1,360

Net investment income
 
3,745

 
4,421

Other revenues
 
474

 
342

Net investment gains (losses)
 
(333
)
 
88

Net derivative gains (losses)
 
349

 
(212
)
Total revenues
 
14,805

 
14,964

Expenses
 
 
 
 
Policyholder benefits and claims
 
8,718

 
8,863

Interest credited to policyholder account balances
 
769

 
1,451

Policyholder dividends
 
297

 
310

Other expenses
 
3,365

 
3,268

Total expenses
 
13,149

 
13,892

Income (loss) from continuing operations before provision for income tax
 
1,656

 
1,072

Provision for income tax expense (benefit)
 
399

 
120

Income (loss) from continuing operations, net of income tax
 
1,257

 
952

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

 
(76
)
Net income (loss)
 
1,257

 
876

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

 
3

Net income (loss) attributable to MetLife, Inc.
 
1,253

 
873

Less: Preferred stock dividends
 
6

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1,247

 
$
867

Comprehensive income (loss)
 
$
(1,448
)
 
$
1,907

Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax
 
4

 
4

Comprehensive income (loss) attributable to MetLife, Inc.
 
$
(1,452
)
 
$
1,903

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders:
 
 
 
 
Basic
 
$
1.20

 
$
0.87

Diluted
 
$
1.19

 
$
0.86

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
Basic
 
$
1.20

 
$
0.80

Diluted
 
$
1.19

 
$
0.79

Cash dividends declared per common share
 
$
0.400

 
$
0.400

See accompanying notes to the interim condensed consolidated financial statements.


4

Table of Contents

MetLife, Inc.
Interim Condensed Consolidated Statements of Equity
For the Three Months Ended March 31, 2018 and 2017 (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, 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 (Note 1)
 

 

 

 
(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

 
 
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, 2016, as previously reported
 
$

 
$
12

 
$
30,944

 
$
34,480

 
$
(3,474
)
 
$
5,347

 
$
67,309

 
$
171

 
$
67,480

Prior period revisions (Note 1)
 

 

 

 
203

 

 
19

 
222

 

 
222

Balance at December 31, 2016
 

 
12

 
30,944

 
34,683

 
(3,474
)
 
5,366

 
67,531

 
171

 
67,702

Treasury stock acquired in connection with share repurchases
 
 
 
 
 
 
 
 
 
(858
)
 
 
 
(858
)
 
 
 
(858
)
Stock-based compensation
 
 
 
 
 
46

 
 
 
 
 
 
 
46

 
 
 
46

Dividends on preferred stock
 
 
 
 
 
 
 
(6
)
 
 
 
 
 
(6
)
 
 
 
(6
)
Dividends on common stock
 
 
 
 
 
 
 
(437
)
 
 
 
 
 
(437
)
 
 
 
(437
)
Change in equity of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 

 
4

 
4

Net income (loss)
 
 
 
 
 
 
 
873

 
 
 
 
 
873

 
3

 
876

Other comprehensive income (loss), net of income tax
 
 
 
 
 
 
 
 
 
 
 
1,030

 
1,030

 
1

 
1,031

Balance at March 31, 2017
 
$

 
$
12

 
$
30,990

 
$
35,113

 
$
(4,332
)
 
$
6,396

 
$
68,179

 
$
179

 
$
68,358

See accompanying notes to the interim condensed consolidated financial statements.

5

Table of Contents
MetLife, Inc.
Interim Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2018 and 2017
(Unaudited)
(In millions)

 
Three Months
Ended
March 31,
 
2018
 
2017
Net cash provided by (used in) operating activities
$
1,296

 
$
2,098

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
26,053

 
23,086

Equity securities
187

 
188

Mortgage loans
2,076

 
1,776

Real estate and real estate joint ventures
128

 
39

Other limited partnership interests
139

 
461

Purchases of:
 
 
 
Fixed maturity securities
(24,220
)
 
(22,484
)
Equity securities
(51
)
 
(299
)
Mortgage loans
(4,024
)
 
(3,430
)
Real estate and real estate joint ventures
(242
)
 
(341
)
Other limited partnership interests
(260
)
 
(362
)
Cash received in connection with freestanding derivatives
1,974

 
2,515

Cash paid in connection with freestanding derivatives
(2,192
)
 
(3,372
)
Net change in policy loans
(25
)
 
(20
)
Net change in short-term investments
(160
)
 
(1,892
)
Net change in other invested assets
46

 
(43
)
Other, net
86

 
(98
)
Net cash provided by (used in) investing activities
(485
)
 
(4,276
)
Cash flows from financing activities
 
 
 
Policyholder account balances:
 
 
 
Deposits
24,861

 
21,271

Withdrawals
(24,447
)
 
(19,100
)
Net change in payables for collateral under securities loaned and other transactions
667

 
391

Long-term debt issued
14

 

Long-term debt repaid
(32
)
 
(4
)
Collateral financing arrangements repaid
(13
)
 
(12
)
Financing element on certain derivative instruments and other derivative related transactions, net
37

 
188

Treasury stock acquired in connection with share repurchases
(1,041
)
 
(858
)
Preferred stock issued, net of issuance costs

494

 

Dividends on preferred stock
(6
)
 
(6
)
Dividends on common stock
(416
)
 
(437
)
Other, net
100

 
66

Net cash provided by (used in) financing activities
218

 
1,499

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

 
213

Change in cash and cash equivalents
1,226

 
(466
)
Cash and cash equivalents, beginning of period
12,701

 
17,877

Cash and cash equivalents, end of period
$
13,927

 
$
17,411

Cash and cash equivalents, of disposed subsidiary, beginning of period
$

 
$
5,226

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

 
$
5,810

Cash and cash equivalents, from continuing operations, beginning of period
$
12,701

 
$
12,651

Cash and cash equivalents, from continuing operations, end of period
$
13,927

 
$
11,601

Supplemental disclosures of cash flow information
 
 
 
Net cash paid (received) for:
 
 
 
Interest
$
243

 
$
255

Income tax
$
146

 
$
109


See accompanying notes to the interim condensed consolidated financial statements.

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Table of Contents
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.
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 equity securities when it has significant influence or at least 20% interest and for real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. Subsequent to the adoption of guidance relating to the recognition and measurement of financial instruments on January 1, 2018, the Company accounts for interests in unconsolidated entities that are not accounted for under the equity method, at estimated fair value. Such investments were previously accounted for under the cost method of accounting. See “— Adoption of New Accounting Pronouncements.”
Discontinued Operations
The results of operations of a component of the Company that has either been disposed of or is classified as held-for-sale are reported in discontinued operations if certain criteria are met. A disposal of a component is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to the MetLife, Inc. common shareholders (the “Separation”). The results of Brighthouse are reflected in MetLife, Inc.’s interim condensed consolidated financial statements as discontinued operations and, therefore, are presented as income (loss) from discontinued operations on the consolidated statements of operations and comprehensive income (loss). Prior period results have been revised to reflect discontinued operations. Intercompany transactions between the Company and Brighthouse prior to the Separation have been eliminated. Transactions between the Company and Brighthouse after the Separation are reflected in continuing operations for the Company. See Note 3 for information on discontinued operations and transactions with Brighthouse.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform to the 2018 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.

7

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)

Revisions
As discussed in Note 1 of the Notes to the Consolidated Financial Statements included in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report”), the Company made adjustments for group annuity reserves and assumed variable annuity guarantee reserves for which amounts previously reported have been immaterially restated. In addition, the Company has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified them.
A summary of the revisions to prior period net income (loss) available to MetLife, Inc.’s common shareholders is shown in the table below:
 
 
Three Months
Ended
March 31,
 
 
2017
 
 
(In millions)
 
 
 
Assumed variable annuity guarantee reserves
 
$
14

Group annuity reserves
 
(9
)
Other revisions to continuing operations, net
 
63

Impact to income (loss) from continuing operations before provision for income tax
 
68

Provision for income tax expense (benefit)
 
24

Impact to income (loss) from continuing operations, net of income tax
 
44

Other revisions to discontinued operations, net of income tax
 
3

Impact to net income (loss) available to MetLife, Inc.’s common shareholders
 
$
47


8

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)

The impact of the revisions is shown in the tables below:
 
 
Three Months
Ended
March 31,
 
 
2017
Interim Condensed Consolidated Statements of Operations
 and Comprehensive Income (Loss)
 
As
Previously
Reported
 
Discontinued Operations (1)
 
Revisions
 
As
Revised
 
 
(In millions, except per share data)
Revenues
 
 
 
 
 
 
 
 
Other net investment gains (losses)
 
$
8

 
$
55

 
$
25

 
$
88

Net investment gains (losses)
 
$
8

 
$
55

 
$
25

 
$
88

Net derivatives gains (losses)
 
$
(926
)
 
$
700

 
$
14

 
$
(212
)
Total revenues
 
$
16,269

 
$
(1,344
)
 
$
39

 
$
14,964

Expenses
 
 
 
 
 
 
 
 
Policyholder benefits and claims
 
$
9,859

 
$
(1,002
)
 
$
6

 
$
8,863

Other expenses
 
$
3,564

 
$
(261
)
 
$
(35
)
 
$
3,268

Total expenses
 
$
15,452

 
$
(1,531
)
 
$
(29
)
 
$
13,892

Income (loss) from continuing operations before provision for income tax
 
$
817

 
$
187

 
$
68

 
$
1,072

Provision for income tax expense (benefit)
 
$
(12
)
 
$
108

 
$
24

 
$
120

Income (loss) from continuing operations, net of income tax
 
$
829

 
$
79

 
$
44

 
$
952

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

 
$
(79
)
 
$
3

 
$
(76
)
Net income (loss)
 
$
829

 
$

 
$
47

 
$
876

Net income (loss) attributable to MetLife, Inc.
 
$
826

 
$

 
$
47

 
$
873

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
820

 
$

 
$
47

 
$
867

Comprehensive income (loss)
 
$
1,879

 
$

 
$
28

 
$
1,907

Comprehensive income (loss) attributable to MetLife, Inc.
 
$
1,875

 
$

 
$
28

 
$
1,903

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.75

 
$
0.07

 
$
0.05

 
$
0.87

Diluted
 
$
0.75

 
$
0.07

 
$
0.04

 
$
0.86

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.75

 
$

 
$
0.05

 
$
0.80

Diluted
 
$
0.75

 
$

 
$
0.04

 
$
0.79

__________________
(1)
See Note 3 for additional information on discontinued operations. Revisions include $5 million and $2 million of net investment gains (losses) and provision for income tax expense (benefit), respectively, related to discontinued operations.

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)

Interim Condensed Consolidated Statements of Equity
 
As
Previously
Reported
 
Revisions
 
As
Revised
 
 
(In millions)
Retained Earnings
 
 
 
 
 
 
Balance at December 31, 2016
 
$
34,480

 
$
203

 
$
34,683

Net income (loss)
 
$
826

 
$
47

 
$
873

Balance at March 31, 2017
 
$
34,863

 
$
250

 
$
35,113

Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
Balance at December 31, 2016
 
$
5,347

 
$
19

 
$
5,366

Other comprehensive income (loss), net of income tax
 
$
1,049

 
$
(19
)
 
$
1,030

Balance at March 31, 2017
 
$
6,396

 
$

 
$
6,396

Total MetLife, Inc.’s Stockholders’ Equity
 
 
 
 
 
 
Balance at December 31, 2016
 
$
67,309

 
$
222

 
$
67,531

Balance at March 31, 2017
 
$
67,929

 
$
250

 
$
68,179

Total Equity
 
 
 
 
 
 
Balance at December 31, 2016
 
$
67,480

 
$
222

 
$
67,702

Balance at March 31, 2017
 
$
68,108

 
$
250

 
$
68,358

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, 2017 consolidated balance sheet data was derived from audited consolidated financial statements included in the 2017 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 2017 Annual Report.
Adoption of New Accounting Pronouncements
Effective January 1, 2018, the Company early adopted guidance relating to income taxes. The new guidance was applied in the period of adoption. Current GAAP guidance requires that the effect of a change in tax laws or rates on deferred tax liabilities or assets to be included in income from continuing operations in the reporting period that includes the enactment date, even if the related income tax effects were originally charged or credited directly to accumulated other comprehensive income (“AOCI”). The Company’s accounting policy for the release of stranded tax effects in AOCI is on an aggregate portfolio basis. The new guidance allows a reclassification of AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). Due to U.S. Tax Reform and the change in corporate tax rates, at December 22, 2017, the Company reported stranded tax effects in AOCI related to unrealized gains and losses on available-for-sale (“AFS”) securities, cumulative foreign translation adjustments and deferred costs on pension benefit plans. With the adoption of the guidance, the Company released these stranded tax effects in AOCI resulting in a decrease to retained earnings as of January 1, 2018 of $1.2 billion with a corresponding increase to AOCI.
Effective January 1, 2018, the Company prospectively adopted guidance relating to stock compensation. The new guidance includes guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2018 the Company retrospectively adopted guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires that an employer that offers to its employees defined benefit pension or other postretirement benefit plans report the service cost component in the same line item or items as other compensation costs. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement to present the other components of net periodic benefit cost must be disclosed. In addition, the guidance allows only the service cost component to be eligible for capitalization when applicable. The adoption of the guidance did not have a material impact on the Company’s 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)

Effective January 1, 2018, the Company adopted, using a modified retrospective approach, guidance relating to de-recognition of nonfinancial assets. The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The new guidance also adds guidance for partial sales of nonfinancial assets. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2018, the Company retrospectively adopted guidance relating to restricted cash. The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, the new guidance requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance does not provide a definition of restricted cash or restricted cash equivalents. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2018, the Company adopted, using a modified retrospective approach, guidance relating to tax accounting for intra-entity transfers of assets. Prior guidance prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2018, the Company retrospectively adopted guidance relating to cash flow statement presentation. The new guidance addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2018, the Company adopted, using a modified retrospective approach, guidance relating to recognition and measurement of financial instruments. The guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option (“FVO”) that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Effective January 1, 2018, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income. Additionally, there will no longer be a requirement to assess equity securities for embedded derivatives requiring bifurcation. The adoption of this guidance resulted in a $328 million, net of income tax, increase to retained earnings largely offset by a decrease to AOCI that was primarily attributable to $1.7 billion of equity securities previously classified and measured as equity securities AFS. At December 31, 2017, equity securities of $16.0 billion primarily associated with contractholder-directed investments are accounted for using the FVO and therefore were unaffected by the new guidance. The Company has included the required disclosures related to equity securities held at March 31, 2018 within Note 6.
Effective January 1, 2018, the Company adopted, using a modified retrospective approach, guidance relating to revenue recognition. The new guidance supersedes nearly all existing revenue recognition guidance under U.S. GAAP. However, it does not impact the accounting for insurance and investment contracts within the scope of ASC Topic 944, Financial Services - Insurance, leases, financial instruments and certain guarantees. For those contracts that are impacted, the new guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
For the three months ended March 31, 2018, the Company identified $322 million of revenue streams within the scope of the guidance that are all included within other revenues on the interim condensed consolidated statements of operations and comprehensive income (loss). Such amount primarily consists of prepaid legal plans and administrative-only contracts within the U.S. segment of $129 million, distribution and administrative services fees within the MetLife Holdings segment of $58 million and fee-based investment management services within Corporate & Other of $71 million.
Substantially all of the revenue from these services is recognized over time as the applicable services are provided or are made available to the customers and control is transferred continuously. The consideration received for these services is variable and constrained to the amount not probable of a significant revenue reversal.

11

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)

Other
Effective January 16, 2018, the London Clearing House (“LCH”) amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments impacted the accounting treatment of the Company’s centrally cleared derivatives, for which the LCH serves as the central clearing party. As of the effective date, the application of the amended rulebook reduced gross derivative assets by $369 million, gross derivative liabilities by $203 million, accrued investment income by $14 million, collateral receivables recorded within premiums, reinsurance and other receivables by $184 million, and collateral payables recorded within payables for collateral under securities loaned and other transactions by $365 million. The application of the amended rulebook increased accrued investment expense recorded within other liabilities by $1 million.
Future Adoption of New Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance on hedging activities (Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted. The new guidance simplifies the application of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in their financial statements. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In March 2017, the FASB issued new guidance on purchased callable debt securities (ASU 2017-08, Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption is permitted. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the new guidance does not require an accounting change for securities held at a discount whose discount continues to be amortized to maturity. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In January 2017, the FASB issued new guidance on goodwill impairment (ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment). The new guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The new guidance simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. See Note 11 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for a description of the two-step test. The new guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company expects the adoption of this new guidance will reduce the complexity involved with the evaluation of goodwill for impairment. The impact of the new guidance will depend on the outcomes of future goodwill impairment tests.
In June 2016, the FASB issued new guidance on measurement of credit losses on financial instruments (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU replaces the incurred loss impairment methodology with one that reflects expected credit losses. The measurement of expected credit losses should be based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance requires that an 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. The Company has assessed the asset classes impacted by the new guidance and is currently assessing the accounting and reporting system changes that will be required to comply with the new guidance. The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

12

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)

In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02, Leases - Topic 842). The new guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires a modified retrospective transition approach. Early adoption is permitted. The new guidance requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. Lessor accounting will remain largely unchanged from current guidance except for certain targeted changes. The new guidance will also require new qualitative and quantitative disclosures. The Company’s implementation efforts are primarily focused on the review of its existing lease contracts, identification of other contracts that may fall under the scope of the new guidance, and performing a gap analysis on the current state of lease-related activities compared with the future state of lease-related activities. The Company is currently evaluating the 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 and Property & Casualty.
The Group Benefits business offers insurance products and services which include life, dental, group short- and long-term disability, individual disability, accidental death and dismemberment, vision and accident & health coverages, as well as prepaid legal plans. This business also sells administrative services-only arrangements to some employers.
The Retirement and Income Solutions business offers a broad range of annuity and investment products, including stable value and pension risk transfer products, institutional income annuities, tort settlements, capital market investment products, as well as postretirement benefits and company-, bank- or trust-owned life insurance.
The Property & Casualty business offers personal and commercial lines of property and casualty insurance, including private passenger automobile, homeowners’ and personal excess liability insurance. In addition, Property & Casualty offers small business owners property, liability and business interruption insurance.
Asia
The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include whole 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 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 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 no longer actively marketed by the Company in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, long-term care insurance, as well as the assumed variable annuity guarantees from the Company’s former operating joint venture in Japan.

13

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

Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external integration and disposition costs, internal resource costs for associates committed to acquisitions and dispositions, enterprise-wide strategic initiative restructuring charges and various start-up businesses (including the investment management business through which the Company offers fee-based investment management services to institutional clients). Additionally, Corporate & Other includes run-off businesses such as the direct to consumer portion of the U.S. Direct business. Corporate & Other also includes interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includes the elimination of intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates commensurate with related borrowings.
Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. Adjusted earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The Company believes the presentation of adjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.
Adjusted earnings 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.
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 unit-linked investments, (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnerships that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in fair value is recognized in net investment gains (losses) for GAAP; and
Other revenues are adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”).

14

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 expenses, in the line items indicated, in calculating adjusted expenses:
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass-through adjustments, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”) and (iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);
Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes amounts related to net investment income earned on contractholder-directed unit-linked investments;
Amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs and (iii) Market Value Adjustments;
Amortization of negative VOBA excludes amounts related to Market Value Adjustments;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements and (iii) acquisition, integration and other costs. 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, 2018 and 2017. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for adjusted earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s business.
The Company’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. The Company’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, income (loss) from continuing operations, net of income tax, or adjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.

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
)



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

$
1,257




$
1,257


16

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

 
 

 
 
 
 
Three Months Ended March 31, 2017
 
U.S.
 
Asia
 
Latin
America
 
EMEA
 
MetLife
Holdings
 
Corporate
& Other
 
Total
 
Adjustments
 
Total
Consolidated
 
 
(In millions)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
5,185

 
$
1,708

 
$
647

 
$
502

 
$
1,059

 
$
38

 
$
9,139

 
$
(174
)
 
$
8,965

Universal life and investment-type product policy fees
 
265

 
366

 
260

 
95

 
362

 

 
1,348

 
12

 
1,360

Net investment income
 
1,612

 
702

 
303

 
74

 
1,441

 
40

 
4,172

 
249

 
4,421

Other revenues
 
204

 
10

 
9

 
17

 
96

 
59

 
395

 
(53
)
 
342

Net investment gains (losses)
 

 

 

 

 

 

 

 
88

 
88

Net derivative gains (losses)
 

 

 

 

 

 

 

 
(212
)
 
(212
)
Total revenues
 
7,266

 
2,786

 
1,219

 
688

 
2,958

 
137

 
15,054

 
(90
)
 
14,964

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
5,244

 
1,315

 
633

 
269

 
1,733

 
25

 
9,219

 
(46
)
 
9,173

Interest credited to policyholder account balances
 
351

 
321

 
82

 
24

 
257

 
1

 
1,036

 
415

 
1,451

Capitalization of DAC
 
(100
)
 
(420
)
 
(82
)
 
(92
)
 
(34
)
 
(1
)
 
(729
)
 
16

 
(713
)
Amortization of DAC and VOBA
 
114

 
291

 
78

 
87

 
74

 
1

 
645

 
18

 
663

Amortization of negative VOBA
 

 
(37
)
 

 
(3
)
 

 

 
(40
)
 
(3
)
 
(43
)
Interest expense on debt
 
2

 

 
1

 

 
15

 
277

 
295

 
(12
)
 
283

Other expenses
 
909

 
875

 
326

 
316

 
340

 
175

 
2,941

 
137

 
3,078

Total expenses
 
6,520

 
2,345

 
1,038

 
601

 
2,385

 
478

 
13,367

 
525

 
13,892

Provision for income tax expense (benefit)
 
249

 
146

 
38

 
12

 
186

 
(271
)
 
360

 
(240
)
 
120

Adjusted earnings
 
$
497

 
$
295

 
$
143

 
$
75

 
$
387

 
$
(70
)
 
1,327

 
 
 
 
Adjustments to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
(90
)
 
 
 
 
Total expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
(525
)
 
 
 
 
Provision for income tax (expense) benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
240

 
 
 
 
Income (loss) from continuing operations, net of income tax
 
 
 
 
 
 
 
 
 
 
 
 
 
$
952

 
 
 
$
952


17

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, 2018
 
December 31, 2017
 
 
(In millions)
U.S.
 
$
251,496

 
$
255,428

Asia
 
143,458

 
136,928

Latin America
 
78,638

 
79,670

EMEA
 
30,546

 
30,500

MetLife Holdings
 
175,817

 
183,160

Corporate & Other
 
32,629

 
34,206

Total
 
$
712,584

 
$
719,892


3. Dispositions
2018 Disposition
On February 20, 2018, the Company completed the sale of MetLife Afore, S.A. de C.V., its pension fund management business in Mexico. See Note 3 of the Notes to the Consolidated Financial Statement included in the 2017 Annual Report for further information.
2017 Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse. MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock and recognized its investment in Brighthouse Financial, Inc. common stock based on the NASDAQ reported market price. The Company elected to record the investment under the FVO as an observable measure of estimated fair value that is aligned with the Company’s intent to divest of the retained shares as soon as practicable. Subsequent changes in estimated fair value of the investment are recorded to net investment gains (losses). The estimated fair value of the Brighthouse Financial, Inc. common stock held by the Company (“FVO Brighthouse Common Stock”) at March 31, 2018 and December 31, 2017 was $1.2 billion and $1.3 billion, respectively, reported within contractholder-directed equity securities and fair value option securities. In the first quarter of 2018, the Company recorded a $168 million mark-to-market loss on its retained investment in Brighthouse Financial, Inc. to net investment gains (losses).
The Company incurred pre-tax Separation-related transaction costs of $77 million for the three months ended March 31, 2017, primarily related to third party staffing costs. Separation-related transaction costs are recorded in other expenses and reported within continuing operations.
See Note 3 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for further information regarding the Separation, including Separation-related agreements and ongoing transactions with Brighthouse.

18

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


Agreements
Tax Agreements
Immediately prior to the Separation, MetLife entered into tax agreements with Brighthouse.
In accordance with the tax separation agreement, at both March 31, 2018 and December 31, 2017, the Company’s current income tax receivable and corresponding payable to Brighthouse, reported in other liabilities, were $726 million.
As part of the tax receivable agreement, MetLife Inc. has the right to receive future payments from Brighthouse for a tax asset that Brighthouse received as a result of restructuring prior to the Separation. Included in other assets at both March 31, 2018 and December 31, 2017, is a receivable from Brighthouse of $333 million related to these future payments.
Ongoing Transactions with Brighthouse
The Company considered all of its continuing involvement with Brighthouse in determining whether to deconsolidate and present Brighthouse results as discontinued operations, including the agreements entered into between MetLife and Brighthouse and the ongoing transactions described below.
The Company entered into reinsurance, committed facility, structured settlement, and contract administrative services transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs. In addition, prior to and in connection with the Separation, the Company entered into various other agreements with Brighthouse for services necessary for both the Company and Brighthouse to conduct their activities. Intercompany transactions prior to the Separation between the Company and Brighthouse are eliminated and excluded from the interim condensed consolidated statements of operations and comprehensive income (loss). Transactions between the Company and Brighthouse that continue after the Separation are included on the Company’s interim condensed consolidated statements of operations and comprehensive income (loss) and interim condensed consolidated balance sheets.

19

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


Reinsurance
The Company entered into reinsurance transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs. Information regarding the significant effects of reinsurance transactions with Brighthouse was as follows:
 
 
Included on Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
 
Excluded from Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions)
Premiums
 
 
 
 
Reinsurance assumed
 
$
96


$
97

Reinsurance ceded
 
(3
)

(3
)
Net premiums
 
$
93

 
$
94

Universal life and investment-type product policy fees
 
 
 
 
Reinsurance assumed
 
$
1


$
(4
)
Reinsurance ceded
 
(24
)

(24
)
Net universal life and investment-type product policy fees
 
$
(23
)
 
$
(28
)
Policyholder benefits and claims
 
 
 
 
Reinsurance assumed
 
$
78


$
75

Reinsurance ceded
 
(10
)

(6
)
Net policyholder benefits and claims
 
$
68

 
$
69

Interest credited to policyholder account balances
 
 
 
 
Reinsurance assumed
 
$
4


$
4

Reinsurance ceded
 
(18
)

(18
)
Net interest credited to policyholder account balances
 
$
(14
)
 
$
(14
)
Other expenses
 
 
 
 
Reinsurance assumed
 
$
34


$
(30
)
Reinsurance ceded
 
(14
)

(21
)
Net other expenses
 
$
20

 
$
(51
)

20

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


Information regarding the significant effects of reinsurance transactions with Brighthouse included on the interim condensed consolidated balance sheets was as follows at:
 
March 31, 2018
 
December 31, 2017
 
Assumed
 
Ceded
 
Assumed
 
Ceded
 
(In millions)
Assets
 
 
 
 
 
 
 
Premiums, reinsurance and other receivables
$
154

 
$
1,802

 
$
167

 
$
1,793

Deferred policy acquisition costs and value of business acquired
390

 
(40
)
 
384

 
(40
)
Total assets
$
544

 
$
1,762

 
$
551

 
$
1,753

Liabilities
 
 
 
 
 
 
 
Future policy benefits
$
1,788

 
$

 
$
1,734

 
$

Other policy-related balances
116

 
25

 
119

 
28

Other liabilities
1,447

 
25

 
1,458

 
19

Total liabilities
$
3,351

 
$
50

 
$
3,311

 
$
47

Investment Management
In connection with the Separation, the Company entered into investment management services agreements with Brighthouse. During the three months ended March 31, 2018, the Company recognized $29 million in other revenues for services provided under such investment management services agreements. Prior to the Separation, during the three months ended March 31, 2017, the Company charged Brighthouse $25 million, for services provided under the agreements, which were intercompany transactions and eliminated and excluded from the interim condensed consolidated statements of operations and comprehensive income (loss).
Committed Facility
MetLife Reinsurance Company of Vermont and MetLife, Inc. have a $2.9 billion committed facility which is used as collateral for certain affiliated reinsurance liabilities. At March 31, 2018, Brighthouse was a beneficiary of $2.4 billion of letters of credit issued under this committed facility and, in consideration, Brighthouse reimbursed MetLife, Inc. for a portion of the letter of credit fees. Prior to the Separation, the Company entered into the committed facility with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
Transition Services
In connection with the Separation, the Company entered into a transition services agreement with Brighthouse for services necessary for Brighthouse to conduct its activities. During the three months ended March 31, 2018, the Company recognized $79 million as other revenue for transitional services provided under the agreement. Prior to the Separation, during the three months ended March 31, 2017, the Company charged Brighthouse $81 million, for services provided under the agreement, which were intercompany transactions and eliminated and excluded from the interim condensed consolidated statements of operations and comprehensive income (loss).
Other
The Company has existing assumed structured settlement claim obligations as an assignment company for Brighthouse. These liabilities are measured at the present value of the periodic claims to be provided and reported as other policy-related balances. The Company receives a fee for assuming these claim obligations and, as the assignee of the claim, is legally obligated to ensure periodic payments are made to the claimant. The Company purchased annuities from Brighthouse to fund these obligations and designates payments to be made directly to the claimant by Brighthouse as the annuity writer. The aggregate contract values of annuities funding structured settlement claims are recorded as an asset for which the Company has also recorded an unpaid claim obligation reported in other policy-related balances. Such aggregated contract values were $1.3 billion at both March 31, 2018 and December 31, 2017. The Company entered into these transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs.

21

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


The Company provides services necessary for Brighthouse to conduct its business, which primarily include contract administrative services for certain Brighthouse investment-type products. During the three months ended March 31, 2018, the Company recognized revenue of $32 million for administrative services provided to Brighthouse. Prior to the Separation, during the three months ended March 31, 2017, the Company provided administrative services to Brighthouse for $31 million, which were intercompany transactions and eliminated and excluded from the interim condensed consolidated statements of operations and comprehensive income (loss). The Company entered into these transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
In connection with the Separation, the Company entered into an employee matters agreement with Brighthouse to allocate obligations and responsibilities relating to employee compensation and benefit plans and other related matters. The employee matters agreement provides that MetLife will reimburse Brighthouse for certain pension benefit payments, retiree health and life benefit payments and deferred compensation payments. Included in other liabilities at both March 31, 2018 and December 31, 2017, is a payable to Brighthouse of $186 million related to these future payments.
At March 31, 2018, the Company had a receivable from Brighthouse of $87 million related to services provided and a payable to Brighthouse of $48 million related to services received. At December 31, 2017, the Company had a receivable from Brighthouse of $97 million related to services provided and a payable to Brighthouse of $50 million related to services received.

22

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


Discontinued Operations
The following table presents the amounts related to the operations of Brighthouse that have been reflected in discontinued operations:
 
Three Months Ended March 31,
 
2017
 
(In millions)
Revenues
 
Premiums
$
350

Universal life and investment-type product policy fees
942

Net investment income
775

Other revenues
32

Total net investment gains (losses)
(50
)
Net derivative gains (losses)
(700
)
Total revenues
1,349

Expenses
 
Policyholder benefits and claims
1,002

Interest credited to policyholder account balances
261

Policyholder dividends
7

Goodwill impairment

Other expenses
261

Total expenses
1,531

Income (loss) from discontinued operations before provision for income tax
(182
)
Provision for income tax expense (benefit)
(106
)
Income (loss) from discontinued operations, net of income tax
$
(76
)


23

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


In the interim condensed consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified. The following table presents selected financial information regarding cash flows of the discontinued operations.

 
Three Months Ended
March 31,


2017
 
 
(In millions)
Net cash provided by (used in):
 
 
Operating activities

$
302

Investing activities

$
16

Financing activities
 
$
266

4. Insurance
Guarantees
As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report, the Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”) and the portions of both non-life-contingent guaranteed minimum withdrawal benefits (“GMWBs”) and the GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 7.
The Company also issues other annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.
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, 2018
 
 
December 31, 2017
 
 
 
In the
Event of Death
 
At
Annuitization
 
In the
Event of Death
 
At
Annuitization
 
 
(Dollars in millions)
 
Annuity Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Variable Annuity Guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
Total account value (1), (2), (3)
 
$
64,728

 
 
$
25,169

 
 
$
66,724

 
 
$
26,223

 
Separate account value (1)
 
$
43,714

 
 
$
23,302

 
 
$
45,431

 
 
$
24,336

 
Net amount at risk (2)
 
$
1,587

(4
)
 
$
510

(5
)
 
$
1,238

(4
)
 
$
525

(5
)
Average attained age of contractholders
 
66 years

 
 
66 years

 
 
65 years

 
 
65 years

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

 
 
$
1,437

 
 
N/A

 
 
$
1,424

 
Net amount at risk
 
N/A

 
 
$
559

(6
)
 
N/A

 
 
$
569

(6
)
Average attained age of contractholders
 
N/A

 
 
50 years

 
 
N/A

 
 
50 years

 

24

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

 
 
March 31, 2018
 
December 31, 2017
 
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
Secondary
Guarantees
 
Paid-Up
Guarantees
 
 
(Dollars in millions)
Universal and Variable Life Contracts:
 
 
 
 
 
 
 
 
Total account value (1), (3)
 
$
9,089

 
$
3,171

 
$
9,036

 
$
3,207

Net amount at risk (7)
 
$
66,762

 
$
16,332

 
$
66,956

 
$
16,615

Average attained age of policyholders
 
57 years

 
63 years

 
56 years

 
63 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.

25

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. 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,
 
 
2018
 
2017 (1)
 
 
(In millions)
Balance, beginning of period
 
$
17,094

 
$
16,157

Less: Reinsurance recoverables
 
2,198

 
1,968

Net balance, beginning of period
 
14,896

 
14,189

Incurred related to:
 
 
 
 
Current period
 
6,504

 
6,637

Prior periods (2)
 
(148
)
 
(127
)
Total incurred
 
6,356

 
6,510

Paid related to:
 
 
 
 
Current period
 
(3,339
)
 
(3,723
)
Prior periods
 
(2,719
)
 
(2,604
)
Total paid
 
(6,058
)
 
(6,327
)
Net balance, end of period
 
15,194

 
14,372

Add: Reinsurance recoverables
 
2,237

 
2,123

Balance, end of period (included in future policy benefits and other policy-related balances)
 
$
17,431

 
$
16,495

__________________
(1)
As discussed in Note 4 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report, at December 31, 2016, the Net balance decreased and the Reinsurance recoverables increased from those amounts previously reported. Additionally, at March 31, 2017, the Net balance decreased by $131 million and the Reinsurance recoverables increased by $144 million from those amounts previously reported in MetLife, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017. These adjustments to the Net balance and the Reinsurance recoverables, at both periods, are primarily to correct for improper classification of reinsurance recoverables.
(2)
During both the three months ended March 31, 2018 and 2017, as a result of changes in estimates of insured events in the respective prior periods, the claims and claim adjustment expenses associated with prior periods decreased due to favorable claims experience.
5. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.

26

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

Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
(In millions)
Closed Block Liabilities
 
 
 
 
Future policy benefits
 
$
40,285

 
$
40,463

Other policy-related balances
 
213

 
222

Policyholder dividends payable
 
462

 
437

Policyholder dividend obligation
 
1,277

 
2,121

Other liabilities
 
285

 
212

Total closed block liabilities
 
42,522

 
43,455

Assets Designated to the Closed Block
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at estimated fair value
 
26,815

 
27,904

Equity securities, at estimated fair value
 
68

 
70

Mortgage loans
 
6,040

 
5,878

Policy loans
 
4,532

 
4,548

Real estate and real estate joint ventures
 
595

 
613

Other invested assets
 
607

 
731

Total investments
 
38,657

 
39,744

Accrued investment income
 
475

 
477

Premiums, reinsurance and other receivables; cash and cash equivalents
 
208

 
14

Current income tax recoverable
 
40

 
35

Deferred income tax assets
 
23

 
36

Total assets designated to the closed block
 
39,403

 
40,306

Excess of closed block liabilities over assets designated to the closed block
 
3,119

 
3,149

Amounts included in AOCI:
 
 
 
 
Unrealized investment gains (losses), net of income tax
 
1,711

 
1,863

Unrealized gains (losses) on derivatives, net of income tax
 
(57
)
 
(7
)
Allocated to policyholder dividend obligation, net of income tax
 
(1,009
)
 
(1,379
)
Total amounts included in AOCI
 
645

 
477

Maximum future earnings to be recognized from closed block assets and liabilities
 
$
3,764

 
$
3,626

See Note 1 for discussion of new accounting guidance related to U.S. Tax Reform.
Information regarding the closed block policyholder dividend obligation was as follows:
 
 
Three Months
Ended
March 31, 2018
 
Year
Ended
December 31, 2017
 
 
(In millions)
Balance, beginning of period
 
$
2,121

 
$
1,931

Change in unrealized investment and derivative gains (losses)
 
(844
)
 
190

Balance, end of period
 
$
1,277

 
$
2,121


27

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

Information regarding the closed block revenues and expenses was as follows:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions)
Revenues
 
 
 
 
Premiums
 
$
387

 
$
402

Net investment income
 
444

 
466

Net investment gains (losses)
 
(29
)
 
(8
)
Net derivative gains (losses)
 
(3
)
 
(8
)
Total revenues
 
799

 
852

Expenses
 
 
 
 
Policyholder benefits and claims
 
571

 
568

Policyholder dividends
 
244

 
250

Other expenses
 
29

 
32

Total expenses
 
844

 
850

Revenues, net of expenses before provision for income tax expense (benefit)
 
(45
)
 
2

Provision for income tax expense (benefit)
 
(10
)
 

Revenues, net of expenses and provision for income tax expense (benefit)
 
$
(35
)
 
$
2

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.

28

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

6. Investments
Fixed Maturity Securities Available-for-Sale
Fixed Maturity Securities Available-for-Sale by Sector
The following table presents the fixed maturity securities AFS by sector. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities. 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”).
 
March 31, 2018
 
December 31, 2017
 
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)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
77,786

 
$
5,105

 
$
1,057

 
$

 
$
81,834

 
$
76,005

 
$
7,007

 
$
351

 
$

 
$
82,661

Foreign government
58,423

 
6,484

 
397

 

 
64,510

 
55,351

 
6,495

 
312

 

 
61,534

Foreign corporate
52,894

 
3,366

 
797

 

 
55,463

 
52,409

 
3,836

 
676

 

 
55,569

U.S. government and agency
40,989

 
3,395

 
557

 

 
43,827

 
43,446

 
4,227

 
279

 

 
47,394

RMBS
26,858

 
999

 
481

 
(35
)
 
27,411

 
27,846

 
1,145

 
233

 
(42
)
 
28,800

State and political subdivision
10,762

 
1,473

 
43

 

 
12,192

 
10,752

 
1,717

 
13

 
1

 
12,455

ABS
11,695

 
111

 
41

 
1

 
11,764

 
12,213

 
116

 
39

 
(1
)
 
12,291

CMBS
7,692

 
112

 
94

 

 
7,710

 
8,047

 
222

 
42

 

 
8,227

Total fixed maturity securities
$
287,099


$
21,045


$
3,467


$
(34
)

$
304,711


$
286,069


$
24,765


$
1,945


$
(42
)

$
308,931

__________________
(1)
Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”
The Company held non-income producing fixed maturity securities with an estimated fair value of $24 million and $6 million, and unrealized gains (losses) of ($1) million and ($4) million, at March 31, 2018 and December 31, 2017, respectively.
Maturities of Fixed Maturity Securities
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at March 31, 2018:
 
 
Due in One
Year or Less
 
Due After
One Year
Through
Five Years
 
Due After
Five Years
Through Ten
Years
 
Due After
Ten Years
 
Structured
Securities
 
Total Fixed
Maturity
Securities
 
 
(In millions)
Amortized cost
 
$
12,620

 
$
60,639

 
$
61,373

 
$
106,222

 
$
46,245

 
$
287,099

Estimated fair value
 
$
12,674

 
$
62,809

 
$
63,919

 
$
118,424

 
$
46,885

 
$
304,711

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

29

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. 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, 2018
 
December 31, 2017
 
 
Less than 12 Months
 
Equal to or Greater
than 12 Months
 
Less than 12 Months
 
Equal to or Greater
than 12 Months
 
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
 
(Dollars in millions)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
 
$
20,465

 
$
642

 
$
4,426

 
$
415

 
$
5,604

 
$
92

 
$
4,115

 
$
259

Foreign government
 
4,510

 
137

 
3,297

 
260

 
4,234

 
83

 
3,251

 
229

Foreign corporate
 
8,932

 
259

 
5,835

 
538

 
4,422

 
99

 
6,802

 
577

U.S. government and agency
 
19,105

 
224

 
3,378

 
333

 
18,273

 
93

 
3,560

 
186

RMBS
 
10,855

 
237

 
3,713

 
209

 
6,359

 
50

 
4,159

 
141

State and political subdivision
 
774

 
24

 
302

 
19

 
182

 
2

 
346

 
12

ABS
 
2,593

 
15

 
551

 
27

 
1,695

 
7

 
729

 
31

CMBS
 
3,069

 
48

 
478

 
46

 
1,174

 
9

 
413

 
33

Total fixed maturity securities
 
$
70,303

 
$
1,586

 
$
21,980

 
$
1,847

 
$
41,943

 
$
435

 
$
23,375

 
$
1,468

Total number of securities in an unrealized loss position
 
5,111

 

 
1,887

 

 
2,598

 

 
1,955

 

Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
As described more fully in Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, including fixed maturity securities 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 AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at March 31, 2018. Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, collateral valuation, interest rates and credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
Gross unrealized losses on fixed maturity securities increased $1.5 billion during the three months ended March 31, 2018 to $3.4 billion. The increase in gross unrealized losses for the three months ended March 31, 2018 was primarily attributable to widening credit spreads and increases in interest rates, partially offset by strengthening foreign currencies on non-functional currency denominated fixed maturity securities.
At March 31, 2018, $85 million of the total $3.4 billion of gross unrealized losses were from 28 fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.
Investment Grade Fixed Maturity Securities
Of the $85 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $40 million, or 47%, were related to gross unrealized losses on 11 investment grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities, rising interest rates since purchase.

30

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

Below Investment Grade Fixed Maturity Securities
Of the $85 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $45 million, or 53%, were related to gross unrealized losses on 17 below investment grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related to U.S. and foreign corporate securities (primarily industrial and utility securities) and CMBS and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty including concerns over lower oil prices in the energy sector. Management evaluates U.S. and foreign corporate securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuers and evaluates 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.
Equity Securities
Equity securities are summarized as follows at:
 
March 31, 2018
 
December 31, 2017
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
 
(Dollars in millions)
Equity securities:
 
 
 
 
 
 
 
Common stock
$
1,046

 
67.7
%
 
$
2,035

 
81.0
%
Non-redeemable preferred stock
498

 
32.3

 
478

 
19.0

Total equity securities
$
1,544

 
100.0
%
 
$
2,513

 
100.0
%
In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018, the Company has reclassified its investment in common stock in regional banks of the Federal Home Loan Bank (“FHLB”) system from equity securities to other invested assets. These investments are carried at redemption value and are considered restricted investments until redeemed by the respective FHLB regional banks. The carrying value of these investments at December 31, 2017 was $791 million.
Contractholder-Directed Equity Securities and Fair Value Option Securities
Contractholder-directed equity securities and fair value option securities (collectively, “Unit-linked and FVO Securities”), are investments for which the FVO has been elected, or are otherwise required to be carried at estimated fair value, and include:
contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting as separate account summary total assets and liabilities. These investments are primarily equity securities (including mutual funds) and, to a lesser extent, fixed maturity securities, short-term investments and cash and cash equivalents. The investment returns on these investments inure to contractholders and are offset by a corresponding change in policyholder account balances through interest credited to policyholder account balances (“Unit-linked investments”);
FVO Brighthouse Common Stock (see Note 3);
fixed maturity and equity securities held-for-investment by the general account to support asset and liability management strategies for certain insurance products and investments in certain separate accounts (“FVO general account securities”); and
FVO securities held by consolidated securitization entities.

31

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

Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
March 31, 2018
 
December 31, 2017
 
Carrying Value
 
% of
Total
 
Carrying Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
46,690

 
65.7
 %
 
$
44,375

 
64.6
 %
Agricultural
13,098

 
18.4

 
13,014

 
18.9

Residential
11,156

 
15.7

 
11,136

 
16.2

Subtotal (1)
70,944

 
99.8

 
68,525

 
99.7

Valuation allowances
(327
)
 
(0.4
)
 
(314
)
 
(0.5
)
Subtotal mortgage loans, net
70,617

 
99.4

 
68,211

 
99.2

Residential — FVO
438

 
0.6

 
520

 
0.8

Total mortgage loans, net
$
71,055

 
100.0
 %
 
$
68,731

 
100.0
 %
__________________
(1)
Purchases of mortgage loans, primarily residential mortgage loans, were $307 million and $762 million for the three months ended March 31, 2018 and 2017, respectively.
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential mortgage loans — FVO is presented in Note 8. The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis.
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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$

 
$

 
$

 
$

 
$

 
$
46,690

 
$
228

 
$

Agricultural
 
22

 
21

 
2

 
101

 
100

 
12,977

 
39

 
119

Residential
 

 

 

 
376

 
339

 
10,817

 
58

 
339

Total
 
$
22


$
21


$
2


$
477


$
439


$
70,484


$
325


$
458

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$

 
$

 
$

 
$

 
$

 
$
44,375

 
$
214

 
$

Agricultural
 
22

 
21

 
2

 
27

 
27

 
12,966

 
39

 
46

Residential
 

 

 

 
358

 
324

 
10,812

 
59

 
324

Total
 
$
22


$
21


$
2


$
385


$
351


$
68,153


$
312


$
370

The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $0, $84 million and $331 million, respectively, for the three months ended March 31, 2018; and $12 million, $25 million and $253 million, respectively, for the three months ended March 31, 2017.

32

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

Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
Commercial
 
Agricultural
 
Residential
 
Total
 
Commercial
 
Agricultural
 
Residential
 
Total
 
(In millions)
Balance, beginning of period
$
214

 
$
41

 
$
59

 
$
314

 
$
202

 
$
39

 
$
63

 
$
304

Provision (release)
14

 

 

 
14

 
5

 

 
5

 
10

Charge-offs, net of recoveries

 

 
(1
)
 
(1
)
 

 

 
(4
)
 
(4
)
Balance, end of period
$
228


$
41


$
58


$
327


$
207


$
39


$
64


$
310


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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
39,705

 
$
1,023

 
$
186

 
$
40,914

 
87.6
%
 
$
41,327

 
87.9
%
65% to 75%
 
4,280

 
98

 
143

 
4,521

 
9.7

 
4,504

 
9.6

76% to 80%
 
265

 
210

 
126

 
601

 
1.3

 
574

 
1.2

Greater than 80%
 
401

 
176

 
77

 
654

 
1.4

 
613

 
1.3

Total
 
$
44,651


$
1,507


$
532


$
46,690


100.0
%

$
47,018


100.0
%
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
37,073

 
$
1,483

 
$
201

 
$
38,757

 
87.4
%
 
$
39,528

 
87.7
%
65% to 75%
 
4,183

 
98

 
119

 
4,400

 
9.9

 
4,408

 
9.8

76% to 80%
 
235

 
210

 
57

 
502

 
1.1

 
476

 
1.0

Greater than 80%
 
401

 
168

 
147

 
716

 
1.6

 
672

 
1.5

Total
 
$
41,892


$
1,959


$
524


$
44,375

 
100.0
%
 
$
45,084

 
100.0
%
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
 
Less than 65%
 
$
12,433

 
94.9
%
 
$
12,347

 
94.9
%
65% to 75%
 
616

 
4.7

 
618

 
4.7

76% to 80%
 
40

 
0.3

 
40

 
0.3

Greater than 80%
 
9

 
0.1

 
9

 
0.1

Total
 
$
13,098

 
100.0
%
 
$
13,014

 
100.0
%

33

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

The estimated fair value of agricultural mortgage loans was $13.0 billion and $13.1 billion at March 31, 2018 and December 31, 2017, respectively.
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
 
Performing
 
$
10,748

 
96.3
%
 
$
10,622

 
95.4
%
Nonperforming
 
408

 
3.7

 
514

 
4.6

Total
 
$
11,156

 
100.0
%
 
$
11,136

 
100.0
%
The estimated fair value of residential mortgage loans was $11.8 billion and $11.6 billion at March 31, 2018 and December 31, 2017, 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, 2018 and December 31, 2017. 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, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
 
 
(In millions)
Commercial
 
$
1

 
$

 
$

 
$

 
$
1

 
$

Agricultural
 
219

 
134

 
114

 
125

 
106

 
36

Residential
 
408

 
514

 
42

 
33

 
366

 
481

Total
 
$
628

 
$
648

 
$
156

 
$
158

 
$
473

 
$
517

Cash Equivalents
The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $6.3 billion and $6.2 billion at March 31, 2018 and December 31, 2017, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities AFS and equity securities 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, 2018
 
December 31, 2017
 
 
(In millions)
Fixed maturity securities
 
$
17,545

 
$
22,645

Fixed maturity securities with noncredit OTTI losses included in AOCI
 
35

 
41

Total fixed maturity securities
 
17,580

 
22,686

Equity securities
 

 
421

Derivatives
 
936

 
1,453

Other
 
136

 
46

Subtotal
 
18,652

 
24,606

Amounts allocated from:
 
 
 
 
Future policy benefits
 
(138
)
 
(77
)
DAC, VOBA and DSI
 
(1,304
)
 
(1,768
)
Policyholder dividend obligation
 
(1,277
)
 
(2,121
)
Subtotal
 
(2,719
)
 
(3,966
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
 
(5
)
 
(12
)
Deferred income tax benefit (expense)
 
(4,372
)
 
(6,958
)
Net unrealized investment gains (losses)
 
11,556

 
13,670

Net unrealized investment gains (losses) attributable to noncontrolling interests
 
(9
)
 
(8
)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
 
$
11,547

 
$
13,662

The changes in net unrealized investment gains (losses) were as follows:
 
Three Months
Ended
March 31, 2018
 
(In millions)
Balance, beginning of period
$
13,662

Cumulative effects of changes in accounting principles, net of income tax (Note 1)
1,258

Fixed maturity securities on which noncredit OTTI losses have been recognized
(6
)
Unrealized investment gains (losses) during the period
(5,523
)
Unrealized investment gains (losses) relating to:
 
Future policy benefits
(61
)
DAC, VOBA and DSI
464

Policyholder dividend obligation
844

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
7

Deferred income tax benefit (expense)
903

Net unrealized investment gains (losses)
11,548

Net unrealized investment gains (losses) attributable to noncontrolling interests
(1
)
Balance, end of period
$
11,547

Change in net unrealized investment gains (losses)
$
(2,114
)
Change in net unrealized investment gains (losses) attributable to noncontrolling interests
(1
)
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
$
(2,115
)

34

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

Concentrations of Credit Risk
Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, were in fixed income securities of the Japanese government and its agencies with an estimated fair value of $30.7 billion and $27.5 billion at March 31, 2018 and December 31, 2017, respectively, and in fixed income securities of the South Korean government and its agencies with an estimated fair value of $6.4 billion and $6.5 billion at March 31, 2018 and December 31, 2017, respectively.
Securities Lending
Elements of the Company’s securities lending program are presented below at:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Securities on loan: (1)
 
 
 
Amortized cost
$
17,047

 
$
17,801

Estimated fair value
$
17,812

 
$
19,028

Cash collateral received from counterparties (2)
$
18,111

 
$
19,417

Security collateral received from counterparties (3)
$
41

 
$
19

Reinvestment portfolio — estimated fair value
$
18,149

 
$
19,508

__________________
(1)
Included within fixed maturity securities.
(2)
Included within payables for collateral under securities loaned and other transactions.
(3)
Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.
The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Remaining Tenor of Securities
Lending Agreements
 
 
 
Remaining Tenor of Securities
Lending Agreements
 
 
 
 
Open (1)
 
1 Month
or Less
 
Over
1 to 6 Months
 
Total
 
Open (1)
 
1 Month
or Less
 
Over
1 to 6 Months
 
Total
 
 
(In millions)
Cash collateral liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
3,493

 
$
6,282

 
$
7,269

 
$
17,044

 
$
3,753

 
$
6,031

 
$
8,607

 
$
18,391

Foreign government
 

 
312

 
755

 
1,067

 

 
192

 
834

 
1,026

Total
 
$
3,493


$
6,594


$
8,024


$
18,111

 
$
3,753

 
$
6,223

 
$
9,441

 
$
19,417

__________________
(1)
The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at March 31, 2018 was $3.4 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.

35

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

The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including U.S. government and agency securities, agency RMBS, ABS and U.S. corporate securities) and short-term investments, with 60% invested in U.S. government and agency securities, agency RMBS, short-term investments, cash equivalents or held in cash. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.
Repurchase Agreements
Elements of the Company’s short-term repurchase agreements are presented below at:
 
 
March 31, 2018
 
December 31, 2017
 
 
(In millions)
Securities on loan: (1)
 
 
 
 
Amortized cost
 
$
2,796

 
$
994

Estimated fair value
 
$
2,927

 
$
1,141

Cash collateral received from counterparties (2)
 
$
2,861

 
$
1,102

Reinvestment portfolio — estimated fair value
 
$
2,854

 
$
1,102

__________________
(1)
Included within fixed maturity securities, cash equivalents and short-term investments.
(2)
Included within payables for collateral under securities loaned and other transactions and other liabilities.
The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Remaining Tenor of
Repurchase Agreements
 
 
 
Remaining Tenor of
Repurchase Agreements
 
 
 
 
1 Month
or Less
 
Over
1 to 6 Months
 
Total
 
1 Month
or Less
 
Over
1 to 6 Months
 
Total
 
 
(In millions)
Cash collateral liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
2,760

 
$
5

 
$
2,765

 
$
1,005

 
$

 
$
1,005

All other corporate and government
 

 
96

 
96

 
44

 
53

 
97

Total
 
$
2,760

 
$
101

 
$
2,861

 
$
1,049

 
$
53

 
$
1,102

The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including U.S. government and agency securities, agency RMBS, ABS and U.S. corporate securities) and short-term investments, with 64% invested in U.S. government and agency securities, agency RMBS, short-term investments, cash equivalents or held in cash. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.
FHLB of Boston Advance Agreements
At March 31, 2018 and December 31, 2017, a subsidiary of the Company had pledged fixed maturity securities with an estimated fair value of $1.3 billion and $564 million, respectively, as collateral and received $800 million and $300 million, respectively, in cash advances under short-term advance agreements with the 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 $804 million and $300 million at March 31, 2018 and December 31, 2017, respectively, and consisted primarily of U.S. government and agency fixed maturity securities and Structured Securities. 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.

36

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

The cash advance liability by loaned security type and remaining tenor of the agreements was as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Remaining Tenor of
Advance Agreements
 
 
 
Remaining Tenor of
Advance Agreements
 
 
 
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivision
 
$
100

 
$
625

 
$
75

 
$
800

 
$

 
$
300

 
$

 
$
300

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, 2018
 
December 31, 2017
 
 
(In millions)
Invested assets on deposit (regulatory deposits)
 
$
2,079

 
$
1,879

Invested assets held in trust (collateral financing arrangement and reinsurance agreements)
 
2,586

 
2,490

Invested assets pledged as collateral
 
25,198

 
24,174

Total invested assets on deposit, held in trust and pledged as collateral
 
$
29,863


$
28,543


The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 4 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report) and derivative transactions (see Note 7). Amounts in the table above include invested assets and cash and cash equivalents.
See “— Securities Lending” and “— Repurchase Agreements” for information regarding securities on loan, Note 5 for information regarding investments designated to the closed block and “— Equity Securities” for information on common stock holdings in regional banks of the FHLB system, which are considered restricted investments.
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.

37

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

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, 2018
 
December 31, 2017
 
 
Total
Assets
 
Total
Liabilities
 
Total
Assets
 
Total
Liabilities
 
 
(In millions)
Renewable energy partnership (1)
 
$
109

 
$
1

 
$
116

 
$
3

Other investments
 
32

 
6

 
32

 
6

Total
 
$
141


$
7


$
148


$
9

__________________
(1)
Assets of the renewable energy partnership primarily consisted of other invested assets.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
 
(In millions)
Fixed maturity securities AFS:
 
 
 
 
 
 
 
 
Structured Securities (2)
 
$
45,555

 
$
45,555

 
$
47,614

 
$
47,614

U.S. and foreign corporate
 
1,355

 
1,355

 
1,560

 
1,560

Other limited partnership interests
 
4,941

 
9,187

 
4,834

 
8,543

Other invested assets
 
2,300

 
2,557

 
2,291

 
2,625

Other investments
 
41

 
46

 
82

 
87

Total
 
$
54,192


$
58,700


$
56,381


$
60,429

__________________
(1)
The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax credits guaranteed by third parties of $113 million and $117 million at March 31, 2018 and December 31, 2017, 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 during both the three months ended March 31, 2018 and 2017.

38

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

Net Investment Income
The components of net investment income were as follows:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Investment income:
 
 
 
Fixed maturity securities
$
2,896

 
$
2,825

Equity securities
16

 
31

FVO general account securities (1)
6

 
29

Mortgage loans
792

 
736

Policy loans
124

 
127

Real estate and real estate joint ventures
168

 
153

Other limited partnership interests
207

 
240

Cash, cash equivalents and short-term investments
72

 
51

Operating joint ventures
13

 
2

Other
106

 
72

Subtotal
4,400

 
4,266

Less: Investment expenses
302

 
261

Subtotal, net
4,098

 
4,005

Unit-linked investments (1)
(353
)
 
416

Net investment income
$
3,745

 
$
4,421

__________________
(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 Unit-linked investments, and were ($373) million and $340 million for the three months ended March 31, 2018 and 2017, respectively.

39

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. 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,
 
2018
 
2017
 
(In millions)
Total gains (losses) on fixed maturity securities:
 
 
 
OTTI losses on fixed maturity securities recognized in earnings
$


$

Fixed maturity securities — net gains (losses) on sales and disposals
(95
)
 
(2
)
Total gains (losses) on fixed maturity securities
(95
)

(2
)
Total gains (losses) on equity securities:
 
 
 
OTTI losses recognized — by security type:
 
 
 
Common stock

 
(7
)
Non-redeemable preferred stock

 
(1
)
Total OTTI losses on equity securities recognized in earnings


(8
)
Equity securities — net gains (losses) on sales and disposals
102

 
43

Change in estimated fair value of equity securities (1)
(133
)
 

Total gains (losses) on equity securities
(31
)
 
35

Mortgage loans
(21
)
 
(12
)
Real estate and real estate joint ventures
25

 
(3
)
Other limited partnership interests

 
(7
)
Other
(130
)
 
(26
)
Subtotal
(252
)

(15
)
Change in estimated fair value of other limited partnership interests and real estate joint ventures
(5
)
 

Non-investment portfolio gains (losses) (2)
(76
)
 
103

Subtotal
(81
)
 
103

Total net investment gains (losses)
$
(333
)

$
88

__________________
(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 ($37) million for the three months ended March 31, 2018. See Note 1.
(2)
Non-investment portfolio gains (losses) for the three months ended March 31, 2018 includes a loss of $168 million which represents the change in estimated fair value of FVO Brighthouse Common Stock held by the Company. See Note 3.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were $65 million and $80 million for the three months ended March 31, 2018 and 2017, respectively.

40

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

Sales or Disposals and Impairments of Fixed Maturity Securities AFS
Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity securities AFS and the components of fixed maturity securities AFS net investment gains (losses) were as shown in the table below:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
Fixed Maturity Securities
 
(In millions)
Proceeds
$
19,070

 
$
14,461

Gross investment gains
$
106

 
$
142

Gross investment losses
(201
)
 
(144
)
OTTI losses

 

Net investment gains (losses)
$
(95
)
 
$
(2
)
Credit Loss Rollforward
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held for which a portion of the OTTI loss was recognized in other comprehensive income (loss) (“OCI”):
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Balance, beginning of period
$
138

 
$
187

Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI
(9
)
 
(17
)
Increase in cash flows — accretion of previous credit loss OTTI
(1
)
 

Balance, end of period
$
128


$
170


41

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

7. 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 net derivative gains (losses), consistent with the change in estimated fair value of the hedged item attributable to the designated risk being hedged.
Cash flow hedge (a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability) - effectiveness in OCI (deferred gains or losses on the derivative are reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item); ineffectiveness in net derivative gains (losses).
Net investment in a foreign operation hedge - effectiveness in OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation; ineffectiveness in net derivative gains (losses).
The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item. Accruals on derivatives in net investment hedges are recognized in OCI.
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.

42

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 occurrence, the changes in estimated fair value of derivatives recorded in OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in OCI pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in net derivative gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company sells variable annuities and issues certain insurance products and investment contracts and is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
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 8 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.

43

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 security. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and the London Interbank Offered Rate (“LIBOR”), calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, 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.

44

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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, net investment in foreign operations and nonqualifying hedging relationships.
The Company enters into currency options that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the foreign currency exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related to the Company’s international subsidiaries. The Company utilizes currency options in net investment in foreign operations and nonqualifying hedging relationships.
To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities, and to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded currency futures in nonqualifying hedging relationships.
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. (“ISDA”) deems that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency securities, or other fixed maturity securities. These credit default swaps are not designated as hedging instruments.
The Company 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.

45

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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 LIBOR, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.

46

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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, 2018
 
December 31, 2017
 
 
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
 
$
2,521

 
$
2,111

 
$
2

 
$
3,843

 
$
2,289

 
$
3

Foreign currency swaps
 
Foreign currency exchange rate
 
1,146

 
65

 
36

 
1,116

 
50

 
18

Foreign currency forwards
 
Foreign currency exchange rate
 
3,477

 
97

 
4

 
3,253

 
2

 
37

Subtotal
 
 
 
7,144

 
2,273

 
42

 
8,212

 
2,341

 
58

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
3,580

 
158

 
14

 
3,584

 
235

 
4

Interest rate forwards
 
Interest rate
 
3,143

 

 
218

 
3,332

 

 
128

Foreign currency swaps
 
Foreign currency exchange rate
 
33,236

 
1,210

 
1,778

 
32,152

 
1,142

 
1,665

Subtotal
 
 
 
39,959

 
1,368

 
2,010

 
39,068

 
1,377

 
1,797

Foreign operations hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forwards
 
Foreign currency exchange rate
 
458

 
2

 
5

 
332

 
2

 
5

Currency options
 
Foreign currency exchange rate
 
8,587

 
19

 
263

 
9,408

 
44

 
163

Subtotal
 
 
 
9,045

 
21

 
268

 
9,740

 
46

 
168

Total qualifying hedges
 
56,148

 
3,662

 
2,320

 
57,020

 
3,764

 
2,023

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
52,610

 
1,597

 
279

 
60,485

 
2,203

 
576

Interest rate floors
 
Interest rate
 
7,201

 
66

 

 
7,201

 
92

 

Interest rate caps
 
Interest rate
 
46,020

 
221

 
2

 
53,079

 
78

 
2

Interest rate futures
 
Interest rate
 
2,991

 
2

 
3

 
4,366

 
2

 
4

Interest rate options
 
Interest rate
 
14,816

 
575

 

 
12,009

 
656

 
11

Interest rate forwards
 
Interest rate
 
217

 

 
51

 
217

 

 
42

Interest rate total return swaps
 
Interest rate
 
1,048

 
14

 
25

 
1,048

 
8

 
2

Synthetic GICs
 
Interest rate
 
11,720

 

 

 
11,318

 

 

Foreign currency swaps
 
Foreign currency exchange rate
 
10,773

 
580

 
461

 
9,902

 
693

 
506

Foreign currency forwards
 
Foreign currency exchange rate
 
13,803

 
295

 
67

 
12,238

 
79

 
190

Currency futures
 
Foreign currency exchange rate
 
900

 

 
8

 
846

 
2

 

Currency options
 
Foreign currency exchange rate
 
2,391

 
9

 

 
3,123

 
55

 
6

Credit default swaps — purchased
 
Credit
 
1,888

 
5

 
41

 
2,020

 
7

 
43

Credit default swaps — written
 
Credit
 
11,421

 
210

 
2

 
11,375

 
271

 

Equity futures
 
Equity market
 
3,088

 
7

 
19

 
4,005

 
18

 
4

Equity index options
 
Equity market
 
19,509

 
594

 
603

 
19,886

 
569

 
690

Equity variance swaps
 
Equity market
 
4,661

 
52

 
194

 
4,661

 
54

 
199

Equity total return swaps
 
Equity market
 
1,012

 
35

 

 
1,117

 

 
41

Total non-designated or nonqualifying derivatives
 
206,069

 
4,262

 
1,755

 
218,896

 
4,787

 
2,316

Total
 
 
 
$
262,217

 
$
7,924

 
$
4,075

 
$
275,916

 
$
8,551

 
$
4,339


47

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. 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, 2018 and December 31, 2017. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
Net Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Freestanding derivatives and hedging gains (losses) (1)
$
312

 
$
(369
)
Embedded derivatives gains (losses)
37

 
157

Total net derivative gains (losses)
$
349

 
$
(212
)
__________________
(1)
Includes foreign currency transaction gains (losses) on hedged items in cash flow and nonqualifying hedging relationships, which are not presented elsewhere in this note.
The following table presents earned income on derivatives:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Qualifying hedges:
 
 
 
Net investment income
$
81

 
$
75

Interest credited to policyholder account balances
(23
)
 
(6
)
Other expenses
(2
)
 
(3
)
Nonqualifying hedges:
 
 
 
Net derivative gains (losses)
133

 
168

Policyholder benefits and claims
2

 
2

Total
$
191

 
$
236


48

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

Nonqualifying Derivatives and Derivatives for Purposes Other Than Hedging
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or not qualifying as hedging instruments:
 
 
Net
Derivative
Gains (Losses)
 
Net
Investment
Income (1)
 
Policyholder
Benefits and
Claims (2)
 
 
(In millions)
Three Months Ended March 31, 2018
 
 
 
 
 
 
Interest rate derivatives
 
$
(235
)
 
$
4

 
$
(7
)
Foreign currency exchange rate derivatives
 
387

 

 
2

Credit derivatives — purchased
 
(3
)
 

 

Credit derivatives — written
 
(44
)
 

 

Equity derivatives
 
98

 
1

 
12

Total
 
$
203

 
$
5

 
$
7

 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
Interest rate derivatives
 
$
(390
)
 
$
2

 
$
2

Foreign currency exchange rate derivatives
 
363

 

 

Credit derivatives — purchased
 
(8
)
 

 

Credit derivatives — written

32

 

 

Equity derivatives
 
(354
)
 
(3
)
 
(72
)
Total
 
$
(357
)
 
$
(1
)
 
$
(70
)
__________________
(1)
Changes in estimated fair value related to economic hedges of equity method investments in joint ventures and derivatives held within Unit-linked investments.
(2)
Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated investments.

49

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

The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The following table presents the amount of such net derivative gains (losses):
Derivatives in Fair Value
Hedging Relationships
 
Hedged Items in Fair Value
Hedging Relationships
 
Net Derivative
Gains (Losses)
Recognized
for Derivatives
 
Net Derivative
Gains (Losses)
Recognized for
Hedged Items
 
Ineffectiveness
Recognized in
Net Derivative
Gains (Losses)
 
 
 
 
(In millions)
Three Months Ended March 31, 2018
 
 
Interest rate swaps:
 
Fixed maturity securities
 
$
3

 
$
(2
)
 
$
1

 
 
Policyholder liabilities (1)
 
(213
)
 
212

 
(1
)
Foreign currency swaps:
 
Foreign-denominated fixed maturity securities and mortgage loans
 
(27
)
 
27

 

 
 
Foreign-denominated policyholder account balances (2)
 
18

 
(18
)
 

Foreign currency forwards:
 
Foreign-denominated fixed maturity securities
 
179

 
(168
)
 
11

Total
 
$
(40
)
 
$
51

 
$
11

Three Months Ended March 31, 2017
 
 
 
 
 
 
Interest rate swaps:
 
Fixed maturity securities
 
$
1

 
$
(1
)
 
$

 
 
Policyholder liabilities (1)
 
(51
)
 
50

 
(1
)
Foreign currency swaps:
 
Foreign-denominated fixed maturity securities
 
(3
)
 
3

 

 
 
Foreign-denominated policyholder account balances (2)
 
1

 
2

 
3

Foreign currency forwards:
 
Foreign-denominated fixed maturity securities
 
45

 
(41
)
 
4

Total
 
$
(7
)
 
$
13

 
$
6

__________________
(1)
Fixed rate liabilities reported in policyholder account balances or future policy benefits.
(2)
Fixed rate or floating rate liabilities.
For the Company’s foreign currency forwards, the change in the estimated fair value of the derivative related to the changes in the difference between the spot price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For the three months ended March 31, 2018 and 2017, the component of the change in estimated fair value of derivatives that was excluded from the assessment of hedge effectiveness was ($8) million and ($7) million, respectively.

50

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

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 derivative gains (losses). These amounts were less than $1 million and $20 million for the three months ended March 31, 2018 and 2017, respectively.
At March 31, 2018 and December 31, 2017, 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 four years and five years, respectively.
At March 31, 2018 and December 31, 2017, the balance in AOCI associated with cash flow hedges was $936 million and $1.5 billion, respectively. For the three months ended March 31, 2017, the amount of deferred gains (losses) in AOCI related to Brighthouse derivatives was ($19) million and the amount of income reclassified from AOCI into income (loss) from discontinued operations was $12 million.
The following table presents the effects of derivatives in cash flow hedging relationships on the interim condensed consolidated statements of operations and comprehensive income (loss) and the interim condensed consolidated statements of equity. The table excludes the effects of Brighthouse derivatives prior to the Separation.
Derivatives in Cash Flow
Hedging Relationships
 
Amount of Gains
(Losses) Deferred in
AOCI on Derivatives
 
Amount and Location
of Gains (Losses)
Reclassified from
AOCI into Income (Loss)
 
Amount and Location
of Gains (Losses)
Recognized in Income
(Loss) on Derivatives
 
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion)
 
 
 
 
Net Derivative
Gains (Losses)
 
Net Investment
Income
 
Other
Expenses
 
Net Derivative
Gains (Losses)
 
 
(In millions)
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(173
)
 
$
16

 
$
3

 
$

 
$
(2
)
Interest rate forwards
 
(104
)
 
5

 
1

 

 

Foreign currency swaps
 
(75
)
 
139

 

 
1

 
1

Total
 
$
(352
)
 
$
160

 
$
4

 
$
1

 
$
(1
)
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
5

 
$
8

 
$
4

 
$

 
$
1

Interest rate forwards
 
44

 
(4
)
 

 

 

Foreign currency swaps
 
180

 
208

 

 
1

 
2

Total
 
$
229

 
$
212

 
$
4

 
$
1

 
$
3

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At March 31, 2018, the Company expected to reclassify ($17) million of deferred net gains (losses) on derivatives in AOCI, included in the table above, to earnings within the next 12 months.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency exchange rate derivatives, which may include foreign currency forwards and currency options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on these derivatives based upon the change in forward rates.

51

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

When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.
The following table presents the effects of derivatives in net investment hedging relationships on the interim condensed consolidated statements of operations and comprehensive income (loss) and the interim condensed consolidated statements of equity:
Derivatives in Net Investment Hedging Relationships (1)
 
Amount of Gains (Losses) Deferred in AOCI
(Effective Portion)
 
 
(In millions)
Three Months Ended March 31, 2018
 
 
Foreign currency forwards
 
$
(8
)
Currency options
 
(149
)
Total
 
$
(157
)
Three Months Ended March 31, 2017
 
 
Foreign currency forwards
 
$
(95
)
Currency options
 
(231
)
Total
 
$
(326
)
__________________
(1)
There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At March 31, 2018 and December 31, 2017, the cumulative foreign currency translation gain (loss) recorded in AOCI related to hedges of net investments in foreign operations was $152 million and $309 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, 2018 and December 31, 2017. 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, 2018 and December 31, 2017, the Company would have received $208 million and $271 million, respectively, to terminate all of these contracts.

52

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

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
 
 
March 31, 2018
 
December 31, 2017
Rating Agency Designation of Referenced
Credit Obligations (1)
 
Estimated
Fair Value
of Credit
Default
Swaps
 
Maximum
Amount of Future
Payments under
Credit Default
Swaps
 
Weighted
Average
Years to
Maturity (2)
 
Estimated
Fair Value
of Credit
Default
Swaps
 
Maximum
Amount of Future
Payments under
Credit Default
Swaps
 
Weighted
Average
Years to
Maturity (2)
 
 
(Dollars in millions)
Aaa/Aa/A
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
$
7

 
$
381

 
2.4

 
$
7

 
$
375

 
2.6

Credit default swaps referencing indices
 
40

 
2,267

 
2.5

 
44

 
2,268

 
2.7

Subtotal
 
47

 
2,648

 
2.5

 
51

 
2,643

 
2.7

Baa
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
7

 
656

 
1.9

 
7

 
605

 
1.8

Credit default swaps referencing indices
 
132

 
7,747

 
5.2

 
183

 
7,662

 
5.0

Subtotal
 
139

 
8,403

 
5.0

 
190

 
8,267

 
4.8

Ba
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 

 
20

 
1.2

 
1

 
115

 
3.4

Credit default swaps referencing indices
 

 

 

 

 

 

Subtotal
 

 
20

 
1.2

 
1

 
115

 
3.4

B
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps (3)
 
2

 
20

 
3.2

 
2

 
20

 
3.5

Credit default swaps referencing indices
 
20

 
330

 
5.2

 
27

 
330

 
5.0

Subtotal
 
22

 
350

 
5.1

 
29

 
350

 
4.9

Total
 
$
208

 
$
11,421

 
4.4

 
$
271

 
$
11,375

 
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”), Standard & Poor’s 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.
(3)
Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or state and political subdivisions.
The Company has also entered into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table above. As a result, the maximum amount of potential future recoveries available to offset the $11.4 billion of future payments under credit default provisions at both March 31, 2018 and December 31, 2017 set forth in the table above were $16 million and $27 million at March 31, 2018 and December 31, 2017, respectively.

53

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

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 8 for a description of the impact of credit risk on the valuation of derivatives.
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
 
 
March 31, 2018
 
December 31, 2017
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)
 
$
7,733

 
$
3,948

 
$
7,955

 
$
4,059

OTC-cleared (1), (6)
 
230

 
47

 
649

 
223

Exchange-traded
 
9

 
30

 
22

 
8

Total gross estimated fair value of derivatives (1)
 
7,972

 
4,025

 
8,626

 
4,290

Amounts offset on the interim condensed consolidated balance sheets
 

 

 

 

Estimated fair value of derivatives presented on the interim condensed consolidated balance sheets (1), (6)
 
7,972

 
4,025

 
8,626

 
4,290

Gross amounts not offset on the interim condensed consolidated balance sheets:
 
 
 
 
 
 
 
 
Gross estimated fair value of derivatives: (2)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(2,376
)
 
(2,376
)
 
(2,528
)
 
(2,528
)
OTC-cleared
 
(21
)
 
(21
)
 
(35
)
 
(35
)
Exchange-traded
 
(1
)
 
(1
)
 
(1
)
 
(1
)
Cash collateral: (3), (4)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(4,082
)
 

 
(4,169
)
 

OTC-cleared
 
(194
)
 
(9
)
 
(584
)
 
(179
)
Exchange-traded
 

 
(21
)
 

 
(5
)
Securities collateral: (5)
 
 
 
 
 
 
 
 
OTC-bilateral
 
(981
)
 
(1,519
)
 
(1,004
)
 
(1,474
)
OTC-cleared
 

 
(17
)
 

 
(9
)
Exchange-traded
 

 
(8
)
 

 
(2
)
Net amount after application of master netting agreements and collateral
 
$
317

 
$
53

 
$
305

 
$
57

__________________

54

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

(1)
At March 31, 2018 and December 31, 2017, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $48 million and $75 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of ($50) million and ($49) 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, 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, 2018 and December 31, 2017, the Company received excess cash collateral of $204 million and $253 million, respectively, and provided excess cash collateral of $263 million and $272 million, respectively, which is not included in the table above due to the foregoing limitation.
(5)
Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at March 31, 2018, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At March 31, 2018 and December 31, 2017, the Company received excess securities collateral with an estimated fair value of $74 million and $108 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At March 31, 2018 and December 31, 2017, the Company provided excess securities collateral with an estimated fair value of $301 million and $305 million, respectively, for its OTC-bilateral derivatives, and $507 million and $522 million, respectively, for its OTC-cleared derivatives, and $77 million and $89 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
(6)
Effective January 16, 2018, the LCH amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. See Note 1 for further information on the LCH amendments.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. A small number of these arrangements also include credit-contingent provisions that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of MetLife, Inc. and/or the counterparty. In addition, substantially all of the Company’s netting agreements for derivatives contain provisions that require both the Company and the counterparty to maintain a specific investment grade credit rating from each of Moody’s and S&P. If a party’s credit or financial strength rating, as applicable, were to fall below that specific investment grade credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives.
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged. The table also presents the incremental collateral that MetLife, Inc. would be required to provide if there was a one-notch downgrade in MetLife, Inc.’s senior unsecured debt rating at the reporting date or if the Company’s credit or financial strength rating, as applicable, at the reporting date sustained a downgrade to a level that triggered full overnight collateralization or termination of the derivative position. OTC-bilateral derivatives that are not subject to collateral agreements are excluded from this table.

55

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

 
 
March 31, 2018
 
December 31, 2017
 
 
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)
 
$
1,533

 
$
39

 
$
1,572

 
$
1,508

 
$
24

 
$
1,532

Estimated Fair Value of Collateral Provided:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities
 
$
1,734

 
$
50

 
$
1,784

 
$
1,675

 
$
26

 
$
1,701

Cash
 
$

 
$

 
$

 
$

 
$

 
$

Estimated Fair Value of Incremental Collateral Provided Upon:
 
 
 
 
 

 
 
 
 
 

One-notch downgrade in the Company’s credit or financial strength rating, as applicable
 
$
14

 
$

 
$
14

 
$
15

 
$

 
$
15

Downgrade in the Company’s credit or financial strength rating, as applicable, to a level that triggers full overnight collateralization or termination of the derivative position
 
$
15

 
$

 
$
15

 
$
20

 
$

 
$
20

__________________
(1)
After taking into consideration the existence of netting agreements.
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives. These host contracts principally include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; ceded reinsurance of guaranteed minimum benefits related to certain GMIBs; assumed reinsurance of guaranteed minimum benefits related to GMWBs and GMABs; funding agreements with equity or bond indexed crediting rates; funds withheld on ceded reinsurance; fixed annuities with equity-indexed returns; and certain debt and equity securities.
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, 2018
 
December 31, 2017
 
 
 
 
(In millions)
Embedded derivatives within asset host contracts:
 
 
 
 
 
 
Ceded guaranteed minimum benefits
 
Premiums, reinsurance and other receivables
 
$
157

 
$
144

Options embedded in debt or equity securities (1)
 
Investments
 

 
(132
)
Embedded derivatives within asset host contracts
 
$
157

 
$
12

Embedded derivatives within liability host contracts:
 
 
 
 
 
 
Direct guaranteed minimum benefits
 
Policyholder account balances
 
$
23

 
$
32

Assumed guaranteed minimum benefits
 
Policyholder account balances
 
392

 
291

Funds withheld on ceded reinsurance
 
Other liabilities
 
2

 
25

Fixed annuities with equity indexed returns
 
Policyholder account balances
 
68

 
70

Embedded derivatives within liability host contracts
 
$
485

 
$
418

__________________
(1)
In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018, the Company is no longer required to bifurcate and account separately for derivatives embedded in equity securities. Beginning January 1, 2018, the entire change in fair value of equity securities is recognized as a component of net investment gains and losses.

56

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

The following table presents changes in estimated fair value related to embedded derivatives:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions)
Net derivative gains (losses) (1)
 
$
37

 
$
157

__________________
(1)
The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were $20 million and ($52) million for the three months ended March 31, 2018 and 2017, respectively.
8. 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.
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:

57

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

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

 
$
77,597

 
$
4,237

 
$
81,834

Foreign government
 

 
64,331

 
179

 
64,510

Foreign corporate
 

 
48,890

 
6,573

 
55,463

U.S. government and agency
 
22,873

 
20,954

 

 
43,827

RMBS
 

 
24,155

 
3,256

 
27,411

State and political subdivision
 

 
12,192

 

 
12,192

ABS
 

 
10,739

 
1,025

 
11,764

CMBS
 

 
7,409

 
301

 
7,710

Total fixed maturity securities
 
22,873

 
266,267

 
15,571

 
304,711

Equity securities
 
909

 
213

 
422

 
1,544

Unit-linked and FVO Securities (1)
 
13,705

 
2,453

 
286

 
16,444

Other limited partnership interests
 

 

 
194

 
194

Short-term investments (2)
 
2,845

 
990

 
615

 
4,450

Residential mortgage loans — FVO
 

 

 
438

 
438

Other investments
 
83

 
90

 

 
173

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 
2

 
4,728

 
14

 
4,744

Foreign currency exchange rate
 

 
2,120

 
157

 
2,277

Credit
 

 
180

 
35

 
215

Equity market
 
7

 
603

 
78

 
688

Total derivative assets
 
9

 
7,631

 
284

 
7,924

Embedded derivatives within asset host contracts (4)
 

 

 
157

 
157

Separate account assets (5)
 
88,618

 
106,511

 
1,229

 
196,358

Total assets
 
$
129,042

 
$
384,155

 
$
19,196

 
$
532,393

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
3

 
$
348

 
$
243

 
$
594

Foreign currency exchange rate
 
8

 
2,585

 
29

 
2,622

Credit
 

 
43

 

 
43

Equity market
 
19

 
603

 
194

 
816

Total derivative liabilities
 
30

 
3,579

 
466

 
4,075

Embedded derivatives within liability host contracts (4)
 

 

 
485

 
485

Separate account liabilities (5)
 

 
12

 
5

 
17

Total liabilities
 
$
30

 
$
3,591

 
$
956

 
$
4,577


58

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

 
 
December 31, 2017
 
 
Fair Value Hierarchy
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. corporate
 
$

 
$
78,171

 
$
4,490

 
$
82,661

Foreign government
 

 
61,325

 
209

 
61,534

Foreign corporate
 

 
48,840

 
6,729

 
55,569

U.S. government and agency
 
26,052

 
21,342

 

 
47,394

RMBS
 

 
25,339

 
3,461

 
28,800

State and political subdivision
 

 
12,455

 

 
12,455

ABS
 

 
11,204

 
1,087

 
12,291

CMBS
 

 
7,934

 
293

 
8,227

Total fixed maturity securities
 
26,052

 
266,610

 
16,269

 
308,931

Equity securities
 
1,104

 
981

 
428

 
2,513

Unit-linked and FVO Securities (1)
 
14,028

 
2,355

 
362

 
16,745

Short-term investments (2)
 
3,001

 
1,252

 
33

 
4,286

Residential mortgage loans — FVO
 

 

 
520

 
520

Other investments
 
81

 
84

 

 
165

Derivative assets: (3)
 
 
 
 
 
 
 
 
Interest rate
 
2

 
5,553

 
8

 
5,563

Foreign currency exchange rate
 
2

 
1,954

 
113

 
2,069

Credit
 

 
240

 
38

 
278

Equity market
 
18

 
548

 
75

 
641

Total derivative assets
 
22

 
8,295

 
234

 
8,551

Embedded derivatives within asset host contracts (4)
 

 

 
144

 
144

Separate account assets (5)
 
89,916

 
114,124

 
961

 
205,001

Total assets
 
$
134,204

 
$
393,701

 
$
18,951

 
$
546,856

Liabilities
 
 
 
 
 
 
 
 
Derivative liabilities: (3)
 
 
 
 
 
 
 
 
Interest rate
 
$
4

 
$
638

 
$
130

 
$
772

Foreign currency exchange rate
 

 
2,553

 
37

 
2,590

Credit
 

 
43

 

 
43

Equity market
 
4

 
731

 
199

 
934

Total derivative liabilities
 
8

 
3,965

 
366

 
4,339

Embedded derivatives within liability host contracts (4)
 

 

 
418

 
418

Separate account liabilities (5)
 

 
7

 
2

 
9

Total liabilities
 
$
8

 
$
3,972

 
$
786

 
$
4,766

__________________
(1)
Unit-linked and FVO Securities were comprised of over 85% Unit-linked investments at both March 31, 2018 and December 31, 2017.
(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.

59

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8. 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. At March 31, 2018 and December 31, 2017, debt and equity securities also included embedded derivatives of $0 and ($132) million, respectively.
(5)
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets. Separate account liabilities presented in the tables above represent derivative liabilities.
The following describes the valuation methodologies used to measure assets and liabilities at fair value. The description includes the valuation techniques and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Investments
Valuation Controls and Procedures
On behalf of the Company’s Chief Investment Officer and Chief Financial Officer (“CFO”), a pricing and valuation committee that is independent of the trading and investing functions and comprised of senior management, provides oversight of control systems and valuation policies for securities, mortgage loans and derivatives. On a quarterly basis, this committee reviews and approves new transaction types and markets, ensures that observable market prices and market-based parameters are used for valuation, wherever possible, and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. This committee also provides oversight of the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing. Periodically, the Chief Accounting Officer reports to the Audit Committee of MetLife, Inc.’s Board of Directors regarding compliance with fair value accounting standards.
The Company reviews its valuation methodologies on an ongoing basis and revises those methodologies when necessary based on changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with fair value accounting standards through controls designed to ensure valuations represent an exit price. Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. The Company ensures that prices received from independent brokers, also referred to herein as “consensus pricing,” represent a reasonable estimate of fair value by considering such pricing relative to the Company’s knowledge of the current market dynamics and current pricing for similar financial instruments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio. For example, fixed maturity securities priced using independent non-binding broker quotations represent less than 1% of the total estimated fair value of fixed maturity securities and 2% of the total estimated fair value of Level 3 fixed maturity securities at March 31, 2018.

60

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

The Company also applies a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair value, which reflect internal estimates of liquidity and nonperformance risks, compared with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates of liquidity and nonperformance risks are generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence, management’s best estimate is used.
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 Unit-linked and FVO Securities and other investments is determined on a basis consistent with the methodologies described herein for securities.
Other Limited Partnership Interests
The estimated fair values of other limited partnership interests are generally based on the Company’s share of the net asset value (“NAV”) of the other limited partnership interests as provided on the financial statements of the investee. In certain circumstances, management may adjust the NAV when it has sufficient evidence to support applying such adjustments.

61

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

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.
Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Fixed maturity securities
U.S. corporate and Foreign corporate securities
 
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market approach.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
illiquidity premium
 
benchmark yields; spreads off benchmark yields; new issuances; issuer rating
delta spread adjustments to reflect specific credit-related issues
 
trades of identical or comparable securities; duration
credit spreads
 
Privately-placed securities are valued using the additional key inputs:
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
 
market yield curve; call provisions
 
 
 
observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer
independent non-binding broker quotations
 
 
delta spread adjustments to reflect specific credit-related issues
 
 
Foreign government, U.S. government and agency and State and political subdivision securities
 
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market approach.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
independent non-binding broker quotations
 
benchmark U.S. Treasury yield or other yields
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
the spread off the U.S. Treasury yield curve for the identical security
 
 
issuer ratings and issuer spreads; broker-dealer quotes
credit spreads
 
comparable securities that are actively traded
 
 
Structured Securities
 
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: Principally the market and income approaches.
 
Key Inputs:
Key Inputs:
 
quoted prices in markets that are not active
credit spreads
 
spreads for actively traded securities; spreads off benchmark yields
quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2
 
expected prepayment speeds and volumes
 
 
current and forecasted loss severity; ratings; geographic region
independent non-binding broker quotations
 
weighted average coupon and weighted average maturity
 
 
 
average delinquency rates; debt-service coverage ratios
 
 
 
issuance-specific information, including, but not limited to:
 
 
 
 
collateral type; structure of the security; vintage of the loans
 
 
 
 
payment terms of the underlying assets
 
 
 
 
payment priority within the tranche; deal performance
 
 

62

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8. 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, Other limited partnership interests 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 and short-term investments are of a similar nature and class to the fixed maturity and equity securities described above; accordingly, the valuation approaches and unobservable inputs used in their valuation are also similar to those described above.
 
All other investments are of a similar nature and class to the fixed maturity and equity securities described above; accordingly, the valuation approaches and observable inputs used in their valuation are also similar to those described above.
Valuation approaches for other limited partnership interests are discussed below.
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,” “— Other Limited Partnership Interests” and “— Derivatives — Freestanding Derivatives.”

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

Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. The valuation controls and procedures for derivatives are described in “— Investments.”
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what other market participants would use when pricing such instruments.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Freestanding Derivatives
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2 measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data.

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

Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
Instrument
 
Interest Rate
 
Foreign Currency
Exchange Rate
 
Credit
 
Equity Market
Inputs common to Level 2 and Level 3 by instrument type
swap yield curves
swap yield curves
swap yield curves
swap yield curves
basis curves
basis curves
credit curves
spot equity index levels
interest rate volatility (1)
currency spot rates
recovery rates
dividend yield curves
 
 
 
cross currency basis curves
 
 
equity volatility (1)
 
 
 
currency volatility (1)
 
 
 
 
Level 3
swap yield curves (2)
swap yield curves (2)
swap yield curves (2)
dividend yield curves (2)
 
basis curves (2)
basis curves (2)
credit curves (2)
equity volatility (1), (2)
 
repurchase rates
cross currency basis curves (2)

credit spreads
correlation between model inputs (1)
 
 
 
currency correlation
repurchase rates
 
 
 
 
 
currency volatility (1)

independent non-binding broker quotations
 
 
__________________
(1)
Option-based only.
(2)
Extrapolation beyond the observable limits of the curve(s).
Embedded Derivatives
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees, equity or bond indexed crediting rates within certain funding agreements and annuity contracts, and those related to funds withheld on ceded reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on the consolidated balance sheets.
The Company’s actuarial department calculates the fair value of these embedded derivatives, which are estimated as the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries as compared to MetLife, Inc.

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

Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which utilize significant inputs that may include swap yield curves, currency exchange rates and implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield curves and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Reinsurance ceded on certain guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. The valuation techniques and significant market standard unobservable inputs used in their valuation are similar to those described above in “— Direct and assumed guaranteed minimum benefits” and also include counterparty credit spreads.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity. Transfers into or out of any level are assumed to occur at the beginning of the period.
Transfers between Levels 1 and 2:
There were no transfers between Levels 1 and 2 for assets and liabilities measured at estimated fair value and still held at March 31, 2018 and December 31, 2017.
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)
8. 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, 2018
 
December 31, 2017
 
Impact of
Increase in Input
on Estimated
Fair Value (2)
 
Valuation
Techniques
 
Significant
Unobservable Inputs
 
Range
 
Weighted
Average (1)
 
Range
 
Weighted
Average (1)
 
Fixed maturity securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate and foreign corporate
Matrix pricing
 
Offered quotes (4)
 
89
-
139
 
107
 
83
-
142
 
110
 
Increase
 
Market pricing
 
Quoted prices (4)
 
25
-
846
 
124
 
10
-
443
 
121
 
Increase
 
Consensus pricing
 
Offered quotes (4)
 
97
-
104
 
102
 
97
-
104
 
101
 
Increase
RMBS
Market pricing
 
Quoted prices (4)
 
-
109
 
94
 
-
126
 
94
 
Increase (5)
ABS
Market pricing
 
Quoted prices (4)
 
3
-
117
 
100
 
5
-
117
 
100
 
Increase (5)
 
Consensus pricing
 
Offered quotes (4)
 
99
-
102
 
100
 
100
-
103
 
100
 
Increase (5)
Derivatives
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Interest rate
Present value techniques
 
Swap yield (6)
 
277
-
313
 
 
 
200
-
300
 
 
 
Increase (7)
 
 
 
 
Repurchase rates (8)
 
(4)
-
6
 
 
 
(5)
-
5
 
 
 
Decrease (7)
Foreign currency exchange rate
Present value techniques
 
Swap yield (6)
 
(19)
-
328
 
 
 
(14)
-
309
 
 
 
Increase (7)
Credit
Present value techniques
 
Credit spreads (9)
 
97
-
100
 
 
 
-
 
 
 
Decrease (7)
 
Consensus pricing
 
Offered quotes (10)
 
 

 
 
 
 
 
 
 
 
 
 
 
Equity market
Present value techniques or option pricing models
 
Volatility (11)
 
20%
-
31%
 
 
 
11%
-
31%
 
 
 
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%
-
0.21%
 
 
 
0%
-
0.21%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 41 - 60
 
0.03%
-
0.75%
 
 
 
0.03%
-
0.75%
 
 
 
Decrease (13)
 
 
 
 
 
Ages 61 - 115
 
0.15%
-
100%
 
 
 
0.15%
-
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
 
9.04%
-
33%
 
 
 
8.25%
-
33%
 
 
 
Increase (17)
 
 
 
 
Nonperformance risk spread
 
0.03%
-
1.75%
 
 
 
0.02%
-
1.32%
 
 
 
Decrease (18)
__________________
(1)
The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.
(2)
The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.
(3)
Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.
(4)
Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par.
(5)
Changes in the assumptions used for the probability of default are accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.

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

(6)
Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(7)
Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
(8)
Ranges represent different repurchase rates utilized as components within the valuation methodology and are presented in basis points.
(9)
Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps.
(10)
At both March 31, 2018 and December 31, 2017, independent non-binding broker quotations were used in the determination of less than 1% of the total net derivative estimated fair value.
(11)
Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(12)
Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase (decrease) the significance of the change in valuations.
(13)
Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(14)
Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(15)
The utilization rate assumption estimates the percentage of contractholders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(16)
The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(17)
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(18)
Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

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

The following is a summary of the valuation techniques and significant unobservable inputs used in the fair value measurement of assets and liabilities classified within Level 3 that are not included in the preceding table. Generally, all other classes of securities classified within Level 3, including those within separate account assets, and embedded derivatives within funds withheld related to certain ceded reinsurance, use the same valuation techniques and significant unobservable inputs as previously described for Level 3 securities. This includes matrix pricing and discounted cash flow methodologies, inputs such as quoted prices for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2, as well as independent non-binding broker quotations. The residential mortgage loans — FVO are valued using independent non-binding broker quotations and internal models including matrix pricing and discounted cash flow methodologies using current interest rates. Other limited partnership interests valuations are generally based on the Company’s share of the NAV as provided on the financial statements of the investees. In certain circumstances, management may adjust the NAV when it has sufficient evidence to support applying such adjustments. 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 (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Fixed Maturity Securities
 
 
 
 
 
 
Corporate (1)
 
Foreign
Government
 
Structured
Securities
 
State and
Political
Subdivision
 
Equity
Securities
 
Unit-linked and FVO
Securities
 
 
(In millions)
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

Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
11,537

 
$
289

 
$
5,215

 
$
10

 
$
468

 
$
287

Total realized/unrealized gains (losses) included in net income (loss) (2), (3)
 
4

 
3

 
32

 

 
(10
)
 
7

Total realized/unrealized gains (losses) included in AOCI
 
231

 
6

 
48

 

 
22

 

Purchases (4)
 
941

 
12

 
1,020

 

 
1

 
69

Sales (4)
 
(418
)
 
(17
)
 
(400
)
 

 
(1
)
 
(17
)
Issuances (4)
 

 

 

 

 

 

Settlements (4)
 

 

 

 

 

 

Transfers into Level 3 (5)
 
79

 
4

 
23

 

 

 
2

Transfers out of Level 3 (5)
 
(1,406
)
 
(8
)
 
(233
)
 
(10
)
 

 
(13
)
Balance, end of period
 
$
10,968

 
$
289

 
$
5,705

 
$

 
$
480

 
$
335

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

 
$
1

 
$
21

 
$

 
$

 
$
4

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2017 (6)
 
$
4

 
$
2

 
$
24

 
$

 
$
(10
)
 
$
7


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

 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

 
 
Other Limited Partnership Interests
 
Short-term
Investments
 
Residential
Mortgage
Loans — FVO
 
Net
Derivatives (7)
 
Net Embedded
Derivatives (8)
 
Separate
Accounts (9)
 
 
(In millions)

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)
 
(5
)
 

 
2

 
11

 
36

 
2

Total realized/unrealized gains (losses) included in AOCI
 
2

 

 

 
(104
)
 
(16
)
 

Purchases (4)
 

 
605

 

 

 

 
409

Sales (4)
 
(19
)
 
(3
)
 
(64
)
 

 

 
(124
)
Issuances (4)
 

 

 

 

 

 
1

Settlements (4)
 

 

 
(20
)
 
43

 
(74
)
 
(1
)
Transfers into Level 3 (5)
 
216

 

 

 

 

 
53

Transfers out of Level 3 (5)
 

 
(20
)
 

 

 

 
(75
)
Balance, end of period
 
$
194

 
$
615

 
$
438

 
$
(182
)
 
$
(328
)
 
$
1,224

Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$

 
$
46

 
$
566

 
$
(562
)
 
$
(729
)
 
$
1,141

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

 

 
(3
)
 
33

 
169

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

 

 

 
44

 
(59
)
 

Purchases (4)
 

 
776

 
135

 

 

 
136

Sales (4)
 

 
(3
)
 
(33
)
 

 

 
(42
)
Issuances (4)
 

 

 

 
(7
)
 

 
39

Settlements (4)
 

 

 
(26
)
 
95

 
(76
)
 
(33
)
Transfers into Level 3 (5)
 

 

 

 

 

 
69

Transfers out of Level 3 (5)
 

 
(40
)
 

 

 

 
(102
)
Balance, end of period
 
$

 
$
779

 
$
639

 
$
(397
)
 
$
(695
)
 
$
1,184

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2018 (6)
 
$
(5
)
 
$

 
$
(8
)
 
$
48

 
$
31

 
$

Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2017 (6)
 
$

 
$

 
$
(3
)
 
$
26

 
$
167

 
$

__________________
(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)
Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(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).

71

Table of Contents
MetLife, Inc.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8. 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, 2018
 
December 31, 2017
 
 
(In millions)
Unpaid principal balance
 
$
544

 
$
650

Difference between estimated fair value and unpaid principal balance
 
(106
)
 
(130
)
Carrying value at estimated fair value
 
$
438

 
$
520

Loans in nonaccrual status
 
$
159

 
$
198

Loans more than 90 days past due
 
$
78

 
$
94

Loans in nonaccrual status or more than 90 days past due, or both — difference between aggregate estimated fair value and unpaid principal balance
 
$
(82
)
 
$
(102
)



72

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

Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are not included in the three level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair value of the excluded financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
 
 
March 31, 2018
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
70,617

 
$

 
$

 
$
71,845

 
$
71,845

Policy loans
 
$
9,744

 
$

 
$
341

 
$
11,082

 
$
11,423

Other invested assets
 
$
1,264

 
$

 
$
812

 
$
452

 
$
1,264

Premiums, reinsurance and other receivables
 
$
4,358

 
$

 
$
1,450

 
$
3,025

 
$
4,475

Other assets
 
$
345

 
$

 
$
175

 
$
199

 
$
374

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
114,715

 
$

 
$

 
$
116,193

 
$
116,193

Long-term debt
 
$
15,696

 
$

 
$
16,973

 
$

 
$
16,973

Collateral financing arrangement
 
$
1,108

 
$

 
$

 
$
898

 
$
898

Junior subordinated debt securities
 
$
3,145

 
$

 
$
4,073

 
$

 
$
4,073

Other liabilities
 
$
3,810

 
$

 
$
2,113

 
$
2,252

 
$
4,365

Separate account liabilities
 
$
118,151

 
$

 
$
118,151

 
$

 
$
118,151


73

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

 
 
December 31, 2017
 
 
 
 
Fair Value Hierarchy
 
 
 
 
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Estimated
Fair Value
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
Mortgage loans
 
$
68,211

 
$

 
$

 
$
69,797

 
$
69,797

Policy loans
 
$
9,669

 
$

 
$
336

 
$
11,176

 
$
11,512

Other limited partnership interests
 
$
219

 
$

 
$

 
$
216

 
$
216

Other invested assets
 
$
443

 
$

 
$

 
$
443

 
$
443

Premiums, reinsurance and other receivables
 
$
4,155

 
$

 
$
1,283

 
$
3,056

 
$
4,339

Other assets
 
$
285

 
$

 
$
189

 
$
139

 
$
328

Liabilities
 
 
 
 
 
 
 
 
 
 
Policyholder account balances
 
$
114,355

 
$

 
$

 
$
116,534

 
$
116,534

Long-term debt
 
$
15,675

 
$

 
$
17,773

 
$

 
$
17,773

Collateral financing arrangement
 
$
1,121

 
$

 
$

 
$
894

 
$
894

Junior subordinated debt securities
 
$
3,144

 
$

 
$
4,319

 
$

 
$
4,319

Other liabilities
 
$
3,208

 
$

 
$
1,496

 
$
2,345

 
$
3,841

Separate account liabilities
 
$
124,011

 
$

 
$
124,011

 
$

 
$
124,011


74

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

9. Equity
Preferred Stock
In March 2018, MetLife, Inc. issued 500,000 shares of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (the “Series D preferred stock”) with a $0.01 par value per share and a liquidation preference of $1,000 per share for aggregate net proceeds of $494 million. In connection with the offering of the Series D preferred stock, MetLife, Inc. incurred approximately $6 million of issuance costs which have been recorded as a reduction of additional paid-in capital.
The Series D preferred stock ranks senior to MetLife, Inc.’s common stock with respect to the payment of dividends and distributions upon liquidation, dissolution or winding-up. Holders of the Series D preferred stock will be entitled to receive dividend payments only when, as and if declared by MetLife, Inc.’s Board of Directors or a duly authorized committee thereof. If dividends are declared on the Series D preferred stock for any dividend period, they will be calculated on a non-cumulative basis at a fixed rate per annum of 5.875% from the date of original issue to, but excluding, March 15, 2028 and at a floating rate per annum equal to three-month U.S. dollar LIBOR plus 2.959% on the related LIBOR determination date from and after March 15, 2028. Dividends for any dividend period will be payable, if declared, semi-annually in arrears on the 15th day of March and September of each year commencing on September 15, 2018 and ending on March 15, 2028, and thereafter quarterly in arrears on the 15th day of June, September, December, and March of each year.
Dividends on the Series D preferred stock will not be cumulative and will not be mandatory. Accordingly, if dividends are not declared on the Series D preferred stock for any dividend period, then any accrued dividends for that dividend period will cease to accrue and be payable. If a dividend is not declared before the dividend payment date for any dividend period, MetLife, Inc. will have no obligation to pay dividends accrued for such dividend period whether or not dividends on the Series D preferred stock are declared for any future dividend period. No dividends may be paid or declared on MetLife, Inc.’s common stock (or any other securities ranking junior to the Series D preferred stock) and MetLife, Inc. may not purchase, redeem, or otherwise acquire its common stock (or other such junior stock) unless the full dividends for the latest completed dividend period on all outstanding shares of Series D preferred stock, and any parity stock, have been declared and paid or provided for.
Holders of the Series D preferred stock do not have voting rights except in certain circumstances, including where the dividends have not been paid for an equivalent of six or more dividend payment periods whether or not those periods are consecutive. Under such circumstances, the holders of the Series D preferred stock have certain voting rights with respect to members of the Board of Directors of MetLife, Inc.
The Series D preferred stock is not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions. MetLife, Inc. may, at its option, redeem the Series D preferred stock, (a) in whole but not in part, at any time prior to March 15, 2028, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $1,020 per share of Series D preferred stock, plus an amount equal to any accrued and unpaid dividends per share that have accrued but not been declared and paid for the then-current dividend period to but excluding the redemption date and (b) (i) in whole but not in part, at any time prior to March, 15, 2028, within 90 days after the occurrence of a “regulatory capital event” or (ii) in whole or in part, from time to time, on or after March 15, 2028, in each case, at a redemption price equal to $1,000 per share of Series D preferred stock, plus an amount equal to any accrued and unpaid dividends per share that have accrued but not been declared and paid for the then-current dividend period to, but excluding, such redemption date. A “rating agency event” means that any nationally recognized statistical rating organization that then publishes a rating for MetLife, Inc. amends, clarifies or changes the criteria it uses to assign equity credit to securities like the Series D preferred stock, which results in the lowering of the equity credit assigned to the Series D preferred stock or shortens the length of time that the Series D preferred stock is assigned a particular level of equity credit. A “regulatory capital event” could occur as a result of a change or proposed change in capital adequacy rules (or the interpretation or application thereof) of any capital regulator, including but not limited to the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Insurance Office, the National Association of Insurance Commissioners or any state insurance regulator, as may then have group-wide oversight of MetLife, Inc.’s regulatory capital, from rules (or the interpretation or application thereof) in effect as of March 22, 2018, that would create a more than insubstantial risk, as determined by MetLife, Inc., that the Series D preferred stock would not be treated as “Tier 1 capital” or as capital with attributes similar to those of Tier 1 capital, except that a “regulatory capital event” will not include a change or proposed change (or the interpretation or application thereof) that would result in the adoption of any criterion substantially the same as the criteria in the capital adequacy rules of the Federal Reserve Board applicable to bank holding companies as of March 22, 2018.

75

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

Preferred stock authorized, issued and outstanding was as follows:
 
 
March 31, 2018
 
December 31, 2017
Series
 
Shares
Authorized
 
Shares
Issued
 
Shares
Outstanding
 
Shares
Authorized
 
Shares
Issued
 
Shares
Outstanding
Floating Rate Non-Cumulative Preferred Stock, Series A
 
27,600,000

 
24,000,000

 
24,000,000

 
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

 
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

 

 

 

Series A Junior Participating Preferred Stock
 
10,000,000

 

 

 
10,000,000

 

 

Not designated
 
160,400,000

 

 

 
160,900,000

 

 

Total
 
200,000,000

 
26,000,000

 
26,000,000

 
200,000,000

 
25,500,000

 
25,500,000

Common Stock
During the three months ended March 31, 2018 and 2017, MetLife, Inc. repurchased 21,405,327 shares and 16,038,791 shares of its common stock through open market purchases for $1.0 billion and $858 million, respectively.
On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. At March 31, 2018, MetLife, Inc. had $720 million remaining under this common stock repurchase authorization. Common stock repurchases are dependent upon several factors, including the Company’s capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.
See Note 15 for information on subsequent common stock repurchases.
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, 2015 – December 31, 2017 performance period was 46.3%, which was determined within a possible range from 0% to 175%. This factor has been applied to the 1,194,283 Performance Shares and 186,085 Performance Units associated with that performance period that vested on December 31, 2017. As a result, in the first quarter of 2018, MetLife, Inc. issued 552,953 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 86,157 Performance Units (less withholding for taxes and other items, as applicable).

76

Table of Contents
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, 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
 
1,473

 
210

 
36

 
(382
)
 
1,337

Cumulative effects of changes in accounting principles, net of income tax (2)
 
1,048

 
210

 
36

 
(382
)
 
912

Sale of subsidiary (3)
 

 

 
92

 

 
92

Balance, end of period
 
$
10,864

 
$
683

 
$
(3,707
)
 
$
(2,206
)
 
$
5,634

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
Ended
March 31, 2017
 
 
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
 
$
10,785

 
$
1,865

 
$
(5,312
)
 
$
(1,972
)
 
$
5,366

OCI before reclassifications
 
703

 
210

 
348

 
(20
)
 
1,241

Deferred income tax benefit (expense)
 
(273
)
 
(73
)
 
122

 
2

 
(222
)
AOCI before reclassifications, net of income tax
 
11,215

 
2,002

 
(4,842
)
 
(1,990
)
 
6,385

Amounts reclassified from AOCI
 
196

 
(229
)
 

 
44

 
11

Deferred income tax benefit (expense)
 
(75
)
 
80

 

 
(5
)
 

Amounts reclassified from AOCI, net of income tax
 
121

 
(149
)
 

 
39

 
11

Balance, end of period
 
$
11,336

 
$
1,853

 
$
(4,842
)
 
$
(1,951
)
 
$
6,396

__________________
(1)
See Note 6 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 3 for further information on the 2018 disposition.


77

Table of Contents
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,
 
 
 
 
2018
 
2017
 
 
 
 
(In millions)
 
 
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized investment gains (losses)
 
$
(101
)
 
$
40

 
Net investment gains (losses)
Net unrealized investment gains (losses)
 
3

 
6

 
Net investment income
Net unrealized investment gains (losses)
 
53

 
(151
)
 
Net derivative gains (losses)
Net unrealized investment gains (losses)
 

 
(91
)
 
Discontinued operations
Net unrealized investment gains (losses), before income tax
 
(45
)
 
(196
)
 
 
Income tax (expense) benefit
 
10

 
75

 
 
Net unrealized investment gains (losses), net of income tax
 
(35
)
 
(121
)
 
 
Unrealized gains (losses) on derivatives - cash flow hedges:
 
 
 
 
 
 
Interest rate swaps
 
16

 
8

 
Net derivative gains (losses)
Interest rate swaps
 
3

 
4

 
Net investment income
Interest rate swaps
 

 
1

 
Discontinued operations
Interest rate forwards
 
5

 
(4
)
 
Net derivative gains (losses)
Interest rate forwards
 
1

 

 
Net investment income
Interest rate forwards
 

 
1

 
Discontinued operations
Foreign currency swaps
 
139

 
208

 
Net derivative gains (losses)
Foreign currency swaps
 
1

 
1

 
Other expenses
Foreign currency swaps
 

 
10

 
Discontinued operations
Gains (losses) on cash flow hedges, before income tax
 
165

 
229

 
 
Income tax (expense) benefit
 
(27
)
 
(80
)
 
 
Gains (losses) on cash flow hedges, net of income tax
 
138

 
149

 
 
Defined benefit plans adjustment: (1)
 
 
 
 
 
 
Amortization of net actuarial gains (losses)
 
(36
)
 
(49
)
 
 
Amortization of prior service (costs) credit
 
5

 
5

 
 
Amortization of defined benefit plan items, before income tax
 
(31
)
 
(44
)
 
 
Income tax (expense) benefit
 
7

 
5

 
 
Amortization of defined benefit plan items, net of income tax
 
(24
)
 
(39
)
 
 
Total reclassifications, net of income tax
 
$
79

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

78

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

10. Other Expenses
Information on other expenses was as follows:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions)
Employee related costs
 
$
937

 
$
937

Third party staffing costs
 
380

 
362

General and administrative expenses
 
243

 
221

Pension, postretirement and postemployment benefit costs
 
49

 
79

Premium taxes, other taxes, and licenses & fees
 
179

 
175

Commissions and other variable expenses
 
1,416

 
1,304

Capitalization of DAC
 
(796
)
 
(713
)
Amortization of DAC and VOBA
 
693

 
663

Amortization of negative VOBA
 
(22
)
 
(43
)
Interest expense on debt
 
286

 
283

Total other expenses
 
$
3,365

 
$
3,268

Certain prior year amounts have been reclassified to conform to the current year presentation, which has been revised to align the expense categories with the Company’s businesses. The reclassifications did not result in a change to total other expenses.
See Note 3 for further information on Separation-related transaction costs.
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,
 
2018
 
2017
 
Severance
 
(In millions)
Balance, beginning of period
$
22

 
$
35

Restructuring charges
9

 
11

Cash payments
(12
)
 
(8
)
Balance, end of period
$
19

 
$
38

Total restructuring charges incurred since inception of initiative
$
82

 
$
46

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, 2018.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)

11. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various U.S. qualified and nonqualified defined benefit pension plans and other postretirement employee benefit plans covering employees who meet specified eligibility requirements. These subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for U.S. retired employees.
The components of net periodic benefit costs, reported in other expenses, were as follows:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
Pension
Benefits
 
Other
Postretirement
Benefits
 
Pension
Benefits
 
Other
Postretirement
Benefits
 
 
(In millions)
Service costs
 
$
60

 
$
1

 
$
61

 
$
1

Interest costs
 
96

 
11

 
106

 
19

Expected return on plan assets
 
(133
)
 
(18
)
 
(130
)
 
(18
)
Amortization of net actuarial (gains) losses
 
44

 
(8
)
 
49

 

Amortization of prior service costs (credit)
 

 
(5
)
 

 
(5
)
Net periodic benefit costs (credit)
 
$
67

 
$
(19
)
 
$
86

 
$
(3
)
12. Income Tax
On December 22, 2017, President Trump signed into law U.S. Tax Reform. U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018. U.S. Tax Reform moves the United States from a worldwide tax system to a participation exemption system by providing corporations a 100% dividends received deduction for dividends distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposed a one-time deemed repatriation tax on unremitted earnings and profits at a rate of 8.0% for illiquid assets and 15.5% for cash and cash equivalents.
In accordance with Staff Accounting Bulletin 118 issued by the U.S. Securities and Exchange Commission (“SEC”) in December 2017, the Company recorded provisional amounts for certain items for which the income tax accounting is not complete. For these items, the Company recorded a reasonable estimate of the tax effects of U.S. Tax Reform. The estimates will be reported as provisional amounts during a measurement period, which will not exceed one year from the date of enactment of U.S. Tax Reform. The Company may reflect adjustments to its provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.
See Note 18 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for further information. As of March 31, 2018, no updates were made to the provisional amounts.

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Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)

13. Earnings Per Common Share
The following table presents the weighted average shares, basic earnings per common share and diluted earnings per common share for each income category presented:
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
 
(In millions, except per share data)
Weighted Average Shares:
 
 
 
 
Weighted average common stock outstanding for basic earnings per common share
 
1,035.9

 
1,090.4

Incremental common shares from assumed exercise or issuance of stock-based awards
 
8.5

 
8.3

Weighted average common stock outstanding for diluted earnings per common share
 
1,044.4

 
1,098.7

Income (Loss) from Continuing Operations:
 
 
 
 
Income (loss) from continuing operations, net of income tax
 
$
1,257

 
$
952

Less: Income (loss) from continuing operations, net of income tax, attributable to noncontrolling interests
 
4

 
3

Less: Preferred stock dividends
 
6

 
6

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$
1,247

 
$
943

Basic
 
$
1.20

 
$
0.87

Diluted
 
$
1.19

 
$
0.86

Income (Loss) from Discontinued Operations:
 
 
 
 
Income (loss) from discontinued operations, net of income tax
 
$

 
$
(76
)
Less: Income (loss) from discontinued operations, net of income tax, attributable to noncontrolling interests
 

 

Income (loss) from discontinued operations, net of income tax, available to MetLife, Inc.’s common shareholders
 
$

 
$
(76
)
Basic
 
$

 
$
(0.07
)
Diluted
 
$

 
$
(0.07
)
Net Income (Loss):
 
 
 
 
Net income (loss)
 
$
1,257

 
$
876

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

 
3

Less: Preferred stock dividends
 
6

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1,247

 
$
867

Basic
 
$
1.20

 
$
0.80

Diluted
 
$
1.19

 
$
0.79


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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. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.
The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been established for a number of the matters noted below. It is possible that some of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated at March 31, 2018. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position.
Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of March 31, 2018, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $700 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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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 2017 Annual Report, MLIC received approximately 3,514 asbestos-related claims in 2017. During the three months ended March 31, 2018 and 2017, MLIC received approximately 823 and 1,104 new asbestos-related claims, respectively. See Note 20 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for historical information concerning asbestos claims and MLIC’s increase in its recorded liability at December 31, 2017. 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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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, 2018.
Regulatory Matters
The Company receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the SEC; federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority (“FINRA”), as well as from local and national regulators and government authorities in jurisdictions outside the United States where MetLife conducts business. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries.
In the Matter of Chemform, Inc. Site, Pompano Beach, Broward County, Florida
In July 2010, the Environmental Protection Agency (“EPA”) advised MLIC that it believed payments were due under two settlement agreements, known as “Administrative Orders on Consent,” that New England Mutual Life Insurance Company (“New England Mutual”) signed in 1989 and 1992 with respect to the cleanup of a Superfund site in Florida (the “Chemform Site”). The EPA originally contacted MLIC (as successor to New England Mutual) and a third party in 2001, and advised that they owed additional clean-up costs for the Chemform Site. The matter was not resolved at that time. In September 2012, the EPA, MLIC and the third party executed an Administrative Order on Consent under which MLIC and the third party agreed to be responsible for certain environmental testing at the Chemform Site. The EPA may seek additional costs if the environmental testing identifies issues. The EPA and MLIC have reached a settlement in principal on the EPA’s claim for past costs. The Company estimates that the aggregate cost to resolve this matter, including the settlement for claims of past costs and the costs of environmental testing, will not exceed $300 thousand.
Sales Practices Regulatory Matters
Regulatory authorities in a number of states and FINRA, and occasionally the SEC, have had investigations or inquiries relating to sales of individual life insurance policies or annuities or other products by MLIC and General American Life Insurance Company, as well as former subsidiaries of the Company that are part of Brighthouse as a result of the Separation, and a former broker-dealer subsidiary. These investigations often focus on the conduct of particular financial services representatives and the sale of unregistered or unsuitable products or the misuse of client assets. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief, including restitution payments. The Company may continue to resolve investigations in a similar manner. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for these sales practices-related investigations or inquiries.

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

Unclaimed Property Litigation
City of Westland Police and Fire Retirement System v. MetLife, Inc., et al. (S.D.N.Y., filed January 12, 2012)
Seeking to represent a class of persons who purchased MetLife, Inc. common shares between February 2, 2010, and October 6, 2011, the plaintiff alleges that MetLife, Inc. and several current and former directors and executive officers of MetLife, Inc. violated the Securities Act of 1933, as well as the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder by issuing, or causing MetLife, Inc. to issue, materially false and misleading statements concerning MetLife, Inc.’s potential liability for millions of dollars in insurance benefits that should have been paid to beneficiaries or escheated to the states. Plaintiff seeks unspecified compensatory damages and other relief. On September 22, 2017, the Court granted plaintiff’s motion to certify its proposed class of persons who purchased or acquired MetLife, Inc. common stock in the Company’s August 3, 2010 offering or the Company’s March 4, 2011 offering. The defendants intend to defend this action vigorously.
Total Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New York, filed November 17, 2017)
Alleging that MetLife, Inc., MLIC, and several other insurance companies violated the New York False Claims Act (the “Act”) by filing false unclaimed property reports from 1986 to 2017 with New York to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part of their demutualizations in the late 1990s, Total Asset Recovery Services (“The Relator”) has brought an action under the qui tam provision of the Act on behalf of itself and New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator seeks treble damages and other relief. The Company intends to defend this action vigorously.
Total Control Accounts Litigation
MLIC is a defendant in a lawsuit related to its use of retained asset accounts, known as Total Control Accounts (“TCA”), as a settlement option for death benefits.
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of all persons for whom MLIC established a TCA to pay death benefits under an 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.
Diversified Lending Group Litigation
Hartshorne v. MetLife, Inc., et al. (Los Angeles County Superior Court, filed March 25, 2015)
Plaintiffs named MetLife, Inc., MetLife Securities, Inc., and New England Life Insurance Company in 12 related lawsuits in California state court alleging various causes of action including multiple negligence and statutory claims relating to a Ponzi scheme involving the Diversified Lending Group. The Company settled with the last remaining plaintiff on or about May 2, 2018.

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

Inquiries into Pension Benefits and Assumed Variable Annuity Guarantee Reserves and Related Litigation
The Company informed its primary state regulator, the New York Department of Financial Services (“NYDFS”), about its practices in connection with the payment of certain pension benefits to annuitants and related matters. The NYDFS is examining the issue. The Division of Enforcement of the SEC is also investigating this matter and several additional regulators, including, but not limited to, the Massachusetts Securities Division, have made inquiries into these practices, including as to related disclosures. It is possible that other jurisdictions may pursue similar investigations or inquiries. On January 29, 2018, the Company announced that in connection with a review of practices and procedures used to estimate reserves related to certain Retirement Income Solutions (“RIS”) group annuitants who have been unresponsive or missing over time, the Company had identified a material weakness in its internal control over financial reporting related to certain RIS group annuity reserves. In conjunction with the material weakness, the Company increased reserves by $510 million pre-tax to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. See Note 1 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report.
The Company informed the SEC that as a result of its review of the calculation of reserves associated with certain variable annuity guarantees assumed from the former operating joint venture in Japan, the Company had identified a material weakness in its internal control over financial reporting related to these reserves. In conjunction with the material weakness, the Company decreased these reserves by $896 million pre-tax at December 31, 2017. See Note 1 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report. The Division of Enforcement of the SEC is investigating this matter 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 matters. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, ERISA, or other laws or regulations. The Company could incur significant costs in connection with these actions. The Company’s increase in reserves does not reflect, and the Company has not recorded an accrual for, any such potential amounts. An estimate of the possible loss or range of loss cannot be made at this time.
Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018)
Seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through January 29, 2018, the plaintiff alleges that MetLife, Inc., its Chief Executive Officer and Chairman of the Board, and its CFO violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by issuing materially false and/or misleading statements because the defendants failed to disclose that MetLife’s practices and procedures used to estimate its reserves set aside for annuity and pension payments were inadequate, and that MetLife had inadequate internal control over financial reporting. The plaintiff seeks unspecified compensatory damages and other relief. The defendants intend to defend this action vigorously.
Demands
By letter dated March 28, 2018 to the MetLife, Inc. Board of Directors, a shareholder, Rosemarie R. Zavolta, has demanded that MetLife, Inc. take action against current and former Board members and executive officers for alleged breaches of fiduciary duty with respect to (i) the Company’s allegedly inadequate practices and procedures used to estimate the Company’s reserves for annuity and pension payments, (ii) the alleged lack of adequate internal controls over financial reporting, and (iii) the alleged dissemination of false, misleading and/or incomplete information related to these issues. Zavolta has demanded that the Board: (i) undertake or cause to be undertaken an independent internal investigation into management’s violations of New York law, Delaware law, and/or federal law; and (ii) if warranted commence a civil action against each member of management to recover for the benefit of the Company the amount of damages sustained by the Company as a result of their breaches of fiduciary duties alleged. The MetLife, Inc. Board of Directors has appointed a special committee to investigate these allegations.

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

Other Litigation
Sun Life Assurance Company of Canada Indemnity Claim
In 2006, Sun Life Assurance Company of Canada (“Sun Life”), as successor to the purchaser of MLIC’s Canadian operations, filed a lawsuit in Toronto, seeking a declaration that MLIC remains liable for “market conduct claims” related to certain individual life insurance policies sold by MLIC that were subsequently transferred to Sun Life. In January 2010, the court found that Sun Life had given timely notice of its claim for indemnification but, because it found that Sun Life had not yet incurred an indemnifiable loss, granted MLIC’s motion for summary judgment. Both parties agreed to consider the indemnity claim through arbitration. In September 2010, Sun Life notified MLIC that a purported class action lawsuit was filed against Sun Life in Toronto alleging sales practices claims regarding the policies sold by MLIC and transferred to Sun Life. On August 30, 2011, Sun Life notified MLIC that another purported class action lawsuit was filed against Sun Life in Vancouver, BC alleging sales practices claims regarding certain of the same policies sold by MLIC and transferred to Sun Life. Sun Life contends that MLIC is obligated to indemnify Sun Life for some or all of the claims in these lawsuits. These sales practices cases against Sun Life are ongoing, and the Company is unable to estimate the reasonably possible loss or range of loss arising from this litigation.
Voshall v. Metropolitan Life Insurance Company (Superior Court of the State of California, County of Los Angeles, April 8, 2015)
Plaintiff filed this putative class action lawsuit on behalf of himself and all persons covered under a long-term group disability income insurance policy issued by MLIC to public entities in California between April 8, 2011 and April 8, 2015. Plaintiff alleges that MLIC improperly reduced benefits by including cost of living adjustments and employee paid contributions in the employer retirement benefits and other income that reduces the benefit payable under such policies. Plaintiff asserts causes of action for declaratory relief, violation of the California Business & Professions Code, breach of contract and breach of the implied covenant of good faith and fair dealing. The Company intends to defend this action vigorously.
Martin v. Metropolitan Life Insurance Company, (Superior Court of the State of California, County of Contra Costa, filed December 17, 2015)
Plaintiffs filed this putative class action lawsuit on behalf of themselves and all California persons who have been charged compound interest by MLIC in life insurance policy and/or premium loan balances within the last four years. Plaintiffs allege that MLIC has engaged in a pattern and practice of charging compound interest on life insurance policy and premium loans without the borrower authorizing such compounding, and that this constitutes an unlawful business practice under California law. Plaintiff asserts causes of action for declaratory relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiff seeks declaratory and injunctive relief, restitution of interest, and damages in an unspecified amount. On April 12, 2016, the court granted MLIC’s motion to dismiss. Plaintiffs have appealed this ruling to the United States Court of Appeals for the Ninth Circuit. The Company intends to defend this action vigorously.
Lau v. Metropolitan Life Insurance Company (S.D.N.Y. filed, December 3, 2015)
This putative class action lawsuit was filed by a single defined contribution plan participant on behalf of all ERISA plans whose assets were invested in MetLife’s “Group Annuity Contract Stable Value Funds” within the past six years. The suit alleges breaches of fiduciary duty under ERISA and challenges the “spread” with respect to the stable value fund group annuity products sold to retirement plans. The allegations focus on the methodology MetLife uses to establish and reset the crediting rate, the terms under which plan participants are permitted to transfer funds from a stable value option to another investment option, the procedures followed if an employer terminates a contract, and the level of disclosure provided. Plaintiff seeks declaratory and injunctive relief, as well as damages in an unspecified amount. The parties settled on January 2, 2018 and the court has dismissed the action.

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14. Contingencies, Commitments and Guarantees (continued)

Newman v. Metropolitan Life Insurance Company (N.D. Ill., filed March 23, 2016)
Plaintiff filed this putative class action alleging causes of action for breach of contract, fraud, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, based on MLIC’s class-wide increase in premiums charged for long-term care insurance policies. Plaintiff alleges a class consisting of herself and all persons over age 65 who selected a Reduced Pay at Age 65 payment feature and whose premium rates were increased after age 65. Plaintiff asserts that premiums could not be increased for these class members and/or that marketing material was misleading as to MLIC’s right to increase premiums. Plaintiff seeks unspecified compensatory, statutory and punitive damages, as well as recessionary and injunctive relief. On April 12, 2017, the court granted MLIC’s motion, dismissing the action with prejudice. Plaintiff appealed this ruling to the United States Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) and on February 6, 2018, the Seventh Circuit reversed and remanded for further proceedings, ruling that Plaintiff is entitled to relief on her contract claim. Following MLIC’s petition for rehearing, the Seventh Circuit issued an amended opinion on March 22, 2018, holding that plaintiff’s claim survived MLIC’s motion to dismiss but finding that the policy is ambiguous as to MLIC’s right to raise plaintiff’s premiums. The Seventh Circuit held that on remand to the district court, the parties may introduce evidence to try to resolve this ambiguity.
Miller, et al. v. MetLife, Inc., et al. (C.D. Cal., filed April 7, 2017)
Plaintiffs filed this putative class action against MetLife, Inc. and MLIC in the U.S. District Court for the Central District of California, purporting to assert claims on behalf of all persons who replaced their MetLife Optional Term Life or Group Universal Life policy with a Group Variable Universal Life policy wherein MetLife allegedly charged smoker rates for certain non-smokers. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On September 25, 2017, plaintiffs dismissed the action and refiled the complaint in U.S. District Court for the Southern District of New York. On November 9, 2017, plaintiffs dismissed MetLife, Inc. without prejudice from the action. MLIC intends to defend this action vigorously.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under the Fair Labor Standards Act, the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that MetLife improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for overtime pay even though they allege they continued to work more than 40 hours per week. 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.
Sales Practices Claims
Over the past several years, the Company has faced numerous claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds, other products or the misuse of client assets. Some of the current cases seek substantial damages, including punitive and treble damages and attorneys’ fees. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.
Summary
Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.

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

It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $3.7 billion and $3.4 billion at March 31, 2018 and December 31, 2017, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $6.1 billion at both March 31, 2018 and December 31, 2017.
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 $775 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 has also minimum fund yield requirements on certain international pension funds in accordance with local laws. Since these guarantees are not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future.
The Company’s recorded liabilities were $7 million and $5 million at March 31, 2018 and December 31, 2017, respectively, for indemnities, guarantees and commitments.
15. Subsequent Events
Common Stock Repurchases
In the second quarter of 2018 through April 30, 2018, MetLife, Inc. repurchased 7,630,398 shares of its common stock in the open market for $350 million.
Common Stock Dividend
On April 24, 2018, the MetLife, Inc. Board of Directors declared a second quarter 2018 common stock dividend of $0.42 per share payable on June 13, 2018 to shareholders of record as of May 7, 2018. The Company estimates that the aggregate dividend payment will be $428 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, 2017 (the “2017 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. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will be,” “will not,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements may turn out to be wrong. Actual results could differ materially from those expressed or implied in the forward-looking statements. See “Note Regarding Forward-Looking Statements.”
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, adjusted earnings and adjusted earnings available to common shareholders, that are not based on accounting principles generally accepted in the United States of America (“GAAP”). These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings and other financial measures based on adjusted earnings are also the measures by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Forward-looking guidance provided on a non-GAAP basis cannot be reconciled to the most directly comparable GAAP measures on a forward-looking basis because net income may fluctuate significantly if net investment gains and losses and net derivative gains and losses move outside of estimated ranges. See “— Non-GAAP and Other Financial Disclosures” for definitions and a discussion of these measures, and “— Results of Operations” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.
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.
Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions” included in the 2017 Annual Report, material weaknesses were identified in internal control over financial reporting relating to the review of practices and procedures used to estimate (i) the Company’s reserves related to certain Retirement and Income Solutions (“RIS”) group annuitants who have been unresponsive or missing over time and (ii) certain reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint venture in Japan. An update of the remediation plan to remove the material weaknesses is further described in “Controls and Procedures.” Also, see Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements for prior period revisions related to the Company’s consolidated results, as well as “Risk Factors” disclosed in the 2017 Annual Report for further information.

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U.S. Tax Reform
On December 22, 2017, President Trump signed into law H.R.1, commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018, a participation exemption system which generally eliminates U.S. federal income tax on dividends received from foreign subsidiaries, and a number of other revenue raisers. 
 Given the complexities of U.S. Tax Reform, amounts recorded may change, possibly materially, due to, among other things, changes in interpretations and assumptions made by the Company, additional guidance that may be issued and actions that the Company may take. The Company continues to anticipate its 2018 effective tax rate to be in the range of 18% to 20%. See Notes 1 and 12 of the Notes to the Interim Condensed Consolidated Financial Statements for a further discussion of U.S. Tax Reform and the impact to the Company in the first quarter of 2018. 
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to the MetLife, Inc. common shareholders (the “Separation”). MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding. The Separation resulted in the elimination of the Brighthouse Financial segment. The results of Brighthouse are reflected in the Company’s interim condensed consolidated financial statements as discontinued operations and, therefore, are presented as income (loss) from discontinued operations on the interim condensed consolidated statements of operations and comprehensive income (loss). Prior period results have been revised to reflect discontinued operations, which are reported in Corporate & Other. The reporting of discontinued operations had no impact on total consolidated assets or liabilities or on total consolidated net income (loss) for any of the periods presented. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for further information.
The Company intends to divest its shares of Brighthouse Financial, Inc. common stock as soon as practicable and is considering a variety of transactions to do so. These transactions may include an equity exchange offer, a direct sale of the shares, or an exchange involving debt securities. The Company expects to complete the divestiture prior to the end of 2018 and does not expect the structure of any such transaction to affect its plans to repurchase shares of MetLife, Inc. common stock in 2018. The structure and timing of any such transaction or repurchases may not permit shareholders to dispose of Company securities and acquire Brighthouse Financial, Inc. common stock in a tax-free exchange, and are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the price of securities compared to management’s assessment of underlying value, applicable regulatory approvals, as well as other legal and accounting factors.

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Current Period Highlights
During the three months ended March 31, 2018, overall sales decreased slightly compared to the prior period reflecting declines in each of our segments despite growth in certain businesses, notably higher funding agreement issuances in our RIS business, continued growth in our voluntary business and increased sales of foreign currency-denominated life products in Japan. In addition, 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. Net derivative gains (losses) improved primarily as a result of changes in key equity index levels, long-term U.S. interest rates and foreign currency exchange rates. An unfavorable change in net investment gains (losses) was primarily the result of a mark-to-market loss on our retained investment in Brighthouse Financial, Inc. common stock and a leveraged lease impairment.
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, 2018:
segment.jpg
__________________    
(1)
Excludes Corporate & Other adjusted loss available to common shareholders of $203 million.
(2)
Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. See “— Non-GAAP and Other Financial Disclosures.”

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Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
barcharta01.jpg
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.’s common shareholders up $380 million:
 
 
Favorable change in net derivative gains (losses) of $561 million ($443 million, net of income tax)

 
 
Favorable change in results from divested businesses of $316 million ($250 million, net of income tax)



 
 
Unfavorable change in net investment gains (losses) of $421 million ($333 million, net of income tax)

 
 
Unfavorable impact from U.S. Tax Reform of $54 million
 
 
(1) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and definitions of non-GAAP financial measures.
Consolidated Results - Adjusted Earnings
Adjusted earnings available to common shareholders up $102 million:
The primary drivers of the increase in adjusted earnings were the favorable impact of U.S. Tax Reform, higher net investment income due to a larger asset base, favorable underwriting and lower expenses, partially offset by higher interest credited expenses, lower investment yields and other unfavorable tax items


Our results for the three months ended March 31, 2018 included the following:
 
favorable impact from U.S. Tax Reform of $101 million
 
favorable reserve adjustment of $62 million, net of income tax, relating to certain variable annuity guarantees assumed from a former joint venture in Japan

 
a $34 million, net of income tax, increase in expenses associated with the Company’s previously announced unit cost initiative


Our results for the three months ended March 31, 2017 included the following:
 
a $21 million, net of income tax, charge for expenses incurred related to a guaranty fund assessment for Penn Treaty Network America Insurance Company (“Penn Treaty”)
 
favorable reserve adjustments of $34 million, net of income tax, resulting from modeling improvements in the reserving process in certain of our life businesses
 
a $21 million, net of income tax, increase in expenses associated with the Company’s previously announced unit cost initiative
For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and “— Results of Operations — Consolidated Results — Adjusted Earnings.”

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Other Key Information
Basis of Presentation
Discontinued Operations
As previously discussed, the results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations. Prior period results have been revised to reflect discontinued operations, which are reported in Corporate & Other. See “— Overview — Separation of Brighthouse” and Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for information on discontinued operations and transactions with Brighthouse.
Revisions
See “— Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions” and Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding prior period revisions related to the Company’s consolidated results.
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 2017 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-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period” and “Risk Factors — Economic Environment and Capital Markets-Related Risks —Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations” in the 2017 Annual Report.
We have market presence in numerous countries and, therefore, our business operations are exposed to risks posed by local and regional economic conditions. See “Risk Factors Risks Related to Our Business Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability” in the 2017 Annual Report.
We are closely monitoring political and/or economic conditions in the United Kingdom (“U.K.”), Mexico, and South Korea that might contribute to global market volatility and impact our business operations, investment portfolio and derivatives. For example, events following the U.K.’s referendum on June 23, 2016 and the uncertainties, including foreign currency exchange risks, associated with its pending withdrawal from the European Union (“EU”), have contributed to market volatility, both in the U.S. and beyond. These factors could contribute to weakening Gross Domestic Product growth, primarily in the U.K. and, to a lesser degree, continental Europe. The magnitude and longevity of the potential negative economic impacts would depend on the detailed agreements reached by the U.K. and the EU as a result of the negotiations regarding future trade and other arrangements. See “ Investments Current Environment Selected Country Investments.”

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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 begun its balance sheet tapering and the Federal Reserve Board’s Federal Open Market Committee has continued to increase the federal funds rate, most recently in March 2018. While the European Central Bank has continued to expand its balance sheet via quantitative easing, it is doing so at a slower place and is expected to end quantitative easing by the end of 2018. In Japan, however, the Japanese government and the Bank of Japan are maintaining stimulus measures in order to boost inflation expectations and achieve sustainable economic growth in Japan. Such measures include the imposition of a negative rate on commercial bank deposits, continued government bond purchases and tax reform, including the lowering of the Japanese corporate tax rate and the delay until 2019 of an increase in the consumption tax to 10%. Going forward, Japan’s structural and demographic challenges may continue to limit its potential growth unless reforms that boost productivity are put into place. Japan’s high public sector debt levels are mitigated by low refinancing risks. Further actions by central banks in the future may affect interest rates and risk markets in the U.S., Europe, Japan and other developed and emerging economies, and may ultimately result in market volatility. We cannot predict with certainty the effect of these actions or the impact on our business operations, investment portfolio or derivatives. See “ Investments Current Environment.”
Impact of a Sustained Low Interest Rate Environment
During periods of declining interest rates, we may have to invest insurance cash flows and reinvest the cash flows we received as interest or return of principal on our investments in lower yielding instruments. Moreover, borrowers may prepay or redeem the fixed income securities, mortgage loans and mortgage-backed securities in our investment portfolio with greater frequency in order to borrow at lower market rates. Therefore, some of our products expose us to the risk that a reduction in interest rates will reduce the difference between the amounts that we are required to credit on contracts in our general account and the rate of return we are able to earn on investments intended to support obligations under these contracts. This difference between interest earned and interest credited, or margin, is a key metric for the management of, and reporting for, many of our businesses.
Our expectations regarding future margins are an important component impacting the amortization of certain intangible assets such as 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.
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 2027. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Low Interest Rate Scenario” included in the 2017 Annual Report for further information.

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Competitive Pressures
The life insurance industry remains highly competitive. Product development is focused on differentiation leading to more intense competition with respect to product features and services. Several of the industry’s products can be quite homogeneous and subject to intense price competition. Cost reduction efforts are a priority for industry players, with benefits resulting in price adjustments to favor customers and reinvestment capacity. Larger companies have the ability to invest in brand equity, product development, technology optimization, risk management, and innovation, which are among the fundamentals for sustained profitable growth in the life insurance industry. Insurers are focused on their core businesses, specifically in markets where they can achieve scale. Financial strength and flexibility, and technology modernization are prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information technology and have the capability to engage with the new digital entrants. There is a shift in distribution from proprietary to third party models in mature markets, due to the lower cost structure. Evolving customer expectations are having a significant impact on the competitive environment as insurers strive to offer the superior customer service demanded by an increasingly sophisticated industry client base. We believe that the continued volatility of the financial markets and its impact on the capital position of many competitors will continue to strain the competitive environment. Legislative and other changes affecting the regulatory environment can also affect the competitive environment within the life insurance industry and within the broader financial services industry. See “— Industry Trends — Regulatory Developments,” as well as “Business — Regulation” in the 2017 Annual Report. 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” in the 2017 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.”
In the United States, our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, MetLife, Inc. and its U.S. insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. Furthermore, some of MetLife’s operations, products and services are subject to consumer protection laws, securities, broker-dealer and investment adviser regulations, environmental and unclaimed property laws and regulations, and to the Employee Retirement Income Security Act of 1974 (“ERISA”). See “— U.S. Regulation” below, as well as “Business — Regulation — U.S. Regulation,” “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” “Risk Factors — Risks Related to Our Business — Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases and New Financings May Be Subject to Limited Market Capacity,” and “Risk Factors — Regulatory and Legal Risks — Changes in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our Profitability” included in the 2017 Annual Report.
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in which they are located or operate. In addition, our investment and pension companies outside of the U.S. are subject to oversight by the relevant securities, pension and other authorities of the jurisdictions in which the companies operate. Our non-U.S. insurance businesses are also subject to current and developing solvency regimes which impose various capital and other requirements. Additionally, we may be subject in the future to enhanced capital standards, supervision and additional requirements of other international and global regulatory initiatives. See “— International Regulation” below, as well as “Business — Regulation — International Regulation” and “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” included in the 2017 Annual Report.
U.S. Regulation
Insurance Regulation
Surplus and Capital; Risk-Based Capital
The National Association of Insurance Commissioners (“NAIC”) adopted for 2018 a Risk-Based Capital (“RBC”) revision for collateral pledged to support Federal Home Loan Bank (“FHLB”) advances, which we expect to have a modest positive impact on our RBC ratios, and a RBC charge for operational risk, which we expect to have an immaterial impact on our RBC ratios. The NAIC is also studying RBC revisions for bonds, real estate, and longevity risk, but it is premature to project the impact of any potential regulatory changes resulting from such studies.

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New York Insurance Regulation 210
Insurance Regulation 210 went into effect in New York on March 19, 2018. Insurance Regulation 210 establishes standards for the determination and any readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer's discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York State. Examples of NGEs include cost of insurance for universal life insurance policies, as well as interest crediting rates for annuities and universal life insurance policies. The regulation requires insurers to notify policyholders at least 60 days in advance of any change in NGEs that is adverse to policyholders and, with respect to life insurance, to notify the New York Department of Financial Services (“NYDFS”) at least 120 days prior to any such changes. Additionally, the regulation requires insurers to file annually with NYDFS to inform the NYDFS of any changes adverse to policyholders made in the prior year. The regulation generally prohibits insurers from increasing profit margins for in-force policies or adjusting NGEs in order to recoup past losses.
ERISA and Fiduciary Considerations
The Department of Labor (“DOL”) issued regulations, which became for the most part applicable on June 9, 2017, that substantially expanded the definition of “investment advice” and require that an impartial or “best interests” standard be met in providing such advice, thereby broadening the circumstances under which MetLife or its representatives, in providing investment advice with respect to ERISA plans, plan participants or Individual Retirement Accounts (“IRAs”), could be deemed a fiduciary under ERISA or the Internal Revenue Code of 1986, as amended. Several financial services industry groups have initiated litigation challenging the regulations on both procedural and substantive grounds. In particular, on March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) vacated the regulations (including related prohibited transaction exemptions), holding that the regulations were unreasonable, that the DOL lacked statutory authority to promulgate them, and that the DOL overreached its authority by doing so. This decision, which could take effect as early as May 7, 2018, if it is not further litigated, may alter whether and how some or all of the rules are applied to our business or the way in which predecessor prohibited transaction exemptions may be interpreted in the future.
On November 24, 2017, the NAIC issued an exposure draft of an expanded Suitability in Annuity Transactions Model Regulation, intended to result in the adoption of a “best interest” standard on a nationwide basis. The amendments to the regulation originally proposed are expected to be modified following the decision by the Fifth Circuit described above. In addition, on December 27, 2017, the NYDFS proposed revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard, but also would expand the scope of the regulations to include sales of life insurance policies, as well as annuities, to consumers. The NYDFS’s proposed revisions to Insurance Regulation 187 were open for public comment until February 25, 2018, and on April 27, 2018, the NYDFS exposed an updated draft of the regulation for a 30-day comment period. Separately, on April 18, 2018, the SEC proposed and opened for public comment Regulation Best Interest, which would require broker-dealers to act in the best interest of “retail” customers including participants in ERISA-covered plans and IRAs when making a recommendation of any securities transaction or investment strategy involving securities. See “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” included in the 2017 Annual Report.
International Regulation
In Chile, in September 2015, a Presidential Advisory Committee issued several recommendations to reform the pension system and, on August 10, 2017, Chilean President Bachelet submitted a pension reform proposal comprised of three legislative components: (i) a 5% additional contribution from employers; (ii) a public independent entity to manage the additional funds; and (iii) legislative text that modifies pension fund administrator regulations. After assuming office in March 2018, President Piñera announced that his government will introduce pension reform legislation during his first year in office. While the details of his pension reform proposal are still unknown, there is a risk that this reform may have an adverse effect on our business in Chile.
Other International and Global Regulatory Initiatives
The General Data Protection Regulation (“GDPR”), which is intended to establish uniform data privacy laws across the EU, is scheduled to become effective for all EU member states on May 25, 2018. GDPR is extraterritorial in that it applies to EU entities, as well as entities not established in the EU that offer goods or services to data subjects in the EU or monitor consumer behavior that takes place in the EU. Fines may be imposed for non-compliance with the requirements of the GDPR.

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Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the Interim Condensed Consolidated Financial Statements. The most critical estimates include those used in determining:
(i)
liabilities for future policy benefits and the accounting for reinsurance;
(ii)
capitalization and amortization of 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 2017 Annual Report.
Economic Capital
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in our business.
Our economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. Economic capital-based risk estimation is an evolving science and industry best practices have emerged and continue to evolve. Areas of evolving industry best practices include stochastic liability valuation techniques, alternative methodologies for the calculation of diversification benefits, and the quantification of appropriate shock levels. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact our consolidated net investment income, income (loss) from continuing operations, net of income tax, or adjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.

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Acquisitions and Dispositions
2018 Disposition
See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the Company’s disposition of MetLife Afore, S.A. de C.V., its pension fund management business in Mexico.
2017 Separation of Brighthouse
See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding the Separation.

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Results of Operations
Consolidated Results
Business Overview. Overall sales for the three months ended March 31, 2018 decreased slightly compared to the prior period reflecting declines in each of our segments despite growth in certain businesses. In our U.S. segment, while sales were down in both the RIS and Group Benefits businesses, funding agreement issuances were higher in RIS and Group Benefits experienced continued growth in its voluntary products. In Asia, the sales decline was largely the result of strong prior period sales, which included one large group case in Australia. Sales were also lower in Korea and Hong Kong, however; sales of foreign currency-denominated life products in Japan continued to increase. Total sales for Latin America decreased as a result of lower sales of group accident & health, life and retirement products in Mexico, partially offset by higher accident & health sales in Chile. The closing of the wealth management product to new business in the U.K. in the third quarter of 2017 resulted in lower sales for EMEA. Higher sales in employee benefits in Egypt and credit life in Turkey were partially offset by lower employee benefits sales in the Gulf region. Revenues in our MetLife Holdings segment decreased as a result of the discontinuance of the marketing of life and annuity products in early 2017.
 
 
Three Months
Ended
March 31,
 
 
2018
 
2017
 
(In millions)
Revenues
 
 
 
 
Premiums
 
$
9,178

 
$
8,965

Universal life and investment-type product policy fees
 
1,392

 
1,360

Net investment income
 
3,745

 
4,421

Other revenues
 
474

 
342

Net investment gains (losses)
 
(333
)
 
88

Net derivative gains (losses)
 
349

 
(212
)
Total revenues
 
14,805

 
14,964

Expenses
 
 
 
 
Policyholder benefits and claims and policyholder dividends
 
9,015

 
9,173

Interest credited to policyholder account balances
 
769

 
1,451

Capitalization of DAC
 
(796
)
 
(713
)
Amortization of DAC and VOBA
 
693

 
663

Amortization of negative VOBA
 
(22
)
 
(43
)
Interest expense on debt
 
286

 
283

Other expenses
 
3,204

 
3,078

Total expenses
 
13,149

 
13,892

Income (loss) from continuing operations before provision for income tax
 
1,656

 
1,072

Provision for income tax expense (benefit)
 
399

 
120

Income (loss) from continuing operations, net of income tax
 
1,257

 
952

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

 
(76
)
Net income (loss)
 
1,257

 
876

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

 
3

Net income (loss) attributable to MetLife, Inc.
 
1,253

 
873

Less: Preferred stock dividends
 
6

 
6

Net income (loss) available to MetLife, Inc.’s common shareholders
 
$
1,247

 
$
867


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Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
During the three months ended March 31, 2018, net income (loss) increased $381 million from the prior period, primarily driven by favorable changes in net derivative gains (losses) and results from our divested businesses, partially offset by an unfavorable change in net investment gains (losses) and the unfavorable impact of U.S. Tax Reform.
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 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 small portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. During 2017, we restructured certain derivative hedges to decrease volatility from nonqualified interest rate derivatives and to help meet prospective dividend and free cash flow objectives under varying interest rate scenarios. As part of this restructuring, we replaced certain nonqualified derivatives with derivatives that qualify for hedge accounting treatment. In addition, we also entered into replication transactions using interest rate swaps, which are accounted for at amortized cost under statutory guidelines and are nonqualified derivatives under GAAP. We actively evaluate market risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions. 
Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding derivatives to hedge the market risks inherent in these variable annuity guarantees. Ongoing refinement of the strategy may be required to adapt to changing NAIC rules, which may become effective as early as January 1, 2019. The restructured hedge strategy 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” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Non-VA program derivatives
 
 
 
Interest rate
$
(97
)
 
$
(168
)
Foreign currency exchange rate
287

 
125

Credit
(29
)
 
44

Equity
17

 
(1
)
Non-VA embedded derivatives
26

 
(40
)
Total non-VA program derivatives
204

 
(40
)
VA program derivatives
 
 
 
Market risks in embedded derivatives
(4
)
 
287

Nonperformance risk adjustment on embedded derivatives
20

 
(52
)
Other risks in embedded derivatives
(5
)
 
(38
)
Total embedded derivatives
11

 
197

Freestanding derivatives hedging embedded derivatives
134

 
(369
)
Total VA program derivatives
145

 
(172
)
Net derivative gains (losses)
$
349

 
$
(212
)
The favorable change in net derivative gains (losses) on non-VA program derivatives was $244 million ($193 million, net of income tax). This was primarily due to realized currency losses in the prior period on sales of foreign-denominated securities in non-qualified hedges. Due to asymmetrical accounting, currency gains or losses on the derivatives are recognized each period in net derivative gains (losses), whereas currency gains or losses since inception on the foreign-denominated securities are recognized in net derivative gains (losses) only at maturity or termination. Additionally, short-term interest rates increased more in the current period than in the prior period, favorably impacting interest rate caps. There was a change in the value of the underlying assets favorably impacting non-VA embedded derivatives related to funds withheld on a certain reinsurance agreement. These increases were partially offset by credit spreads mostly widening in the current period and narrowing in the prior period unfavorably impacting replications. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the item being hedged.
The favorable change in net derivative gains (losses) on VA program derivatives was $317 million ($250 million, net of income tax). This was due to a favorable change of $212 million ($167 million, net of income tax) in market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks, a favorable change of $33 million ($26 million, net of income tax) in other risks in embedded derivatives, and a favorable change of $72 million, ($57 million, net of income tax) in the nonperformance risk adjustment on embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.

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The foregoing $212 million ($167 million, net of income tax) favorable change reflects a $503 million ($397 million, net of income tax) favorable change in freestanding derivatives hedging market risks in embedded derivatives partially offset by a $291 million ($230 million, net of income tax) unfavorable change in market risks in embedded derivatives.
The primary changes in market factors are summarized as follows:
Key equity index levels 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 S&P 500 Index decreased 1% in the current period and increased 6% in the prior period.
Long-term U.S. interest rates increased more in the current period versus the prior period, contributing to a favorable change in our embedded derivatives. Our freestanding interest rate derivatives were favorably impacted by the restructuring of the VA hedging strategy. For example, the 30-year U.S. swap rate increased 28 basis points in the current period and increased 5 basis points in the prior period.
Changes in foreign currency exchange rates contributed to a favorable change in our freestanding derivatives and an unfavorable 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 strengthened against the U.S. dollar by 6% in the current period and strengthened by 4% in the prior period.
The aforementioned $72 million ($57 million, net of income tax) favorable change in the nonperformance risk adjustment on embedded derivatives resulted from a favorable change of $49 million, before income tax, related to changes in our own credit spread, in addition to a favorable change of $23 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.
When equity index levels decrease in isolation, the variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk.
When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk.
When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk. For each of these primary market drivers, the opposite effect occurs when they move in the opposite direction.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $421 million ($333 million, net of income tax) primarily reflects mark-to-market losses on both our retained investment in Brighthouse Financial, Inc. common stock and our equity securities both of which are measured at fair value through net income, as well as a leveraged lease impairment and higher losses on sales of fixed maturity securities in the current period.
Divested Businesses. Income (loss) before provision for income tax related to the divested businesses, excluding net investment gains (losses) and net derivative gains (losses), increased $316 million ($250 million, net of income tax) to a loss of $2 million ($1 million, net of income tax) in the current period from a loss of $318 million ($251 million, net of income tax) in the prior period. Included in this increase was an increase in total revenues of $287 million, before income tax, and a decrease in total expenses of $29 million, before income tax. Divested businesses primarily include activity related to the Separation.
Discontinued Operations. Income (loss) from discontinued operations, net of income tax, increased $76 million for the three months ended March 31, 2018 from a loss of $76 million, net of income tax, for the comparable prior period. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial segment. For further information, see Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Table of Contents

Taxes. Income tax expense for the three months ended March 31, 2018 was $399 million, or 24% of income (loss) from continuing operations before provision for income tax, compared with $120 million, or 11% of income (loss) from continuing operations before provision for income tax, for the three months ended March 31, 2017. 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 low income housing, and foreign earnings taxed at different rates than the U.S. statutory rate. Our current period results include 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. Our prior period results include a tax benefit of $9 million related to the settlement of an audit. The changes from U.S. Tax Reform resulted in a decrease in earnings of $54 million for the first quarter of 2018 compared to the prior period.
Adjusted Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use adjusted earnings, which does not equate to income (loss) from continuing operations, net of income tax, as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of adjusted earnings and adjusted earnings available to common shareholders, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results. Adjusted earnings and adjusted earnings available to common shareholders should not be viewed as substitutes for net income (loss) and net income (loss) available to MetLife, Inc.’s common shareholders, respectively. Adjusted earnings available to common shareholders increased $102 million, net of income tax, to $1.4 billion, net of income tax, for the three months ended March 31, 2018 from $1.3 billion, net of income tax, for the three months ended March 31, 2017.

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Table of Contents

Reconciliation of income (loss) from continuing operations, net of income tax, to adjusted earnings available to common shareholders
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: Income (loss) from discontinued operations, net of income tax
 


 

 

 

 

 

 

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

$
489

 
$
564

 
$
186

 
$
87

 
$
344

 
$
(413
)
 
$
1,257

Less: Net investment gains (losses)
(110
)
 
78

 
3

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

 
149

 
1

 
34

 
(40
)
 
349

Less: Other adjustments to continuing operations (1)
(45
)
 
(8
)
 
(64
)
 
4

 
(31
)
 
(2
)
 
(146
)
Less: 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

Three Months Ended March 31, 2017
 
U.S.
 
Asia
 
Latin America
 
EMEA
 
MetLife Holdings
 
Corporate& Other
 
Total
 
(In millions)
Net income (loss)

$
345

 
$
480

 
$
231

 
$
81

 
$
345

 
$
(606
)
 
$
876

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


 

 

 

 

 
(76
)
 
(76
)
Income (loss) from continuing operations, net of income tax

$
345

 
$
480

 
$
231

 
$
81

 
$
345

 
$
(530
)
 
$
952

Less: Net investment gains (losses)
(18
)
 
117

 
12

 
2

 
21

 
(46
)
 
88

Less: Net derivative gains (losses)
(148
)
 
177

 
136

 
13

 
(4
)
 
(386
)
 
(212
)
Less: Other adjustments to continuing operations (1)
(66
)
 
(4
)
 
(29
)
 
5

 
(83
)
 
(314
)
 
(491
)
Less: Provision for income tax (expense) benefit
80

 
(105
)
 
(31
)
 
(14
)
 
24

 
286

 
240

Adjusted earnings
$
497

 
$
295

 
$
143

 
$
75

 
$
387

 
(70
)
 
1,327

Less: Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
6

 
6

Adjusted earnings available to common shareholders
 
 
 
 
 
 
 
 
 
 
$
(76
)
 
$
1,321

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

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Table of Contents

Reconciliation of revenues to adjusted revenues and expenses to adjusted expenses
Three Months Ended March 31, 2018
 
U.S.
 
Asia
 
Latin America
 
EMEA
 
MetLife Holdings
 
Corporate& Other
 
Total
 
(In millions)
Total revenues
$
7,123

 
$
3,203

 
$
1,417

 
$
462

 
$
2,595

 
$
5

 
$
14,805

Less: Net investment gains (losses)
(110
)
 
78

 
3

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

 
149

 
1

 
34

 
(40
)
 
349

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

 
(4
)
 

 
(1
)
 

 

 
(5
)
Less: Other adjustments to revenues (1)
(54
)
 
(82
)
 

 
(286
)
 
(16
)
 
84

 
(354
)
Total adjusted revenues
$
7,341

 
$
2,952

 
$
1,265

 
$
754

 
$
2,683

 
$
153

 
$
15,148

Total expenses
$
6,508

 
$
2,402

 
$
1,114

 
$
361

 
$
2,169

 
$
595

 
$
13,149

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

 
(7
)
 

 
(1
)
 
(6
)
 

 
(14
)
Less: Other adjustments to expenses (1)
(9
)
 
(71
)
 
64

 
(290
)
 
21

 
86

 
(199
)
Total adjusted expenses
$
6,517

 
$
2,480

 
$
1,050

 
$
652

 
$
2,154

 
$
509

 
$
13,362

Three Months Ended March 31, 2017
 
U.S.
 
Asia
 
Latin America
 
EMEA
 
MetLife Holdings
 
Corporate& Other
 
Total
 
(In millions)
Total revenues
$
7,034

 
$
3,103

 
$
1,398

 
$
1,059

 
$
2,942

 
$
(572
)
 
$
14,964

Less: Net investment gains (losses)
(18
)
 
117

 
12

 
2

 
21

 
(46
)
 
88

Less: Net derivative gains (losses)
(148
)
 
177

 
136

 
13

 
(4
)
 
(386
)
 
(212
)
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

 
1

 

 

 

 

 
1

Less: Other adjustments to revenues (1)
(66
)
 
22

 
31

 
356

 
(33
)
 
(277
)
 
33

Total adjusted revenues
$
7,266

 
$
2,786

 
$
1,219

 
$
688

 
$
2,958

 
$
137

 
$
15,054

Total expenses
$
6,520

 
$
2,372

 
$
1,098

 
$
952

 
$
2,435

 
$
515

 
$
13,892

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

 
1

 

 

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

 
26

 
60

 
351

 
52

 
38

 
527

Total adjusted expenses
$
6,520

 
$
2,345

 
$
1,038

 
$
601

 
$
2,385

 
$
478

 
$
13,367

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

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Table of Contents

Consolidated Results —Adjusted Earnings
Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were the favorable impact of U.S. Tax Reform, higher net investment income due to a larger asset base, favorable underwriting and lower expenses, partially offset by higher interest credited expenses, lower investment yields and other unfavorable tax items.
Foreign Currency. Changes in foreign currency exchange rates had a $35 million positive impact on adjusted earnings for the first quarter of 2018 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.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $101 million for the first quarter of 2018 compared to the prior period.
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 offset by a corresponding increase in interest credited expense on certain insurance-related liabilities. In our U.S. segment, an increase in average premium per policy in our auto business, partially offset by a decrease in exposures, improved adjusted earnings. Business growth also drove an increase in commissions and other variable expenses, which were partially offset by higher DAC capitalization. The items discussed above resulted in a $38 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 reported net investment income in our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields decreased. Investment yields were negatively affected by (i) lower yields on fixed maturity securities and fixed maturity and equity securities held-for-investment by the general account to support asset and liability management strategies for certain insurance products and investments in certain separate accounts (“FVO general account securities”), (ii) lower returns on private equities driven by a decrease in certain partnership distributions, and (iii) lower income on derivatives. These decreases were partially offset by higher yields on mortgage loans. Higher average interest credited rates drove an increase in interest credited expenses, primarily in our U.S. segment. In our MetLife Holdings segment, lower equity market performance in the current period drove a decrease in average separate account balances, resulting in lower asset-based fee income. The changes in market factors discussed above resulted in a $136 million decrease in adjusted earnings.
Underwriting and Other Insurance Adjustments. Favorable underwriting resulted in a $64 million increase in adjusted earnings primarily as a result of lower catastrophe losses, favorable mortality in our Latin America segment and favorable morbidity in our U.S. segment, partially offset by unfavorable claims experience in our Asia segment. Refinements to DAC and certain insurance-related liabilities, which were recorded in both periods across the majority of our segments, resulted in a $26 million increase in adjusted earnings. This includes a current period favorable reserve adjustment of $62 million in our MetLife Holdings segment relating to certain variable annuity guarantees assumed from a former joint venture in Japan. This also includes favorable refinements in the prior period of (i) a DAC adjustment related to certain participating whole life business assumed from Brighthouse; and (ii) a reserve adjustment resulting from modeling improvements in our life business reserving process.
Expenses and Taxes. A $50 million decrease in expenses included expenses incurred in the prior period related to the guaranty fund assessment for Penn Treaty, as well as declines in Separation-related costs and costs associated with enterprise-wide initiatives. Our effective tax rates differ from the U.S. statutory rate of 21% typically due to nontaxable investment income, tax credits for low income housing, and foreign earnings taxed at different rates than the U.S. statutory rate. Lower utilization of tax preferenced items and foreign tax rate differential decreased current period adjusted earnings by $39 million from the prior period. Our current period results include 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. Our prior period results include a tax benefit of $9 million related to the settlement of an audit.
Other. Adjusted earnings decreased by $19 million as a result of continued annuities reinsurance activity with Brighthouse. This unfavorable impact was due to the prior period recapture and novation of assumed and ceded agreements covering certain variable annuity business.

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Table of Contents

Segment Results and Corporate & Other
U.S.
Business Overview. Sales decreased from the prior period, primarily driven by our RIS business, with lower sales of stable value, pension risk transfers, structured settlement and specialized benefit products. These decreases in sales were partially offset by an increase in funding agreement issuances. Changes in premiums for the RIS business were almost entirely offset by the related changes in policyholder benefits and claims. Sales declined slightly in the Group Benefits business compared to the prior period, as lower sales in our core insurance products were mostly offset by continued growth in our voluntary products. The increase in premiums, fees and other revenues from the impact of prior year sales was partially offset by the loss of a large dental contract in the second quarter of 2017. In our Property & Casualty business, sales increased over the prior period. The number of exposures decreased from the prior period, reflecting management actions to improve the quality of the business.
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
5,217

 
$
5,185

Universal life and investment-type product policy fees
258

 
265

Net investment income
1,662

 
1,612

Other revenues
204

 
204

Total adjusted revenues
7,341

 
7,266

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
5,138

 
5,244

Interest credited to policyholder account balances
407

 
351

Capitalization of DAC
(106
)
 
(100
)
Amortization of DAC and VOBA
115

 
114

Interest expense on debt
2

 
2

Other expenses
961

 
909

Total adjusted expenses
6,517

 
6,520

Provision for income tax expense (benefit)
171

 
249

Adjusted earnings
$
653

 
$
497

Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $101 million for the first quarter of 2018 compared to the prior period.
Business Growth. The impact of deposits, net flows from funding agreements and increased premiums resulted in higher average invested assets, improving net investment income. However, consistent with the growth in average invested assets from increased premiums and net flows, interest credited on long-duration contracts increased. An increase in average premium per policy in our auto business, partially offset by the decrease in exposures, improved adjusted earnings. Higher volume-related, direct and premium tax expenses were mostly offset by lower pension and post retirement expenses. This net increase in expenses, coupled with the increase due to the current period reinstatement of the annual health insurer fee under the Patient Protection and Affordable Care Act, were mostly offset by a corresponding increase in premiums, fees and other revenues. The combined impact of the items discussed above increased adjusted earnings by $49 million.

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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 from private equities, driven by a decrease in certain partnership distributions, as well as a decrease in derivative income. These decreases in investment yields were partially offset by higher returns on fixed maturity securities, real estate joint ventures and mortgage loans. Higher average interest credited rates drove an increase in interest credited expenses; however, this was partially offset by an increase in adjusted earnings due to a decrease in the crediting rate on certain long-duration insurance contracts. The changes in market factors discussed above resulted in a $51 million decrease in adjusted earnings.
Underwriting and Other Insurance Adjustments. In our Property & Casualty business, catastrophe-related losses decreased $43 million in the current period, primarily due to the impact of severe storm activity in the prior period. Non-catastrophe claim costs increased $5 million, the result of higher severities in our auto business and higher frequencies in our homeowner business, partially offset by lower auto frequencies and homeowner severities. Favorable claims experience, primarily in our individual disability and accident & health businesses, resulted in a $17 million increase in adjusted earnings. Less favorable mortality results in the current period, mainly due to less favorable claim experience in our term life business, driven by the impact of a more severe flu season, were partially offset by lower incidence in our accidental death & dismemberment and universal life businesses, which resulted in a $7 million decrease in adjusted earnings. Favorable mortality in our specialized life insurance business was partially offset by less favorable mortality in our pension risk transfer business, increasing adjusted earnings by $7 million.
Asia
Business Overview. Sales decreased compared to the prior period primarily due to strong prior period sales which included one large group case in Australia. In addition, sales were lower in Korea and Hong Kong as a result of prior period sales in advance of regulatory changes that went into effect in the second quarter of 2017. In Japan, we continue to see an increase in sales of foreign currency-denominated life products.
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
1,748

 
$
1,708

Universal life and investment-type product policy fees
394

 
366

Net investment income
795

 
702

Other revenues
15

 
10

Total adjusted revenues
2,952

 
2,786

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
1,343

 
1,315

Interest credited to policyholder account balances
351

 
321

Capitalization of DAC
(465
)
 
(420
)
Amortization of DAC and VOBA
314

 
291

Amortization of negative VOBA
(15
)
 
(37
)
Other expenses
952

 
875

Total adjusted expenses
2,480

 
2,345

Provision for income tax expense (benefit)
145

 
146

Adjusted earnings
$
327

 
$
295

Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $11 million for the first quarter of 2018 compared to the prior period, primarily due to the strengthening 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.

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U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $11 million for the first quarter of 2018 compared to the prior period.
Business Growth. Asia’s premiums, fees and other revenues decreased from the prior period mainly due to a change in product mix from premium-based products to fee-based products, primarily from Yen protection products to foreign currency-denominated life products in Japan. The decrease in premiums from Yen protection 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 combined impact of the items discussed above improved adjusted earnings by $22 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment results were favorably impacted by increased derivative income, higher yields on mortgage loans and higher earnings from our joint venture in China. These increases were partially offset by lower returns on real estate investments due to a prior period lease termination fee and lower yields on fixed maturity securities in Korea and Bangladesh. The decline in fixed maturity yields was partially offset by the favorable impact of increased sales of foreign currency-denominated fixed annuities in Japan, primarily in its Australian dollar-denominated portfolio, which drove an increase in higher yielding foreign currency-denominated fixed maturity securities. The combined impact of the items discussed above increased adjusted earnings by $13 million.
Underwriting and Other Insurance Adjustments. Higher lapses and claims in Japan decreased adjusted earnings by $21 million. Refinements to certain insurance liabilities and other liabilities in the prior period resulted in a $15 million increase in adjusted earnings.
Expenses. Higher expenses, primarily driven by higher employee-related and project costs, reduced adjusted earnings by $15 million.
Latin America
Business Overview. Total sales for Latin America decreased compared to the prior period, driven by lower sales of group accident & health, life and retirement products in Mexico, partially offset by higher accident & health sales in Chile.
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
699

 
$
647

Universal life and investment-type product policy fees
282

 
260

Net investment income
276

 
303

Other revenues
8

 
9

Total adjusted revenues
1,265

 
1,219

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
646

 
633

Interest credited to policyholder account balances
98

 
82

Capitalization of DAC
(94
)
 
(82
)
Amortization of DAC and VOBA
60

 
78

Interest expense on debt
2

 
1

Other expenses
338

 
326

Total adjusted expenses
1,050

 
1,038

Provision for income tax expense (benefit)
75

 
38

Adjusted earnings
$
140

 
$
143

Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.

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Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $14 million for the first quarter of 2018 compared to the prior period mainly due to the strengthening 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.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $10 million for the first quarter of 2018 compared to the prior period.
Business Growth. Latin America experienced growth across several lines of business primarily within Chile. 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 Mexico and Chile, resulted in an increase in average invested assets and generated higher net investment income. This was partially offset by an increase in interest credited expense on certain insurance liabilities. Business growth also drove an increase in commissions and other variable expenses, which were partially offset by higher DAC capitalization. The items discussed above resulted in a $9 million decrease in adjusted earnings.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Changes in market factors resulted in a $38 million decrease in adjusted earnings primarily due to lower investment yields. The decrease in investment yields was primarily driven by lower returns from FVO general account securities in Chile and lower yields on fixed income securities in Mexico and Chile. In addition, an increase in interest credited expenses contributed to the decline in adjusted earnings.
Underwriting and Other Insurance Adjustments. Favorable underwriting resulted in a $35 million increase to adjusted earnings primarily driven by lower claims experience in Mexico. In addition, refinements to certain insurance liabilities and other adjustments in both periods, primarily in Chile, Mexico and Brazil, resulted in a $5 million increase to adjusted earnings.
Expenses and Taxes. An $18 million decrease in expenses was primarily the result of reduction of a litigation reserve in Argentina. Our results for the current period 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. Other tax items include a $10 million tax benefit as a result of changes in the valuation of the peso in Argentina in both periods offset by a prior period tax benefit of $9 million related to the settlement of an audit.

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EMEA
Business Overview. Sales decreased slightly in the current period. Excluding the impact from the closure of the U.K. wealth management product to new business, sales have increased, driven by accident and health, life and credit business sales.

 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
551

 
$
502

Universal life and investment-type product policy fees
112

 
95

Net investment income
75

 
74

Other revenues
16

 
17

Total adjusted revenues
754

 
688

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
294

 
269

Interest credited to policyholder account balances
25

 
24

Capitalization of DAC
(118
)
 
(92
)
Amortization of DAC and VOBA
106

 
87

Amortization of negative VOBA
(6
)
 
(3
)
Other expenses
351

 
316

Total adjusted expenses
652

 
601

Provision for income tax expense (benefit)
21

 
12

Adjusted earnings
$
81

 
$
75

Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $10 million for the first quarter of 2018 as compared to the prior period, primarily driven by the weakening of the U.S. dollar against 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.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $7 million for the first quarter of 2018 compared to the prior period.
Business Growth. Growth from our accident & health and credit life businesses in Turkey and across several European markets increased adjusted earnings by $8 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. A slight decrease in net investment income was driven by the sustained low interest rate environment, which drove lower investment yields on fixed maturity securities.
Underwriting. Unfavorable underwriting, primarily in our employee benefits business in the U.K. and in our ordinary life business in France, decreased adjusted earnings by $11 million.
Expenses. Adjusted earnings increased by $12 million due to expense discipline across the region, as well as enterprise-wide initiatives taken by the Company, notably the closing of the wealth management product to new business in the U.K. in the third quarter of 2017.
Other. A decrease in our invested asset base due to dividend payments impacted net investment income and decreased adjusted earnings by $4 million.

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MetLife Holdings
Business Overview. The discontinuance of the marketing of life and annuity products in this segment in early 2017 resulted in lower revenues. This will continue to result in a declining DAC asset over time and we anticipate an average decline in premiums, fees and other revenues of approximately 5% per year from expected business run-off. A significant portion of our adjusted earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact DAC amortization and asset-based commissions. Separate account balances are driven by sales, movements in the market, surrenders, withdrawals, benefit payments, transfers and policy charges. Separate account balances decreased due to negative net flows, as benefits, surrenders and withdrawals exceeded sales and equity performance. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the existing block of business, which contributed to asset growth in the segment, and we expect the related reserves to grow as this block matures.
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
950

 
$
1,059

Universal life and investment-type product policy fees
314

 
362

Net investment income
1,352

 
1,441

Other revenues
67

 
96

Total adjusted revenues
2,683

 
2,958

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
1,550

 
1,733

Interest credited to policyholder account balances
236

 
257

Capitalization of DAC
(10
)
 
(34
)
Amortization of DAC and VOBA
100

 
74

Interest expense on debt
2

 
15

Other expenses
276

 
340

Total adjusted expenses
2,154

 
2,385

Provision for income tax expense (benefit)
104

 
186

Adjusted earnings
$
425

 
$
387

Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $73 million for the first quarter of 2018 compared to the prior period.
Business Growth. Lower net investment income, resulting from a reduced invested asset base, primarily in fixed maturity securities, decreased adjusted earnings. The reduced asset base is primarily the result of negative net flows in our deferred annuities business. These negative net flows also contributed to a decrease in average separate account balances and, consequently, asset-based fee income. Lower deferred annuity interest credited increased adjusted earnings. In our life business, a decrease in universal life sales resulted in lower fee income, net of DAC amortization, decreasing adjusted earnings. Interest credited decreased in our life business, partially offset by an increase in our long-term care business, resulting in a net increase to adjusted earnings. The combined impact of the items discussed above resulted in a $29 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 derivative income, as well as lower returns on fixed maturity securities and mortgage loans. These reductions in yields were partially offset by higher returns on real estate joint ventures. In our deferred annuity business, lower equity returns drove a decrease in average separate account balances which resulted in lower asset-based fee income. The changes in market factors discussed above resulted in a $46 million decrease in adjusted earnings.

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Underwriting and Other Insurance Adjustments. Favorable claims experience in our long-term care business, as well as mortality gains on life-contingent annuities, partially offset by unfavorable mortality in our life business, resulted in a $7 million increase in adjusted earnings. Refinements to DAC and certain insurance-related liabilities that were recorded in both periods resulted in a $3 million increase in adjusted earnings. This includes a current period favorable reserve adjustment of $62 million relating to certain variable annuity guarantees assumed from a former joint venture in Japan. This also includes favorable refinements in the prior period of (i) a DAC adjustment related to certain participating whole life business assumed from Brighthouse; and (ii) a reserve adjustment resulting from modeling improvements in our life business reserving process.
Expenses. Adjusted earnings increased by $39 million as a result of lower expenses, primarily due to declines in Separation-related expenses.
Other. Adjusted earnings decreased by $19 million as a result of continued annuities reinsurance activity with Brighthouse. This unfavorable impact was due to the prior period recapture and novation of assumed and ceded agreements covering certain variable annuity business and continued reinsurance activity.

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Corporate & Other
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Adjusted revenues
 
 
 
Premiums
$
13

 
$
38

Net investment income
59

 
40

Other revenues
81

 
59

Total adjusted revenues
153

 
137

Adjusted expenses
 
 
 
Policyholder benefits and claims and policyholder dividends
(3
)
 
25

Interest credited to policyholder account balances

 
1

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

 
1

Interest expense on debt
280

 
277

Other expenses
232

 
175

Total adjusted expenses
509

 
478

Provision for income tax expense (benefit)
(159
)
 
(271
)
Adjusted earnings
(197
)
 
(70
)
Less: Preferred stock dividends
6

 
6

Adjusted earnings available to common shareholders
$
(203
)
 
$
(76
)
The table below presents adjusted earnings available to common shareholders by source:
 
Three Months
Ended
March 31,
 
2018
 
2017
 
(In millions)
Other business activities
$
6

 
$
8

Other net investment income
57

 
69

Interest expense on debt
(293
)
 
(298
)
Corporate initiatives and projects
(39
)
 
(49
)
Other
(87
)
 
(71
)
Provision for income tax (expense) benefit and other tax-related items

159

 
271

Preferred stock dividends
(6
)
 
(6
)
Adjusted earnings available to common shareholders
$
(203
)
 
$
(76
)
Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017
Unless otherwise stated, all amounts discussed below are net of income tax.
U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $67 million for the first quarter of 2018 compared to the prior period.
Other Net Investment Income. Higher returns on private equities were more than offset by lower returns on the remainder of the portfolio, resulting in a decrease of $9 million in other net investment income.
Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects decreased by $8 million, primarily due to lower costs associated with enterprise-wide initiatives, partially offset by higher expenses related to our unit cost initiative.

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Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. In addition to the impact of U.S. Tax Reform, 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. Results for the current period were lower by $45 million due to decreased utilization of tax preferenced items.
Other. Adjusted earnings decreased as a result of a $32 million increase in litigation reserves and an $18 million increase in corporate-related expenses. These increases in expenses were partially offset by $21 million of expenses incurred in the prior period and taxed at the prior period rate related to the guaranty fund assessment for Penn Treaty and a $13 million decrease in employee-related expenses.

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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 using a risk control framework comprised of policies, procedures and limits, as discussed further below. The Investments Risk Committee reviews and monitors investment risk limits and tolerances. We are exposed to the following primary sources of investment risks:
credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest;
interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;
liquidity risk, relating to the diminished ability to sell certain investments, in times of strained market conditions;
market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads and equity market levels. A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment portfolio, will increase losses associated with credit-based non-qualifying derivatives where we assume credit exposure, and, if credit spreads widen significantly or for an extended period of time, will likely result in higher other-than-temporary impairment (“OTTI”). Credit spread tightening will reduce net investment income associated with purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;
currency risk, relating to the variability in currency exchange rates for foreign denominated investments. This risk relates to potential decreases in estimated fair value and net investment income resulting from changes in currency exchange rates versus the U.S. dollar. In general, the weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value of our foreign denominated investments; and
real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of borrowers and their tenants and joint venture partners, capital markets volatility and inherent interest rate movements.
We manage investment risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit risk, market valuation risk and liquidity risk through industry and issuer diversification and asset allocation. Risk limits to promote diversification by asset sector, to avoid concentrations in any single issuer and to limit overall aggregate credit and equity risk exposure, as measured by our economic capital framework, are approved annually by the Investment Committee of MetLife, Inc. that oversees our investment portfolio. For real estate assets, we manage credit risk and market valuation risk through geographic, property type and product type diversification and asset allocation. We manage interest rate risk as part of our ALM strategies. These strategies include maintaining an investment portfolio with diversified maturities that has a weighted average duration that reflects the duration of our estimated liability cash flow profile, and utilizing product design, such as the use of market value adjustment features and surrender charges, to manage interest rate risk. We also manage interest rate risk through proactive monitoring and management of certain non-guaranteed elements of our products, such as the resetting of credited interest and dividend rates for policies that permit such adjustments. In addition to hedging with foreign currency derivatives, we manage currency risk by matching much of our foreign currency liabilities in our foreign subsidiaries with their respective foreign currency assets, thereby reducing our risk to foreign currency exchange rate fluctuation. We also use certain derivatives in the management of credit, interest rate and market valuation risk.
We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments they are hedging. However, we dynamically hedge this risk through the rebalancing and rollover of our credit default swaps at their most liquid tenors. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.

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We enter into market standard purchased and written credit default swap contracts. Payout under such contracts is triggered by certain credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typically also include involuntary restructuring. With respect to credit default contracts on Western European sovereign debt, credit events typically include failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association determines that a credit event has occurred.
Current Environment
The global economy and markets continue to be affected by stress and volatility, which has adversely affected the financial services sector, in particular, and global capital markets. Political and economic instability has contributed to global market volatility which may have an impact on our investments.
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. 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 “— Industry Trends — Financial and Economic Environment,” as well as “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period” included in the 2017 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., Germany, France, the Netherlands, Poland, Sweden and Norway. The sovereign debt of these countries continues to maintain investment grade credit ratings from all major rating agencies. Our European fixed maturity 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, 2018, our exposure to such securities in Europe totaled $37.9 billion, at estimated fair value, of which $8.7 billion was in sovereign fixed maturity securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment — European Investments” included in the 2017 Annual Report for further information.
Selected Country Investments
We have country specific exposure to volatility, as we maintain general account investments in the U.K., South Korea and Mexico to support our insurance operations and related policyholder liabilities in these countries. We also have exposure to volatility in these selected countries through our global portfolio diversification. Our exposure to sovereign fixed maturity securities and total fixed maturity securities of the U.K., South Korea and Mexico totaled $10.1 billion and $25.7 billion, at estimated fair value, respectively, at March 31, 2018.
We manage direct and indirect investment exposure in the selected countries through fundamental credit analysis and we continually monitor and adjust our level of investment exposure. We do not expect any adverse impact to our general account investments in these countries will have a material adverse effect on our results of operations or financial condition.

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Investment Portfolio Results
The following yield table presents the yield and net investment income, as reported on an adjusted basis, for our investment portfolio for the periods indicated. We calculate yields using 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,
 
2018
 
2017
 
Yield % (1)
 
Amount
 
Yield % (1)
 
Amount
 
(Dollars in millions)
Fixed maturity securities (2), (3)
4.19

%
$
2,839

 
4.34

%
$
2,825

Mortgage loans (3)
4.53

%
792

 
4.47

%
736

Real estate and real estate joint ventures
3.39

%
83

 
3.20

%
73

Policy loans
5.12

%
124

 
5.33

%
127

Equity securities
3.79

%
16

 
4.90

%
31

Other limited partnership interests
15.10

%
219

 
18.58

%
240

Cash and short-term investments
1.87

%
46

 
1.42

%
33

Other invested assets


 
228

 


 
214

Investment income
4.50

%
4,347

 
4.65

%
4,279

Investment fees and expenses
(0.13
)
%
(128
)
 
(0.15
)
%
(134
)
Net investment income including divested businesses (4)
4.37

%
4,219

 
4.50

%
4,145

Less: net investment income from divested businesses (4)
 
 

 
 
 
(27
)
Net investment income, as reported on an adjusted basis (4)
 
 
$
4,219

 
 
 
$
4,172

__________________
(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 Brighthouse Common Stock. A yield is not presented for other invested assets, as it is not considered a meaningful measure of performance for this asset class.
(2)
Investment income from fixed maturity securities includes amounts from FVO general account securities of $6 million and $29 million for the three months ended March 31, 2018 and 2017, respectively.
(3)
Investment income from fixed maturity securities and mortgage loans includes prepayment fees.
(4)
See Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information, as well as the presentation of net investment income, as reported on an adjusted basis, compared to the most directly comparable GAAP financial measure. See “— Non-GAAP and Other Financial Disclosures” for discussion of divested businesses.
See “— Results of Operations — Consolidated Results — Three Months Ended March 31, 2018 Compared with the Three Months Ended March 31, 2017” for an analysis of the period over period changes in net investment income.

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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, 2018
 
December 31, 2017
 
 
Estimated Fair Value
 
% of Total
 
Estimated Fair Value
 
% of Total
 
 
(Dollars in millions)
 
Fixed maturity securities AFS
 
 
 
 
 
 
 
 
  Publicly-traded
$
257,582

 
84.5
%
$
262,078

 
84.8
%
  Privately-placed
47,129

 
15.5
 
46,853

 
15.2
 
    Total fixed maturity securities AFS
$
304,711

 
100.0
%
$
308,931

 
100.0
%
    Percentage of cash and invested assets
66.9
%
 
 
 
67.6
%
 
 
 
Equity securities
 
 
 
 
 
 
 
 
  Publicly-traded
$
1,316

 
85.2
%
$
1,490

 
59.3
%
  Privately-held
228

 
14.8
 
1,023

 
40.7
 
    Total equity securities
$
1,544

 
100.0
%
$
2,513

 
100.0
%
    Percentage of cash and invested assets
0.3
%
 
 
 
0.6
%
 
 
 
Perpetual securities included within fixed maturity AFS and equity securities
$
442

 
 
 
$
440

 
 
 
Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS
$
573

 
 
 
$
884

 
 
 
Perpetual securities are included within fixed maturity securities available-for-sale (“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.
In connection with our investment management business, we manage a broad array of securities, limited partnership interests and liquid investments on behalf of institutional clients, which are unaffiliated investors. Assets under management, by sector, at estimated fair value, were as follows: investment grade corporate fixed maturity securities, including privately-placed, infrastructure and state and political subdivision, $66.9 billion and $66.6 billion at March 31, 2018 and December 31, 2017, respectively; structured finance fixed maturity securities, including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”) (collectively, “Structured Securities”), $16.4 billion and $15.8 billion at March 31, 2018 and December 31, 2017, respectively; U.S. government and agency fixed maturity securities, $18.9 billion and $21.7 billion at March 31, 2018 and December 31, 2017, respectively; foreign government fixed maturity securities, $2.2 billion and $2.1 billion at March 31, 2018 and December 31, 2017, respectively; below investment grade corporate fixed maturity securities, including emerging market and high yield, $7.8 billion and $7.7 billion at March 31, 2018 and December 31, 2017, respectively; equity securities, $0.3 billion at both March 31, 2018 and December 31, 2017; other limited partnership interests, $1.7 billion at both March 31, 2018 and December 31, 2017; and cash equivalents and short-term investments, $2.6 billion and $3.0 billion at March 31, 2018 and December 31, 2017, respectively.

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Also in connection with our investment management business, we manage index investment portfolios that track the return of industry fixed income and equity market indices such as the Bloomberg Barclay’s U.S. Aggregate Bond Index and Standard & Poor’s (“S&P”) 500® Index. These assets had an estimated fair value of $28.0 billion and $28.5 billion at March 31, 2018 and December 31, 2017 respectively. Index investment portfolios included within separate account assets in our interim condensed consolidated financial statements were $14.8 billion and $14.9 billion at March 31, 2018 and December 31, 2017, respectively. Index investment portfolios managed on behalf of our institutional clients were $13.2 billion and $13.6 billion at March 31, 2018 and December 31, 2017, respectively and are not included in our interim condensed consolidated financial statements. Index investment portfolios managed on behalf of our institutional clients, by sector, at estimated fair value, were as follows: investment grade corporate fixed maturity securities and state and political subdivision securities, $775 million and $794 million at March 31, 2018 and December 31, 2017, respectively; structured securities, $823 million and $828 million at March 31, 2018 and December 31, 2017, respectively; U.S. government and agency fixed maturity securities, $1.1 billion at both March 31, 2018 and December 31, 2017; equity securities, $10.0 billion and $10.4 billion at March 31, 2018 and December 31, 2017, respectively; and cash equivalents and short-term investments, $474 million and $517 million at March 31, 2018 and December 31, 2017, respectively.
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity and Equity Securities AFS — Valuation of Securities” included in the 2017 Annual Report for further information on the processes used to value securities and the related controls.
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, 2018
 
Fixed Maturity
Securities
 
 
Equity
Securities
 
(Dollars in millions)
 
Level 1
 
 
 
 
 
 
 
 
 
Quoted prices in active markets for identical assets
$
22,873

 
7.5
%
 
$
909

 
58.9
%
Level 2
 
 
 
 
 
 
 
 
 
Independent pricing sources
263,548

 
86.5
 
 
118

 
7.6
 
Internal matrix pricing or discounted cash flow techniques
2,719

 
0.9
 
 
95

 
6.2
 
Significant other observable inputs
266,267

 
87.4
 
 
213

 
13.8
 
Level 3
 
 
 
 
 
 
 
 
 
Independent pricing sources
11,347

 
3.7
 
 
297

 
19.2
 
Internal matrix pricing or discounted cash flow techniques
3,953

 
1.3
 
 
123

 
8.0
 
Independent broker quotations
271

 
0.1
 
 
2

 
0.1
 
Significant unobservable inputs
15,571

 
5.1
 
 
422

 
27.3
 
Total estimated fair value
$
304,711

 
100.0
%
 
$
1,544

 
100.0
%
See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for the fixed maturity securities AFS and equity securities fair value hierarchy.

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The composition of fair value pricing sources for and significant changes in Level 3 securities at March 31, 2018 are as follows:
The majority of the Level 3 fixed maturity securities AFS and equity securities were concentrated in three sectors: foreign and U.S. corporate securities and RMBS.
Level 3 fixed maturity securities are priced principally through market standard valuation methodologies, independent pricing services and, to a much lesser extent, independent non-binding broker quotations using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. Level 3 fixed maturity securities consist of less liquid securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies. Level 3 fixed maturity securities include: sub-prime RMBS; certain below investment grade private securities; less liquid investment grade corporate securities (included in United States and foreign corporate securities) and less liquid ABS and foreign government securities.
During the three months ended March 31, 2018, Level 3 fixed maturity securities decreased by $698 million, or 4%. The decrease was driven by transfers out of Level 3 in excess of transfers into Level 3, partially offset by purchases in excess of sales.
See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for a rollforward of the fair value measurements for fixed maturity securities AFS and equity 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 2017 Annual Report for further information on the estimates and assumptions that affect the amounts reported above.
Fixed Maturity Securities AFS
See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information about fixed maturity securities AFS by sector, contractual maturities and continuous gross unrealized losses.
Fixed Maturity Securities Credit Quality — Ratings
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity and Equity Securities AFS — Fixed Maturity Securities Credit Quality — Ratings” included in the 2017 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 and the revised methodologies adopted by the NAIC for certain Structured Securities.
The following table presents total fixed maturity securities by NRSRO rating and the applicable NAIC designation from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the revised NAIC methodologies, as well as the percentage, based on estimated fair value that each NAIC designation is comprised of at:
 
 
 
 
March 31, 2018
 
 
December 31, 2017
 
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
 
$
200,912

 
$
13,534

 
$
214,446

 
70.4
%
 
$
201,806

 
$
17,024

 
$
218,830

 
70.8
%
2
 
Baa
 
68,896

 
3,635

 
72,531

 
23.8
 
 
67,270

 
5,126

 
72,396

 
23.4
 
 
 
Subtotal investment grade
 
269,808


17,169


286,977

 
94.2
 
 
269,076

 
22,150

 
291,226

 
94.2
 
3
 
Ba
 
11,165

 
386

 
11,551

 
3.8
 
 
11,155

 
556

 
11,711

 
3.8
 
4
 
B
 
5,263

 
69

 
5,332

 
1.7
 
 
5,004

 
151

 
5,155

 
1.7
 
5
 
Caa and lower
 
838

 
(11
)
 
827

 
0.3
 
 
824

 
9

 
833

 
0.3
 
6
 
In or near default
 
25

 
(1
)
 
24

 
 
 
10

 
(4
)
 
6

 
 
 
 
Subtotal below investment  grade
 
17,291


443


17,734

 
5.8
 
 
16,993

 
712

 
17,705

 
5.8
 
 
 
Total fixed maturity securities
 
$
287,099


$
17,612


$
304,711

 
100.0
%
 
$
286,069

 
$
22,862

 
$
308,931

 
100.0
%

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Table of Contents

The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC designations, except for certain Structured Securities, which are presented using the revised NAIC methodologies:
 
Fixed Maturity Securities — by Sector & Credit Quality Rating
NAIC Designation:
1
 
2
 
3
 
4
 
5
 
6
 
Total
Estimated
Fair Value
NRSRO Rating:
Aaa/Aa/A
 
Baa
 
Ba
 
B
 
Caa and Lower
 
In or Near
Default
 
 
(Dollars in millions)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
36,439

 
$
35,010

 
$
6,213

 
$
3,527

 
$
645

 
$

 
$
81,834

Foreign government
55,968

 
5,241

 
2,318

 
930

 
52

 
1

 
64,510

Foreign corporate
21,661

 
30,333

 
2,573

 
835

 
61

 

 
55,463

U.S. government and agency
43,410

 
417

 

 

 

 

 
43,827

RMBS
26,848

 
303

 
179

 
39

 
19

 
23

 
27,411

State and political subdivision
11,644

 
475

 
73

 

 

 

 
12,192

ABS
10,936

 
632

 
192

 
1

 
3

 

 
11,764

CMBS
7,540

 
120

 
3

 

 
47

 

 
7,710

Total fixed maturity securities
$
214,446


$
72,531


$
11,551


$
5,332


$
827


$
24


$
304,711

Percentage of total
70.4
%
 
23.8
%
 
3.8
%
 
1.7
%
 
0.3
%
 
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate
$
37,305

 
$
35,096

 
$
6,153

 
$
3,387

 
$
717

 
$
3

 
$
82,661

Foreign government
53,027

 
5,135

 
2,376

 
947

 
49

 

 
61,534

Foreign corporate
21,925

 
30,214

 
2,616

 
759

 
55

 

 
55,569

U.S. government and agency
47,067

 
327

 

 

 

 

 
47,394

RMBS
28,209

 
297

 
224

 
61

 
9

 

 
28,800

State and political subdivision
11,921

 
454

 
78

 

 

 
2

 
12,455

ABS
11,311

 
760

 
215

 
1

 
3

 
1

 
12,291

CMBS
8,065

 
113

 
49

 

 

 

 
8,227

Total fixed maturity securities
$
218,830


$
72,396


$
11,711


$
5,155


$
833


$
6


$
308,931

Percentage of total
70.8
%
 
23.4
%
 
3.8
%
 
1.7
%
 
0.3
%
 
%
 
100.0
%
U.S. and Foreign Corporate Fixed Maturity Securities
We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers. This portfolio does not have any exposure to any single issuer in excess of 1% of total investments and the top 10 holdings comprised 1% of total investments at both March 31, 2018 and December 31, 2017. The tables below present our U.S. and foreign corporate securities holdings by industry at:
 
March 31, 2018
 
December 31, 2017
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
(Dollars in millions)
Industrial
$
41,975

 
30.6
%
 
$
42,273

 
30.6
%
Consumer
31,020

 
22.6

 
31,419

 
22.7

Finance
29,932

 
21.8

 
29,884

 
21.6

Utility
21,861

 
15.9

 
21,773

 
15.8

Communications
10,805

 
7.9

 
11,072

 
8.0

Other
1,704

 
1.2

 
1,809

 
1.3

Total
$
137,297

 
100.0
%
 
$
138,230

 
100.0
%

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Table of Contents

Structured Securities 
We held $46.9 billion and $49.3 billion of Structured Securities, at estimated fair value, at March 31, 2018 and December 31, 2017, respectively, as presented in the RMBS, ABS and CMBS sections below.
RMBS
The table below presents our RMBS holdings at:
 
March 31, 2018
 
December 31, 2017
 
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
$
14,832

 
54.1
%
 
$
748

 
$
15,388

 
53.4
%
 
$
913

Pass-through securities
12,579

 
45.9

 
(195
)
 
13,412

 
46.6

 
41

Total RMBS
$
27,411

 
100.0
%
 
$
553

 
$
28,800

 
100.0
%
 
$
954

By risk profile:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
18,915

 
69.0
%
 
$
(119
)
 
$
20,010

 
69.5
%
 
$
274

Prime
1,143

 
4.2

 
66

 
1,209

 
4.2

 
73

Alt-A
4,060

 
14.8

 
367

 
4,182

 
14.5

 
372

Sub-prime
3,293

 
12.0

 
239

 
3,399

 
11.8

 
235

Total RMBS
$
27,411

 
100.0
%
 
$
553

 
$
28,800

 
100.0
%
 
$
954

Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
19,373

 
70.7
%
 
 
 
$
20,465

 
71.1
%
 
 
Designated NAIC 1
$
26,848

 
97.9
%
 
 
 
$
28,209

 
97.9
%
 
 
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity and Equity Securities AFS — Structured Securities — RMBS” included in the 2017 Annual Report for further information about collateralized mortgage obligations and pass-through mortgage-backed securities, as well as agency, prime, alternative residential mortgage loan (“Alt-A”) and sub-prime RMBS.
Historically, we have managed our exposure to sub-prime RMBS holdings by focusing primarily on senior tranche securities, stress testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio. Our sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). The estimated fair value of our sub-prime RMBS holdings purchased since 2012 was $3.0 billion and $3.1 billion at March 31, 2018 and December 31, 2017, respectively, with unrealized gains (losses) of $211 million and $200 million at March 31, 2018 and December 31, 2017, respectively.

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Table of Contents

ABS
Our ABS holdings are diversified both by collateral type and by issuer. The following table presents our ABS holdings at:
 
March 31, 2018
 
December 31, 2017
 
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
$
6,255


53.2
%

$
30

 
$
5,703

 
46.4
%
 
$
45

Credit card loans
784


6.7


(1
)
 
1,686

 
13.7

 
1

Student loans
1,325


11.3


14

 
1,266

 
10.3

 
(1
)
Automobile loans
1,000


8.5


(3
)
 
1,193

 
9.7

 

Foreign residential loans
953


8.1


20

 
965

 
7.9

 
20

Consumer loans
558

 
4.7

 
4

 
605

 
4.9

 
6

Other loans
889


7.5


5

 
873

 
7.1

 
7

Total
$
11,764

 
100.0
%
 
$
69

 
$
12,291

 
100.0
%
 
$
78

Ratings profile:
 
 
 
 
 
 
 
 
 
 
 
Rated Aaa/AAA
$
6,907

 
58.7
%
 
 
 
$
7,108

 
57.8
%
 
 
Designated NAIC 1
$
10,936

 
93.0
%
 
 
 
$
11,311

 
92.0
%
 
 

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Table of Contents

CMBS
Our CMBS holdings are diversified by vintage year. The following tables present our CMBS holdings by NRSRO rating and by vintage year at:
 
March 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 - 2010
$
113

 
$
119

 
$
17

 
$
18

 
$
8

 
$
8

 
$
15

 
$
15

 
$

 
$

 
$
153

 
$
160

2011
170

 
180

 
34

 
35

 

 

 

 

 

 

 
204

 
215

2012
257

 
263

 
243

 
244

 
231

 
235

 
6

 
7

 

 

 
737

 
749

2013
769

 
787

 
708

 
718

 
289

 
288

 

 

 
60

 
47

 
1,826

 
1,840

2014
486

 
486

 
506

 
506

 
129

 
129

 

 

 

 

 
1,121

 
1,121

2015
620

 
613

 
184

 
188

 
53

 
54

 

 

 

 

 
857

 
855

2016
299

 
292

 
67

 
64

 
41

 
41

 
69

 
70

 

 

 
476

 
467

2017
830

 
821

 
676

 
672

 
245

 
242

 
44

 
44

 

 

 
1,795

 
1,779

2018
296

 
296

 
136

 
137

 
91

 
91

 

 

 

 

 
523

 
524

Total
$
3,840


$
3,857


$
2,571


$
2,582


$
1,087


$
1,088


$
134


$
136


$
60


$
47


$
7,692


$
7,710

Ratings Distribution
 
 
50.0
%
 
 
 
33.5
%
 
 
 
14.1
%
 
 
 
1.8
%
 
 
 
0.6
%
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Aaa
 
Aa
 
A
 
Baa
 
Below
Investment
Grade
 
Total
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
 
(Dollars in millions)
2003 - 2010
$
116

 
$
124

 
$
4

 
$
5

 
$
22

 
$
23

 
$
15

 
$
15

 
$

 
$

 
$
157

 
$
167

2011
170

 
184

 
34

 
35

 

 

 

 

 

 

 
204

 
219

2012
289

 
302

 
257

 
263

 
230

 
237

 
7

 
7

 

 

 
783

 
809

2013
787

 
835

 
717

 
748

 
285

 
292

 
60

 
45

 

 

 
1,849

 
1,920

2014
537

 
552

 
513

 
522

 
129

 
130

 

 

 

 

 
1,179

 
1,204

2015
1,122

 
1,140

 
191

 
196

 
117

 
120

 

 

 

 

 
1,430

 
1,456

2016
401

 
404

 
69

 
68

 
40

 
40

 
65

 
66

 
 
 
 
 
575

 
578

2017
898

 
899

 
685

 
687

 
246

 
246

 
41

 
42

 

 

 
1,870

 
1,874

Total
$
4,320


$
4,440


$
2,470


$
2,524


$
1,069


$
1,088


$
188


$
175


$


$


$
8,047


$
8,227

Ratings Distribution
 
 
54.0
%
 
 
 
30.7
%
 
 
 
13.2
%
 
 
 
2.1
%
 
 
 
%
 
 
 
100.0
%
The tables above reflect NRSRO ratings including Moody’s Investors Service, S&P, Fitch Ratings and Morningstar, Inc. CMBS designated NAIC 1 were 98% of total CMBS at both March 31, 2018 and December 31, 2017.
Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS
See Note 6 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 AFS securities.
OTTI Losses on Fixed Maturity Securities AFS Recognized in Earnings
See Note 6 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
Impairments of fixed maturity securities AFS were less than $1 million for both the three months ended March 31, 2018 and 2017.

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Table of Contents

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, interest rates and credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
Contractholder-Directed Equity Securities and Fair Value Option Securities
Unit-linked and FVO Securities were $16.4 billion and $16.7 billion at estimated fair value, or 3.6% and 3.7% of cash and invested assets, at March 31, 2018 and December 31, 2017, respectively. Unit-linked and FVO Securities are primarily comprised of Unit-linked investments. See Notes 6 and 8 of the Notes to the Interim Condensed Consolidated Financial Statements for a description of our Unit-linked and FVO Securities portfolio, the Unit-linked and FVO Securities fair value hierarchy and a rollforward of the fair value measurements for Unit-linked and FVO Securities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. We monitor the estimated fair value of the securities loaned on a daily basis with additional collateral obtained as necessary throughout the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount of the cash received.
See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending” and Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our securities lending program.
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these agreements, the Company lends fixed maturity securities and receives cash as collateral in an amount generally equal to 98% of the estimated fair value of the securities loaned at the inception of the transaction. The associated liability is recorded at the amount of cash received. The Company monitors the estimated fair value of the collateral and the securities loaned throughout the duration of the transaction and additional collateral is obtained as necessary. Securities loaned under such transactions may be sold or re-pledged by the transferee.
See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for additional information regarding our repurchase agreements.
FHLB of Boston Advance Agreements
A subsidiary of the Company participates in short-term advance agreements with the Federal Home Loan Bank (“FHLB”) of Boston. Under these agreements, the Company pledges fixed maturity securities and receives cash. The associated liability is recorded at the amount of cash received. The FHLB of Boston has minimum collateral requirements which vary depending on the type of collateral pledged. Securities pledged under such transactions may not be sold or re-pledged by the transferee.
See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding our FHLB of Boston advance agreement transactions.

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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, 2018
 
December 31, 2017
 
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded Investment
 
Recorded
Investment
 
% of
Total
 
Valuation
Allowance
 
% of
Recorded Investment
 
 
(Dollars in millions)
Commercial
 
$
46,690

 
65.8
%
 
$
228

 
0.5
%
 
$
44,375

 
64.8
%
 
$
214

 
0.5
%
Agricultural
 
13,098

 
18.5

 
41

 
0.3
%
 
13,014

 
19.0

 
41

 
0.3
%
Residential
 
11,156

 
15.7

 
58

 
0.5
%
 
11,136

 
16.2

 
59

 
0.5
%
Total
 
$
70,944

 
100.0
%
 
$
327

 
0.5
%
 
$
68,525

 
100.0
%
 
$
314

 
0.5
%
The information presented in the tables herein exclude mortgage loans where we elected the FVO. Such amounts are presented in Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements. The carrying value of all mortgage loans, net of valuation allowance was 15.6% and 15.0% of cash and invested assets at March 31, 2018 and December 31, 2017, respectively.
We diversify our mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. Of our commercial and agricultural mortgage loan portfolios, 82% are collateralized by properties located in the United States, with the remaining 18% collateralized by properties located outside the United States, which includes 7% of properties located in the U.K., at March 31, 2018. The carrying values of our commercial and agricultural mortgage loans located in California, New York and Texas were 19%, 11% and 7%, respectively, of total commercial and agricultural mortgage loans at March 31, 2018. Additionally, we manage risk when originating commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.
We manage our residential mortgage loan portfolio in a similar manner to reduce risk of concentration, with 90% collateralized by properties located in the United States and the remaining 10% collateralized by properties located outside the United States at March 31, 2018. The carrying values of our residential mortgage loans located in California, Florida, and New York were 31%, 9%, and 6%, respectively, of total residential mortgage loans at March 31, 2018.
In connection with our investment management business, we manage commercial, agricultural and residential mortgage loans on behalf of institutional clients, which are unaffiliated investors. These commercial, agricultural and residential mortgage loans had an estimated fair value of $15.3 billion and $14.7 billion at March 31, 2018 and December 31, 2017, respectively. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in our interim condensed consolidated financial statements.

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Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest component of the mortgage loan invested asset class. The tables below present the diversification across geographic regions and property types of commercial mortgage loans at:
 
March 31, 2018
 
December 31, 2017
 
Amount
 
% of
Total
 
Amount
 
% of
Total
 
(Dollars in millions)
Region
 
 
 
 
 
 
 
Pacific
$
10,583
 
 
22.7
%
 
$
9,875
 
 
22.3
%
International
9,500
 
 
20.3

 
9,101
 
 
20.5

Middle Atlantic
7,467
 
 
16.0

 
7,231
 
 
16.3

South Atlantic
5,552
 
 
11.9

 
5,311
 
 
12.0

West South Central
3,664
 
 
7.8

 
3,819
 
 
8.6

East North Central
2,687
 
 
5.7

 
2,683
 
 
6.0

Mountain
1,355
 
 
2.9

 
1,188
 
 
2.7

New England
1,129
 
 
2.4

 
901
 
 
2.0

East South Central
963
 
 
2.1

 
840
 
 
1.9

West North Central
589
 
 
1.3

 
477
 
 
1.1

Multi-Region and Other
3,201
 
 
6.9

 
2,949
 
 
6.6

Total recorded investment
46,690
 
 
100.0
%
 
44,375
 
 
100.0
%
  Less: valuation allowances
228
 
 
 
 
214
 
 
 
  Carrying value, net of valuation allowances
$
46,462
 
 
 
 
$
44,161
 
 
 
Property Type
 
 
 
 
 
 
 
Office
$
23,474
 
 
50.3
%
 
$
22,602
 
 
50.9
%
Retail
8,247
 
 
17.7

 
8,032
 
 
18.1

Apartment
6,600
 
 
14.1

 
6,113
 
 
13.8

Hotel
3,797
 
 
8.1

 
3,620
 
 
8.2

Industrial
3,699
 
 
7.9

 
3,125
 
 
7.0

Other
873
 
 
1.9

 
883
 
 
2.0

Total recorded investment
46,690
 
 
100.0
%
 
44,375
 
 
100.0
%
  Less: valuation allowances
228
 
 
 
 
214
 
 
 
  Carrying value, net of valuation allowances
$
46,462
 
 
 
 
$
44,161
 
 
 
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 6 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, as well as impaired mortgage loans. See “— Real Estate and Real Estate Joint Ventures” for real estate acquired through foreclosure.
We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, debt service coverage ratios and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower debt service coverage ratios. The monitoring process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including reviews on a geographic and sector basis. We review our residential mortgage loans on an ongoing basis. See Note 8 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for information on our evaluation of residential mortgage loans and related valuation allowance methodology.

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Loan-to-value ratios and debt service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans. Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. Loan-to-value ratios compare the amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt service coverage ratio compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss. For our commercial mortgage loans, our average loan-to-value ratio was 54% at both March 31, 2018 and December 31, 2017 and our average debt service coverage ratio was 2.7x for both March 31, 2018 and December 31, 2017. 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 45% and 44% at March 31, 2018 and December 31, 2017, respectively. The values utilized in calculating the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely updated.
Mortgage Loan Valuation Allowances. Our valuation allowances are established both on a loan specific basis for those loans considered impaired where a property specific or market specific risk has been identified that could likely result in a future loss, as well as for pools of loans with similar risk characteristics where a property specific or market specific risk has not been identified, but for which we expect to incur a loss. Accordingly, a valuation allowance is provided to absorb these estimated probable credit losses.
The determination of the amount of valuation allowances is based upon our periodic evaluation and assessment of known and inherent risks associated with our loan portfolios. Such evaluations and assessments are based upon several factors, including our experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the valuation allowances to increase or decrease over time as such evaluations are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the valuation allowance. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the valuation allowance.
See Notes 6 and 8 of the Notes to the Interim Condensed Consolidated Financial Statements for information about how valuation allowances are established and monitored, activity in and balances of the valuation allowance, and the estimated fair value of impaired mortgage loans and related impairments included within net investment gains (losses) as of and for the three months ended March 31, 2018 and 2017.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures is comprised of wholly-owned real estate and joint ventures with interests in single property income-producing real estate, and to a lesser extent joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties to the operation of income-producing properties, as well as a runoff portfolio of real estate private equity funds. We diversify our real estate investments by both geographic region and property type to reduce risk of concentration. The carrying values of real estate and real estate joint ventures were $9.9 billion and $9.6 billion, or 2.2% and 2.1% of cash and invested assets, including properties acquired through foreclosure of $47 million and $48 million at March 31, 2018 and December 31, 2017, respectively. The estimated fair value of our real estate investments was $15.3 billion and $14.9 billion at March 31, 2018 and December 31, 2017, respectively. The total gross market value of such real estate investments was $19.4 billion and $19.1 billion at March 31, 2018 and December 31, 2017, respectively. Gross market value is the total fair value of these investments regardless of encumbering debt.
In connection with our investment management business, we manage commercial real estate investments on behalf of institutional clients, which are unaffiliated investors. These commercial real estate investments under management for unaffiliated investors had an estimated fair value of $5.4 billion and $5.2 billion at March 31, 2018 and December 31, 2017, respectively. The total gross market value of commercial real estate investments under management for unaffiliated investors was $7.4 billion and $6.7 billion at March 31, 2018 and December 31, 2017, respectively. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in our consolidated financial statements.


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Other Limited Partnership Interests
Other limited partnership interests are comprised of private equity funds and hedge funds. The carrying value of other limited partnership interests was $5.9 billion, or 1.3% of cash and invested assets, and $5.7 billion, or 1.3% of cash and invested assets, at March 31, 2018 and December 31, 2017, respectively, which included $637 million and $643 million of hedge funds, at March 31, 2018 and December 31, 2017, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds. We estimate that the underlying investments of the funds will be liquidated over the next two to 10 years.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
 
March 31, 2018
 
December 31, 2017
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Freestanding derivatives with positive estimated fair values
$
7,924


45.3
%

$
8,551


49.5
%
Tax credit and renewable energy partnerships
3,195


18.3


3,167


18.3

Direct financing leases
1,375


7.9


1,323


7.7

Annuities funding structured settlement claims (1)
1,283


7.3


1,284


7.4

Leveraged leases, net of non-recourse debt
1,139


6.5


1,278


7.4

Federal Home Loan Bank common stock (2)
812

 
4.7

 

 

Operating joint ventures
612


3.5


539


3.1

Funds withheld
300


1.7


298


1.7

Other
846


4.8


823


4.8

Total
$
17,486


100.0
%

$
17,263


100.0
%
Percentage of cash and invested assets
3.8
%



3.8
%


__________________
(1)
See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements.
(2)
See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements.

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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 7 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 gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge designation, excluding embedded derivatives held at March 31, 2018 and December 31, 2017.
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, 2018 and 2017.
See “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures — Hedging Activities” included in the 2017 Annual Report for more information about our use of derivatives by major hedge program.
Fair Value Hierarchy
See Note 8 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, 2018 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, 2018, less than 1% of the estimated fair value of our derivatives was priced through independent broker quotations.
See Note 8 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, certain purchased equity index options that are valued using models dependent on an unobservable market correlation input, equity variance swaps that are valued using observable equity volatility data plus an unobservable equity variance spread and foreign currency swaps and forwards that are valued using an unobservable portion of the swap yield curves. Other significant inputs, which are observable, include equity index levels, equity volatility and the swap yield curves. We validate the reasonableness of these inputs by valuing the positions using internal models and comparing the results to broker quotations.

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The gain (loss) on Level 3 derivatives, percentage of gain (loss) attributable to observable and unobservable inputs, and the primary drivers of observable gain (loss) are summarized as follows:
 
 
Three Months
Ended
March 31, 2018
Gain (loss) recognized in net income (loss)
 
$11 million
Percentage of gain (loss) attributable to observable inputs
 
13%
Primary drivers of observable gain (loss)
 
Increases in certain equity volatility levels and decreases in certain equity index levels on equity derivatives; partially offset by increase in interest rate on interest rate total return swaps.
Percentage of gain (loss) attributable to unobservable inputs
 
87%
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Derivatives” included in the 2017 Annual Report for further information on the estimates and assumptions that affect derivatives.
Credit Risk
See Note 7 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, 2018
 
December 31, 2017
Credit Default Swaps
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
Gross
Notional
Amount
 
Estimated
Fair Value
 
 
(In millions)
Purchased
 
$
1,888

 
$
(36
)
 
$
2,020

 
$
(36
)
Written
 
11,421

 
208

 
11,375

 
271

Total
 
$
13,309

 
$
172

 
$
13,395

 
$
235

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,
 
 
2018
 
2017
Credit Default Swaps
 
Gross
Gains 

 
Gross
Losses 

 
Net
Gains
(Losses)
 
Gross
Gains 

 
Gross
Losses 

 
Net
Gains
(Losses)
 
 
(In millions)
Purchased (1)
 
$
1

 
$
(4
)
 
$
(3
)
 
$
8

 
$
(16
)
 
$
(8
)
Written (1)
 
1

 
(45
)
 
(44
)
 
37

 
(5
)
 
32

Total
 
$
2

 
$
(49
)
 
$
(47
)
 
$
45

 
$
(21
)
 
$
24

__________________
(1)
Gains (losses) do not include earned income (expense) on credit default swaps.

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The favorable change in net gains (losses) on purchased credit default swaps of $5 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was due to certain credit spreads on credit default swaps hedging certain bonds, narrowing less in the current period compared to the prior period. The unfavorable change in net gains (losses) on written credit default swaps of ($76) million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was due to certain credit spreads on certain credit default swaps used as replications widening in the current period as compared to the prior period.
The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding of life insurance companies. Replications are entered into in accordance with the guidelines approved by state insurance regulators and the NAIC and are an important tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we seek to buy long-dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high-quality assets) and associating them with written credit default swaps on the desired corporate credit name, we can replicate the desired bond exposures and meet our ALM needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long dated corporate bond, we have more flexibility in managing our credit exposures.
Embedded Derivatives
See Note 8 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.
See Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements for a rollforward of the fair value measurements for embedded derivatives measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
See Note 7 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 2017 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 2017 Annual Report.
Collateral for Securities Lending, Third-Party Custodian Administered Repurchase Programs and Derivatives
We participate in a securities lending program in the normal course of business for the purpose of enhancing the total return on our investment portfolio. Periodically, we receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which has not been recorded on our consolidated balance sheets. The amount of this collateral was $41 million and $19 million at estimated fair value at March 31, 2018 and December 31, 2017, respectively. See Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements and “— Investments — Securities Lending,” as well as “Summary of Significant Accounting Policies — Investments — Securities Lending Program” in Note 1 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for a discussion of our securities lending program, the classification of revenues and expenses, and the nature of the secured financing arrangement and associated liability.
We also participate in third-party custodian administered repurchase programs for the purpose of enhancing the total return on our investment portfolio. We loan certain of our fixed maturity securities to financial institutions and, in exchange, non-cash collateral is put on deposit by the financial institutions on our behalf with third-party custodians. The estimated fair value of securities loaned in connection with these transactions was $169 million and $182 million at March 31, 2018 and December 31, 2017, respectively. Non-cash collateral on deposit with third-party custodians on our behalf was $179 million and $194 million at March 31, 2018 and December 31, 2017, respectively, which cannot be sold or re-pledged, and which has not been recorded on our consolidated balance sheets.

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We enter into derivatives to manage various risks relating to our ongoing business operations. We have non-cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets. The amount of this non-cash collateral was $1.1 billion for both March 31, 2018 and December 31, 2017. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and Note 7 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, information technology and other equipment. Our commitments under such lease agreements are included within the contractual obligations table. See “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 2017 Annual Report.
Guarantees
See “Guarantees” in Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.
Other
We enter into the following additional commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio: mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See “Net Investment Income” and “Net Investment Gains (Losses)” in Note 6 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 “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities and mortgage loans. See “— Investments — Real Estate and Real Estate Joint Ventures” and “— Investments — Other Limited Partnership Interests” for information on our partnership investments.
Other than the commitments disclosed in Note 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 2017 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.

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Insurance regulators in many of the non-U.S. jurisdictions in which we operate require certain MetLife entities to prepare a sufficiency analysis of the reserves presented in the locally required regulatory financial statements, and to submit that analysis to the regulatory authorities.
See “— Industry Trends — Regulatory Developments” and “Business — Regulation — U.S. Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” and “Business — Regulation — International Regulation” included in the 2017 Annual Report for further information.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2017 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 2017 Annual Report and “— Variable Annuity Guarantees.” A discussion of future policy benefits by segment (as well as Corporate & Other) follows.
U.S.
Amounts payable under insurance policies for this segment are comprised of group insurance and annuities, as well as property & casualty policies. For group insurance, future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, active life policies and premium stabilization and other contingency liabilities held under life insurance contracts. For group annuity contracts, future policyholder benefits are primarily related to payout annuities, including pension risk transfers, structured settlement annuities and institutional income annuities. There is no interest rate crediting flexibility on these liabilities. As a result, a sustained low interest rate environment could negatively impact earnings; however, we mitigate our risks by applying various ALM strategies, including the use of various interest rate derivative positions. The components of future policy benefits related to our property & casualty policies are liabilities for unpaid claims, estimated based upon assumptions such as rates of claim frequencies, levels of severities, inflation, judicial trends, legislative changes or regulatory decisions. Assumptions are based upon our historical experience and analysis of historical development patterns of the relationship of loss adjustment expenses to losses for each line of business, and we consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
Asia
Future policy benefits for this segment are held primarily for traditional life, endowment, annuity and accident & health contracts. They are also held for total return pass-through provisions included in certain universal life and savings products. They include certain liabilities for variable annuity and variable life guarantees of minimum death benefits, and longevity guarantees. Factors impacting these liabilities include sustained periods of lower yields than rates established at policy issuance, lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments. We mitigate our risks by applying various ALM strategies.
Latin America
Future policy benefits for this segment are held primarily for immediate annuities in Chile, Argentina and Mexico and traditional life contracts mainly in Mexico, Brazil and Colombia. There are also liabilities held for total return pass-through provisions included in certain universal life and savings products in Mexico. Factors impacting these liabilities include sustained periods of lower yields than rates established at policy issuance, lower than expected asset reinvestment rates, and mortality and lapses different than expected. We mitigate our risks by applying various ALM strategies.
EMEA
Future policy benefits for this segment include unearned premium reserves for group life and credit insurance contracts. Future policy benefits are also held for traditional life, endowment and annuity contracts with significant mortality risk and accident & health contracts. Factors impacting these liabilities include lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments. We mitigate our risks by having premiums which are adjustable or cancellable in some cases, and by applying various ALM strategies.

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MetLife Holdings
Future policy benefits for the life business are comprised mainly of liabilities for traditional life insurance contracts. In order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies. We routinely evaluate our reinsurance programs which may result in increases or decreases to existing coverage. We have entered into various interest rate derivative positions to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of the policy will be at rates below those assumed in the original pricing of these contracts. For the annuities business, future policy benefits are comprised mainly of liabilities for life-contingent income annuities, and liabilities for the variable annuity guaranteed minimum benefits which are accounted for as insurance. Other future policyholder benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy provisions, and active life policies. In addition, for our other products, future policyholder benefits related to the reinsurance of our former Japan joint venture are comprised of liabilities for the variable annuity guaranteed minimum benefits which are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for other reinsurance business. Additionally, future policy benefits include liabilities for the U.S direct business sold directly to consumers.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender. See “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 2017 Annual Report and “— Variable Annuity Guarantees.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2017 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 negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various interest rate derivative positions to partially mitigate the risks associated with such a scenario.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Group Benefits:
 
March 31, 2018
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Greater than 0% but less than 2%
$
4,812

 
$
4,692

Equal to or greater than 2% but less than 4%
$
1,814

 
$
1,814

Equal to or greater than 4%
$
737

 
$
711

__________________
(1)These amounts are not adjusted for policy loans.

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Retirement and Income Solutions
Policyholder account balances in this business are primarily comprised of funding agreements. Interest crediting rates vary by type of contract, and can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly (1-month or 3-month) LIBOR. We are exposed to interest rate risks, as well as foreign currency exchange rate risk, when guaranteeing payment of interest and return of principal at the contractual maturity date. We may invest in floating rate assets or enter into receive-floating interest rate swaps, also tied to external indices, as well as interest rate caps, to mitigate the impact of changes in market interest rates. We also mitigate our risks by applying various ALM strategies and seek to hedge all foreign currency exchange rate risk through the use of foreign currency hedges, including cross currency swaps.
Asia
Policyholder account balances in this segment are held largely for fixed income retirement and savings plans, fixed deferred annuities, interest sensitive whole life products, universal life and, to a lesser degree, liability amounts for unit-linked-type funds that do not meet the GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in certain countries in Asia that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on certain variable annuities in Asia are accounted for as embedded derivatives and recorded at estimated fair value and are also included within policyholder account balances. These liabilities are generally impacted by sustained periods of low interest rates, where there are interest rate guarantees. We mitigate our risks by applying various ALM strategies and with reinsurance. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated underlying investments, as the return on assets is generally passed directly to the policyholder.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
 
March 31, 2018
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Annuities
 
 
 
Greater than 0% but less than 2%
$
23,122

 
$
2,711

Equal to or greater than 2% but less than 4%
$
1,263

 
$
425

Equal to or greater than 4%
$
2

 
$
2

Life & Other
 
 
 
Greater than 0% but less than 2%
$
9,770

 
$
9,466

Equal to or greater than 2% but less than 4%
$
22,840

 
$
9,299

Equal to or greater than 4%
$
278

 
$
278

__________________
(1)
These amounts are not adjusted for policy loans.
Latin America
Policyholder account balances in this segment are held largely for investment-type products and universal life products in Mexico and Chile, and deferred annuities in Brazil. Some of the deferred annuities in Brazil are unit-linked-type funds that do not meet the GAAP definition of separate accounts. The rest of the deferred annuities have minimum credited rate guarantees, and these liabilities and the universal life liabilities are generally impacted by sustained periods of low interest rates. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.
EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuity, pension products, and unit-linked-type funds that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Where there are interest rate guarantees, these liabilities are generally impacted by sustained periods of low interest rates. We mitigate our risks by applying various ALM strategies. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated investments, as the return on assets is generally passed directly to the policyholder.

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MetLife Holdings
Life policyholder account balances are held for retained asset accounts, universal life policies, the fixed account of variable life insurance policies, and funding agreements. For annuities, policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities, non-life contingent income annuities, and embedded derivatives related to variable annuity guarantees. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by current market rates, subject to specified minimums. A sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We have various interest rate derivative positions to partially mitigate the risks associated with such a scenario. Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a former operating joint venture in Japan that are accounted for as embedded derivatives.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for the MetLife Holdings segment:
 
March 31, 2018
Guaranteed Minimum Crediting Rate
Account
Value (1)
 
Account
Value at
Guarantee (1)
 
(In millions)
Greater than 0% but less than 2%
$
1,662

 
$
1,566

Equal to or greater than 2% but less than 4%
$
19,312

 
$
16,731

Equal to or greater than 4%
$
8,336

 
$
5,632

__________________
(1)
These amounts are not adjusted for policy loans.
Variable Annuity Guarantees
We issue, directly and through assumed business, certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases, the benefit base may be increased by additional deposits, bonus amounts, accruals or optional market value resets. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report, as well as Note 4 of the Notes to the Interim Condensed Consolidated Financial Statements, for additional information.
Certain guarantees, including portions thereof, have insurance liabilities established that are included in future policy benefits. Guarantees accounted for in this manner include guaranteed minimum death benefits (“GMDBs”), the life-contingent portion of certain guaranteed minimum withdrawal benefits (“GMWBs”), and the non-life contingent portions of both GMWBs and guaranteed minimum income benefits (“GMIBs”) that require annuitization. These liabilities are accrued over the life of the contract in proportion to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower than those previously projected or when current estimates of future assessments exceed those previously projected. At the end of each reporting period, we update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits resulting in a current period charge or increase to earnings.
Certain guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in policyholder account balances. Guarantees accounted for as embedded derivatives include guaranteed minimum accumulation benefits (“GMABs”), and the non-life contingent portions of both GMWBs and GMIBs that do not require annuitization. The estimated fair values of guarantees accounted for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more information on the determination of estimated fair value, see Note 8 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, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Asia
 
 
 
 
 
 
 
GMDB
$
44

 
$
38

 
$

 
$

GMAB

 

 
17

 
19

GMWB
94

 
92

 
207

 
182

EMEA
 
 
 
 
 
 
 
GMDB

 
1

 

 

GMAB

 

 
15

 
15

GMWB
35

 
42

 
(81
)
 
(90
)
MetLife Holdings
 
 
 
 
 
 
 
GMDB
318

 
304

 

 

GMIB
593

 
581

 
(151
)
 
(125
)
GMAB

 

 
2

 

GMWB
105

 
183

 
406

 
322

Total
$
1,189

 
$
1,241

 
$
415

 
$
323

The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $150 million and $130 million at March 31, 2018 and December 31, 2017, respectively. These nonperformance risk adjustments represent the impact of including a credit spread when discounting the underlying risk neutral cash flows to determine the estimated fair values. The nonperformance risk adjustment does not have an economic impact on us as it cannot be monetized given the nature of these policyholder liabilities. The change in valuation arising from the nonperformance risk adjustment is not hedged.
The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance, equity volatility, interest rates or foreign currency exchange rates. Carrying values are also impacted by our assumptions around mortality, separate account returns and policyholder behavior, including lapse rates.
As discussed below, we use a combination of product design, hedging strategies, reinsurance, and other risk management actions to mitigate the risks related to these benefits. Within each type of guarantee, there is a range of product offerings reflecting the changing nature of these products over time. Changes in product features and terms are in part driven by customer demand but, more importantly, reflect our risk management practices of continuously evaluating the guaranteed benefits and their associated asset-liability matching. Recently, we have been diversifying the concentration of income benefits in the portfolio of the Company’s annuities business by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities.
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 which do not qualify for presentation as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and assumed business, but exclude offsets from hedging or ceded reinsurance, if any.

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GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at March 31, 2018:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
Return of premium or five to seven year step-up
$
7,759

 
$
53,065

Annual step-up

 
3,577

Roll-up and step-up combination

 
6,327

Total
$
7,759

 
$
62,969

__________________
(1)
Total account value excludes $306 million for contracts with no GMDBs. Further, many of our annuity contracts offer more than one type of guarantee such that GMDB amounts listed above are not mutually exclusive to the amounts in the living benefit guarantees table below.
Based on total account value, less than 19% of our GMDBs included enhanced death benefits such as the annual step-up or roll-up and step-up combination products. We expect the above GMDB risk profile to be relatively consistent for the foreseeable future.
Living Benefit Guarantees
The table below presents our living benefit guarantees based on total account values at March 31, 2018:
 
Total Account Value (1)
 
Asia & EMEA
 
MetLife Holdings
 
(In millions)
GMIB
$

 
$
24,206

GMWB - non-life contingent (2)
2,355

 
3,181

GMWB - life-contingent
3,689

 
10,967

GMAB
1,223

 
535

Total
$
7,267

 
$
38,889

__________________
(1)
Total account value excludes $24.4 billion for contracts with no living benefit guarantees. Further, many of our annuity contracts offer more than one type of guarantee such that living benefit guarantee amounts listed above are not mutually exclusive of the amounts in the GMDBs table above.
(2)
The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $963 million with a guarantee at annuitization.
In terms of total account value, GMIBs are our most significant living benefit guarantee. Our primary risk management strategy for our GMIB products is our derivatives hedging program as discussed below. Additionally, we have engaged in certain reinsurance agreements covering some of our GMIB business. As part of our overall risk management approach for living benefit guarantees, we continually monitor the reinsurance markets for the right opportunity to purchase additional coverage for our GMIB business.

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The table below presents our GMIB associated total account values, by their guaranteed payout basis, at March 31, 2018:
 
Total Account Value
 
(In millions)
7-year setback, 2.5% interest rate
$
6,387

7-year setback, 1.5% interest rate
1,048

10-year setback, 1.5% interest rate
5,296

10-year mortality projection, 10-year setback, 1.0% interest rate
9,765

10-year mortality projection, 10-year setback, 0.5% interest rate
1,710

 
$
24,206

The annuitization interest rates on GMIBs have been decreased from 2.5% to 0.5% over time, partially in response to the low interest rate environment, accompanied by an increase in the setback period from seven years to 10 years and the introduction of a 10-year mortality projection.
Additionally, 40% of the $24.2 billion of GMIB total account value has been invested in managed volatility funds as of March 31, 2018. 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, 2018, only 16% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of five years.
Once eligible for annuitization, contractholders would be expected to annuitize only if their contracts were in-the-money. We calculate in-the-moneyness with respect to GMIBs consistent with net amount at risk as discussed in Note 4 of the Notes to the 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 $510 million at March 31, 2018, of which $307 million was related to GMIB guarantees. For those contracts with GMIB, the table below presents details of contracts that are in-the-money and out-of-the-money at March 31, 2018:
 
In-the-
Moneyness
 
Total
Account Value
 
% of Total

 
(In millions)
In-the-money
30% +
 
$
284

 
1
%
 
20% to 30%
 
201

 
1
%
 
10% to 20%
 
421

 
2
%
 
0% to 10%
 
826

 
3
%
 
 
 
1,732

 
 
Out-of-the-money
-10% to 0%
 
1,861

 
8
%
 
-20% to -10%
 
3,317

 
14
%
 
-20% +
 
17,296

 
72
%
 
 
 
22,474

 
 
Total GMIBs
 
 
$
24,206

 
 

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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, 2018
 
December 31, 2017
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
 
$
8,185

 
$
58

 
$
11

 
$
16,080

 
$
433

 
$
22

 
 
Interest rate futures
 
1,966

 
1

 
3

 
3,060

 
1

 
4

 
 
Interest rate options
 
2,180

 
383

 

 
10,173

 
486

 
11

Foreign currency exchange rate
 
Foreign currency forwards
 
2,871

 
54

 
7

 
2,288

 
5

 
36

Equity market
 
Equity futures
 
2,884

 
5

 
19

 
3,781

 
17

 
4

 
 
Equity index options
 
9,653

 
399

 
603

 
9,546

 
383

 
690

 
 
Equity variance swaps
 
4,661

 
52

 
194

 
4,661

 
54

 
199

 
 
Equity total return swaps
 
1,012

 
35

 

 
1,117

 

 
41

 
 
Total
 
$
33,412

 
$
987

 
$
837

 
$
50,706

 
$
1,379

 
$
1,007

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 $11.3 billion and $10.0 billion at March 31, 2018 and December 31, 2017, 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 $205.6 billion and $209.1 billion at March 31, 2018 and December 31, 2017, 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-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 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,
 
2018
 
2017
 
(In millions)
Sources:
 
 
 
Operating activities, net
$
1,296

 
$
2,098

Changes in policyholder account balances, net
414

 
2,171

Changes in payables for collateral under securities loaned and other transactions, net
667

 
391

Long-term debt issued
14

 

Financing element on certain derivative instruments and other derivative related transactions, net
37

 
188

Preferred stock issued, net of issuance costs
494

 

Other, net
100

 
66

Effect of change in foreign currency exchange rates on cash and cash equivalents
197

 
213

Total sources
3,219

 
5,127

Uses:
 
 
 
Investing activities, net
485

 
4,276

Long-term debt repaid
32

 
4

Collateral financing arrangement repaid
13

 
12

Treasury stock acquired in connection with share repurchases
1,041

 
858

Dividends on preferred stock
6

 
6

Dividends on common stock
416

 
437

Total uses
1,993

 
5,593

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

 
$
(466
)
Cash Flows from Operations
The principal cash inflows from our insurance activities come from insurance premiums, net investment income, annuity considerations and deposit funds. The principal cash outflows are the result of various life insurance, property & casualty, annuity and pension products, operating expenses and income tax, as well as interest expense. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal. The cash flows from discontinued operations are not separately classified, but generally arise from the same activities described above.
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 following additional information is provided regarding our primary sources of liquidity and capital. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements for information regarding financing transactions related to the Separation.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-term debt, the collateral financing arrangement, junior subordinated debt securities, preferred securities, equity securities and equity-linked securities. The diversity of our global funding sources enhances our funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding sources include:
Preferred Stock
In March 2018, MetLife, Inc. issued 500,000 shares of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (the “Series D preferred stock”) with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate proceeds of $494 million. See Note 9 of the Notes to the Interim Condensed Consolidated Financial Statements for further information.
Common Stock
During the three months ended March 31, 2018 and 2017, MetLife, Inc. issued 1,934,114 and 1,840,900 new shares of its common stock, respectively, for $74 million and $66 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 Metropolitan Life Insurance Company (“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 domestic insurance subsidiaries are members of a regional FHLB. During the three months ended March 31, 2018 and 2017, we issued $6.5 billion and $4.4 billion, respectively, and repaid $6.5 billion and $4.4 billion, respectively, under funding agreements with certain regional FHLBs. At both March 31, 2018 and December 31, 2017, total obligations outstanding under these funding agreements were $15.3 billion. See Note 4 of the Notes to the Consolidated Financial Statements included in the 2017 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, 2018, we issued $800 million and repaid $300 million, under advance agreements with a regional FHLB. There were no such transactions during the three months ended March 31, 2017. At March 31, 2018 and December 31, 2017, total obligations outstanding under these advance agreements were $800 million and $300 million, respectively. See Note 6 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, 2018 and 2017, we issued $12.9 billion and $10.3 billion, respectively, and repaid $13.9 billion and $9.5 billion, respectively, under such funding agreements. At March 31, 2018 and December 31, 2017, total obligations outstanding under these funding agreements were $33.6 billion and $34.2 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements included in the 2017 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 the three months ended March 31, 2018 and 2017, we issued $125 million and $0, respectively, and repaid $125 million and $0, respectively, under such funding agreements. At both March 31, 2018 and December 31, 2017, 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 2017 Annual Report.
Credit and Committed Facilities
At March 31, 2018, we maintained a $3.0 billion unsecured revolving credit facility and certain committed facilities aggregating $3.5 billion. When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
The unsecured revolving credit facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the issuance of letters of credit. At March 31, 2018, we had outstanding $312 million in letters of credit and no drawdowns against this facility. Remaining availability was $2.7 billion at March 31, 2018.
The committed facilities are used as collateral for certain of our affiliated reinsurance liabilities. At March 31, 2018, we had outstanding $3.0 billion in letters of credit and no drawdowns against these facilities. Remaining availability was $541 million at March 31, 2018. At March 31, 2018, Brighthouse was a beneficiary of $2.4 billion of letters of credit issued under a certain facility. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report.
See Note 12 of the Notes to the Consolidated Financial Statements included in the 2017 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 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, 2018
 
December 31, 2017
 
(In millions)
Short-term debt (1)
$
526

 
$
477

Long-term debt (2)
$
15,702

 
$
15,680

Collateral financing arrangement
$
1,108

 
$
1,121

Junior subordinated debt securities
$
3,145

 
$
3,144

__________________
(1)
Includes $426 million and $377 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at March 31, 2018 and December 31, 2017, respectively. Certain subsidiaries have pledged assets to secure this debt.

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(2)
Includes $506 million and $523 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at March 31, 2018 and December 31, 2017, respectively. Certain investment subsidiaries have pledged assets to secure this debt.
Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our 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, 2018.
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 following additional information is provided regarding our primary uses of liquidity and capital.
Common Stock Repurchases
On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. Under this authorization, 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.
During the three months ended March 31, 2018 and 2017, MetLife, Inc. repurchased 21,405,327 shares and 16,038,791 shares, respectively, of common stock in open market purchases for $1.0 billion and $858 million, respectively. At March 31, 2018, MetLife, Inc. had $720 million remaining under the common stock repurchase authorization.
Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors. See “Business — Regulation,” “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report.
Dividends
Preferred Stock Dividends
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, 2018 and 2017:
Declaration Date
 
Record Date
 
Payment Date
 
Preferred Stock Dividend
Series A
Per 
Share
 
Series A
Aggregate
 
Series C
Per
Share
 
Series C
Aggregate
 
Series D
Per
Share
 
Series D
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
March 5, 2018
 
February 28, 2018
 
March 15, 2018
 
$
0.250

 
$
6

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 6, 2017
 
February 28, 2017
 
March 15, 2017
 
$
0.250

 
$
6

 
$

 
$

 
$

 
$

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, commencing December 15, 2015 and ending June 15, 2020 and, thereafter, will be paid quarterly. Dividends will be paid semi-annually on MetLife, Inc.’s 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D, commencing September 15, 2018 and ending March 15, 2028 and, thereafter, will be paid quarterly.

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Common Stock Dividends
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, 2018 and 2017:
Declaration Date
 
Record Date
 
Payment Date
 
Common Stock Dividend
Per Share
 
Aggregate
 
 
 
 
 
 
(In millions, except per share data)
January 5, 2018
 
February 5, 2018
 
March 13, 2018
 
$
0.400

 
$
416

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

 
$
437

The declaration and payment of common stock dividends is subject to the discretion of our Board of Directors, and will depend on MetLife, Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board. See Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 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, 2018.
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 “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report. If additional capital requirements are imposed on MetLife, Inc. as a global systemically important insurer (“G-SII”), its ability to pay dividends could be reduced. See “Business — Regulation — International Regulation — Other International and Global Regulatory Initiatives” in the 2017 Annual Report.
Debt and Collateral Financing Arrangement Repayments
During the three months ended March 31, 2018 and 2017, following regulatory approval, MetLife Reinsurance Company of Charleston, a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $13 million and $12 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets.
Debt Repurchases
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting factors. Whether or not to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.
Support Agreements
MetLife, Inc. and several of its subsidiaries (each, an “Obligor”) are parties to various capital support commitments and guarantees with subsidiaries. Under these arrangements, each Obligor 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 2017 Annual Report.

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Insurance Liabilities
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, property & casualty, annuity and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender or lapse behavior differs somewhat by segment. In the MetLife Holdings segment, which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. During the three months ended March 31, 2018 and 2017, general account surrenders and withdrawals from annuity products were $450 million and $358 million, respectively. In the Retirement and Income Solutions business within the U.S. segment, which includes pension risk transfers, bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the Retirement and Income Solutions business products that provide customers with limited rights to accelerate payments, at March 31, 2018 there were funding agreements totaling $166 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, 2018 and December 31, 2017, we had received pledged cash collateral from counterparties of $4.5 billion and $5.0 billion, respectively. At March 31, 2018 and December 31, 2017, we had pledged cash collateral to counterparties of $293 million and $456 million, respectively. With respect to derivative contracts between two counterparties which are in a net liability position and have credit contingent provisions, a one-notch downgrade in the Company’s credit or financial strength rating, as applicable, would have required $14 million of additional collateral be provided to our counterparties as of March 31, 2018. See Note 7 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 4 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report and Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned to us. Under our securities lending program, we were liable for cash collateral under our control of $18.1 billion and $19.4 billion at March 31, 2018 and December 31, 2017, respectively. Of these amounts, $3.5 billion and $3.8 billion at March 31, 2018 and December 31, 2017, 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, 2018 was $3.4 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 6 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 $2.9 billion and $1.1 billion at March 31, 2018 and December 31, 2017, respectively. The estimated fair value of the securities on loan at March 31, 2018 was $2.9 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 6 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Litigation
Putative or certified class action litigation and other litigation, and claims and assessments against us, in addition to those discussed elsewhere herein and those otherwise provided for on the consolidated financial statements, have arisen in the course of our business, including, but not limited to, in connection with our activities as an insurer, employer, investor, investment advisor, taxpayer and, formerly, a mortgage lending bank. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. See Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts accrued, when such an estimate can be made. It is not possible to predict or determine the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations, it is possible that an adverse outcome in certain cases could have a material adverse effect upon our financial position, based on information currently known by us, in our opinion, the outcome of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated net income or cash flows in particular quarterly or annual periods.
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 2017 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.
Liquidity
For a summary of MetLife, Inc.’s liquidity, see “— The Company — Liquidity.”
Capital
For a summary of MetLife, Inc.’s capital, see “— The Company — Capital.” For further information regarding potential capital restrictions and limitations on MetLife, Inc. as a G-SII, see “Business — Regulation — International Regulation — Other International and Global Regulatory Initiatives” included in the 2017 Annual Report. See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchases.

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Liquid Assets
At March 31, 2018 and December 31, 2017, MetLife, Inc. and other MetLife holding companies had $5.1 billion and $5.7 billion, respectively, in liquid assets. Of these amounts, $3.8 billion and $4.1 billion were held by MetLife, Inc. and $1.3 billion and $1.6 billion were held by other MetLife holding companies at March 31, 2018 and December 31, 2017, 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 expect to repatriate approximately $3.0 billion of pre-2017 earnings in the future. See Note 18 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report for information on the taxation of such cumulative earnings. The Company repatriated $2.6 billion in the fourth quarter of 2017 and intends to repatriate the remaining amount in 2018. As a result of U.S. Tax Reform, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax. See also Note 12 of the Notes to the Interim Condensed Consolidated Financial Statements.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquid Assets” included in the 2017 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,” the following additional information is provided regarding MetLife, Inc.’s primary sources of liquidity and capital.
Dividends from Subsidiaries
MetLife, Inc. relies, in part, on dividends from its subsidiaries to meet its cash requirements. MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. The dividend limitation for U.S. insurance subsidiaries is generally based on the surplus to policyholders at the end of the immediately preceding calendar year and statutory net gain from operations for the immediately preceding calendar year. Statutory accounting practices, as prescribed by insurance regulators of various states in which we conduct business, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income tax, required investment liabilities, statutory reserve calculation assumptions, goodwill and surplus notes.
The table below sets forth the dividends permitted to be paid in 2018 by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory approval and the respective dividends paid during the three months ended March 31, 2018:
Company
 
Paid
 
Permitted w/o
Approval (1)
 
 
(In millions)
Metropolitan Life Insurance Company
 
$
1,000

 
$
3,075

Metropolitan Property and Casualty Insurance Company
 
$

 
$
125

General American Life Insurance Company
 
$

 
$
118

Metropolitan Tower Life Insurance Company
 
$

 
$
73

American Life Insurance Company
 
$

 
$

__________________
(1)
Reflects dividend amounts that may be paid during 2018 without prior regulatory approval. However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2018, some or all of such dividends may require regulatory approval.
In addition to the amounts presented in the table above, for the three months ended March 31, 2018, MetLife, Inc. received cash of $20 million, representing a return of capital from a subsidiary.

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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-Related Risks — As a Holding Company, MetLife, Inc. Depends on the Ability of Its Subsidiaries to Pay Dividends, a Major Component of Holding Company Free Cash Flow” included in the 2017 Annual Report and Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 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, 2018 or December 31, 2017.
Preferred Stock
For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Sources — Global Funding Sources — Preferred Stock” and “— The Company — Liquidity and Capital Uses — Dividends — Preferred Stock Dividends.”
Redenomination of Affiliated Long-term Debt
In March 2018, three senior notes previously issued by MetLife, Inc. to MLIC were redenominated to Japanese yen. A $500 million senior note was redenominated to a new 53.3 billion Japanese yen senior note to MLIC. The 53.3 billion Japanese yen senior note matures in June 2019 and bears interest at a rate per annum of 1.45%, payable semi-annually. A $250 million senior note was redenominated to a new 26.5 billion Japanese yen senior note to MLIC. The 26.5 billion Japanese yen senior note matures in October 2019 and bears interest at a rate per annum of 1.72%, payable semi-annually. A $250 million senior note was also redenominated to a new 26.5 billion Japanese yen senior note to MLIC. The 26.5 billion Japanese yen senior note matures in September 2020 and bears interest at a rate per annum of 0.82%, payable semi-annually.
In April 2018, a $500 million senior note previously issued by MetLife, Inc. to various subsidiaries was redenominated to a new 53.7 billion Japanese yen senior note. The 53.7 billion Japanese yen senior note matures in July 2021 and bears interest at a rate per annum of 2.97%, payable semi-annually.
Credit and Committed Facilities
The committed facilities are used as collateral for certain of the Company’s affiliated reinsurance liabilities. MetLife, Inc. maintains a committed facility which had a capacity of $200 million at March 31, 2018. At March 31, 2018, MetLife, Inc. had outstanding under this facility $200 million in letters of credit, no drawdowns outstanding and no remaining availability. In addition, MetLife, Inc. is a party and/or guarantor to committed facilities of certain of its subsidiaries, which aggregated $3.3 billion at March 31, 2018.
See “— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” for further information regarding the unsecured revolving credit facility and these committed facilities.
Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt of MetLife, Inc. at:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Long-term debt — unaffiliated
$
14,638

 
$
14,599

Long-term debt — affiliated
$
2,000

 
$
2,000

Junior subordinated debt securities
$
2,454

 
$
2,454


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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, 2018.
Liquidity and Capital Uses
The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common and preferred stock repurchases, payment of general operating expenses and acquisitions. Based on our analysis and comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will be sufficient liquidity and capital to enable MetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock, contribute capital to its subsidiaries, repurchase its common 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,” the following additional information is provided regarding MetLife, Inc.’s primary uses of liquidity and capital.
Affiliated Capital and Debt Transactions
During the three months ended March 31, 2018 and 2017, MetLife, Inc. invested a net amount of $4 million and $31 million, respectively, in various subsidiaries.
MetLife, Inc. lends funds, as necessary, to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements. MetLife, Inc. had loans to subsidiaries outstanding of $100 million at both March 31, 2018 and December 31, 2017.
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.
The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
Non-GAAP financial measures:
Comparable GAAP financial measures:
(i)
adjusted revenues
(i)
revenues
(ii)
adjusted expenses
(ii)
expenses
(iii)
adjusted earnings
(iii)
income (loss) from continuing operations, net of income tax
(iv)
adjusted earnings available to common
shareholders
(iv)
net income (loss) available to MetLife, Inc.’s common shareholders

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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 efforts to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income. These “adjusted” non-GAAP financial measures were formerly referred to as “operating” non-GAAP financial measures.
Our definitions of the various non-GAAP and other financial measures discussed in this report may differ from those used by other companies:
Adjusted earnings and related measures:
adjusted earnings; and
adjusted earnings available to common shareholders.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings and other financial measures based on adjusted earnings are also the measures by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business plan and facilitate comparisons to industry results.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends.
Adjusted revenues and adjusted expenses
These financial measures focus on our primary businesses principally by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or will be sold or exited by MetLife but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses. Divested businesses also includes the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MetLife that do not meet the criteria to be included in results of discontinued operations under GAAP. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted revenues:
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”);
Net investment income: (i) includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iii) excludes certain amounts related to contractholder-directed unit-linked investments, (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnerships that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in fair value is recognized in net investment gains (losses) for GAAP; and
Other revenues are adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”).

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The following additional adjustments are made to expenses, in the line items indicated, in calculating adjusted expenses:
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”), and (iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);
Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes amounts related to net investment income earned on contractholder-directed unit-linked investments;
Amortization of DAC and VOBA excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs and (iii) Market Value Adjustments;
Amortization of negative VOBA excludes amounts related to Market Value Adjustments;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements, and (iii) acquisition, integration and other costs. 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.
Return on equity, allocated equity and related measures:
MetLife, Inc.’s common stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”) other than foreign currency translation adjustments (“FCTA”), is defined as MetLife, Inc.’s common stockholders’ equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment components of AOCI, net of income tax.
Adjusted ROE is defined as adjusted earnings available to common shareholders, divided by average GAAP common stockholders’ equity.
Adjusted ROE, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders divided by average GAAP common stockholders’ equity, excluding AOCI other than FCTA.
Allocated equity is the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments and sub-segments based on local capital requirements and economic capital. See “— Economic Capital.” Allocated equity excludes the impact of AOCI other than FCTA.
The above measures represent a level of equity consistent with the view that, in the ordinary course of business, we do not plan to sell most investments for the sole purpose of realizing gains or losses. Also refer to the utilization of adjusted earnings and other financial measures based on adjusted earnings mentioned above.

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The following additional information is relevant to an understanding of our performance results:
The impact of changes in our foreign currency exchange rates is calculated using the average foreign currency exchange rates for the current period and is applied to each of the comparable periods (“Constant Currency Basis”).
We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used as relevant measures of business activity. Further, sales statistics for our Latin America, Asia and EMEA segments are on a Constant Currency Basis.
Asymmetrical and non-economic accounting refers to: (i) the portion of net derivative gains (losses) on embedded derivatives attributable to the inclusion of our credit spreads in the liability valuations, (ii) hedging activity that generates net derivative gains (losses) and creates fluctuations in net income because hedge accounting cannot be achieved and the item being hedged does not a have an offsetting gain or loss recognized in earnings, (iii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets and other pass through adjustments, and (iv) impact of changes in foreign currency exchange rates on the re-measurement of foreign denominated unhedged funding agreements and financing transactions to the U.S. dollar and the re-measurement of certain liabilities from non-functional currencies to functional currencies. We believe that excluding the impact of asymmetrical and non-economic accounting from total GAAP results enhances investor understanding of our performance by disclosing how these accounting practices affect reported GAAP results.
The Company uses a measure of free cash flow to facilitate an understanding of its ability to generate cash for reinvestment into its businesses or use in non-mandatory capital actions. The Company defines free cash flow as the sum of cash available at MetLife’s holding companies from dividends from operating subsidiaries, expenses and other net flows of the holding companies (including capital contributions to subsidiaries), and net contributions from debt to be at or below target leverage ratios. This measure of free cash flow is prior to capital actions, such as common stock dividends and repurchases, debt reduction and mergers and acquisitions. Free cash flow should not be viewed as a substitute for net cash provided by (used in) operating activities calculated in accordance with GAAP. The free cash flow ratio is typically expressed as a percentage of annual adjusted earnings available to common shareholders.
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 2017 Annual Report.

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Item 4. Controls and Procedures
Based on the Company’s internal review, MetLife, Inc.’s Chief Executive Officer (“CEO”) and former CFO identified material weaknesses in the design and operation of its internal control over financial reporting. Management concluded that the Company has not maintained effective controls over (i) the administrative and accounting practices relating to certain RIS group annuity reserves and the timely communication and escalation of issues regarding those reserves throughout the Company, and (ii) controls over the calculation of reserves relating to variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings. Management identified errors in reserve balances in connection with these material weaknesses. For more information on these reserve adjustments, see Note 1 of the Notes to the Consolidated Financial Statements included in the 2017 Annual Report. These material weaknesses remain unremediated as of March 31, 2018.
Evaluation of Disclosure Controls and Procedures
Management, including the CEO and current CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2018. Solely because of the material weaknesses in internal control over financial reporting reported in the 2017 Annual Report, our CEO and current CFO concluded that as of March 31, 2018, our disclosure controls and procedures were not effective.
Remediation Status of Reported Material Weaknesses
Management is executing its plan to remediate the material weaknesses and has developed Steering Committees, project teams and working groups to lead the remediation efforts. To date, management has performed the following:
RIS Group Annuity Reserves:
Implemented immediate changes to improve its administrative and accounting procedures and search practices to identify, contact, and record responses from “unresponsive and missing” plan annuitants and to otherwise locate missing annuitants;
Instituted additional procedures to help address the timely communication and escalation of issues throughout the Company; and
Engaged third party advisors who have commenced procedures associated with the comprehensive examination and analysis of the facts and circumstances giving rise to the material weakness, under the supervision of MetLife, Inc.’s Chief Risk Officer.
MetLife Holdings Assumed Variable Annuity Guarantee Reserves:
Implemented immediate changes to the data flows and input controls into the valuation process. These changes included enhanced reconciliations and analytics.
Engaged third party advisors who have commenced procedures associated with the comprehensive examination and analysis of the facts and circumstances giving rise to the material weakness, under the supervision of the Chief Auditor.
Management believes the remediation steps outlined above will further strengthen our internal control over financial reporting. Management will test the ongoing operating effectiveness of all new controls subsequent to implementation and consider the material weaknesses remediated after the applicable controls operate effectively for a sufficient period of time. The Company will continue to evaluate, update and improve its internal control over financial reporting as management executes on its remediation plans.
Changes in Internal Control Over Financial Reporting
There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(d) and 15d-15(d) that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
See Note 14 of the Notes to the Interim Condensed Consolidated Financial Statements.

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Item 1A. Risk Factors
The following should be read in conjunction with, and supplements and amends, the factors that may affect the Company’s business or operations described under “Risk Factors” in Part I, Item 1A, of the 2017 Annual Report, as amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q under Item 1A. Risk Factors. Other than as so amended or supplemented and as described in this Item 1A, there have been no other material changes to our risk factors from the risk factors previously disclosed in the 2017 Annual Report.
Capital-Related Risks
The following updates and replaces the similar paragraph of the risk factor entitled “Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Levels We Wish” included in the 2017 Annual Report.
Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish
***
Trigger Events for the Restrictions on the Payment of Dividends on Our Preferred Stock and Restrictions on the Payment of Interest on Our Junior Subordinated Debentures
In addition, MetLife’s Floating Rate Non-Cumulative Preferred Stock, Series A, and 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, and its junior subordinated debentures contain provisions that would suspend the payment of preferred stock dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain tests (“Trigger Events”). In such cases, and subject to the terms of the instruments, MetLife, Inc. could make payments up to the amount of net proceeds from sales of (i) common stock during the 90 days preceding the dividend declaration date or (ii) common stock or certain kinds of warrants to purchase common stock generally during the 180 days prior to the interest payment date (the “New Equity Proceeds”). If the New Equity Proceeds were insufficient to make such payments, the “dividend stopper” provisions would come into effect and we would be unable to repurchase or pay dividends on our common stock.
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, 2018 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, 2018
 
7,299,195

 
$
52.29

 
7,297,248

 
$
1,380,342,336

February 1 — February 28, 2018
 
4,104,418

 
$
47.18

 
4,104,418

 
$
1,186,692,878

March 1 — March 31, 2018
 
10,003,732

 
$
46.62

 
10,003,661

 
$
720,341,388

__________________
(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, 2018, February 1 through February 28, 2018 and March 1 through March 31, 2018, separate account index funds purchased 1,947 shares, 0 shares and 71 shares, respectively, of MetLife, Inc. common stock on the open market in nondiscretionary transactions.
(2)
On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. At March 31, 2018, MetLife, Inc. had $720 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,” and Note 15 of the Notes to the Interim Condensed Consolidated Financial Statements. See also “Risk Factors — Capital-Related Risks — Legal and Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2017 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
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1
 
 
10-K
 
001-15787

 
3.1
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2
 
 
10-K
 
001-15787

 
3.2
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3
 
 
10-K
 
001-15787

 
3.3
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.4
 
 
10-K
 
001-15787

 
3.4
 
March 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.5
 
 
10-Q
 
001-15787

 
3.6
 
November 7, 2013

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.6
 
 
8-K
 
001-15787

 
3.1
 
April 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.7
 
 
8-K
 
001-15787

 
3.1
 
May 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.8
 
 
10-Q
 
001-15787

 
3.7
 
November 5, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.9
 
 
8-K
 
001-15787

 
3.1
 
October 24, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.10
 
 
8-K
 
001-15787

 
3.1
 
March 22, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1
 

 
8-K
 
001-15787

 
10.1
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.2
 
 
8-K
 
001-15787

 
10.2
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.3
 
 
8-K
 
001-15787

 
10.3
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Incorporated by Reference
 
 
Exhibit No.
 
Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed or Furnished Herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
10.4
 
 
8-K
 
001-15787

 
10.4
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.5
 
 
8-K
 
001-15787

 
10.5
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.6
 
 
8-K
 
001-15787

 
10.6
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.7
 
 
8-K
 
001-15787

 
10.7
 
February 20, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.8
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
10.9
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.2
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.1
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.2
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
 
 
 
 
X
______________

*Indicates management contracts or compensatory plans or arrangements.


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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/ William O’Donnell
 
 
Name:  William O’Donnell
Title:    Executive Vice President
             and Chief Accounting Officer
             (Authorized Signatory and Principal
              Accounting Officer)
Date: May 7, 2018

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