Edgar Filing: METLIFE INC

Annual Report

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ANNUAL REPORT

| MetLife, Inc. 2014

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CHAIRMAN’S LETTER


“Today, we are one of the world’s most broadly diversified life insurance companies — by geography, by product, and by distribution channel.”				To My Fellow Shareholders: One of the great strengths of MetLife’s business is diversification. Today, we are one of the world’s most broadly diversified life insurance companies — by geography, by product, and by distribution channel. What this means in practice is that softness in one part of our business is often offset by strength in another, resulting in overall performance that is more even than if our business were highly concentrated. The benefits of geographic diversification were clearly evident in 2014. While economic growth in various parts of the world suffered, a relatively healthy U.S. economy helped lift MetLife’s business results in our largest market. The benefits of product diversification were also evident last year as soft underwriting margins were offset by better-than-expected investment spreads and favorable equity markets. The strength of our business model enabled MetLife to generate full-year 2014 operating earnings of $6.6 billion, a 5 percent increase over 2013, and operating earnings per share of $5.74, up 2 percent from the prior-year period. Our operating return on equity (ROE) for all of 2014 was 12 percent, the second year in a row that we achieved an operating ROE at the low end of our 2016 target range of 12 percent to 14 percent.¹ Multi-Year Performance As pleased as we are with MetLife’s 2014 performance, the success of a long-term business should be gauged over a multi-year period. Here too MetLife is performing well. From 2011, when I became CEO, through 2014, the company’s operating earnings grew at a compound annual rate of 12.1 percent. Over the same period, operating earnings per share (EPS) grew at a compound annual rate of 9.6 percent. In addition, since the introduction of MetLife’s corporate strategy in 2012, the company’s operating ROE has averaged 11.8 percent, only slightly below the bottom of our 2016 target range. I am not attributing all of the company’s recent performance to our strategy work — in the life insurance business, profits emerge slowly over time — but I am confident that our decisions have improved risk-adjusted returns to shareholders. Delivering close to double-digit operating EPS growth and a 12 percent operating ROE during the past three years is especially noteworthy given that the 10-year Treasury yield has averaged 2.2 percent since the summer of 2011 and our capital management actions have been conservative due to regulatory uncertainty. A Commitment to Cash Flow I am less satisfied with MetLife’s level of free cash flow generation, which is the most important business metric in determining the company’s ability to ¹ “Operating ROE” refers to operating return on equity excluding accumulated other comprehensive income other than foreign currency translation adjustments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures” for this and other non-GAAP definitions and reconciliations.
Earnings Growth 2011-2014 • 12.1 percent in Operating Earnings • 9.6 percent in Operating Earnings Per Share


		MetLife 2014 Annual Report		i

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CHAIRMAN’S LETTER




Expense Reductions • $600 million in net saves in 2014 • On track for $1 billion in gross saves in 2015				return capital to shareholders. While the ratio of free cash flow to operating earnings has shown improvement, reaching 44 percent in 2014, it is still below the level we think is necessary to maximize shareholder value. We are striving to increase the amount of cash generated by the business and believe that our target of 45 percent to 55 percent for 2015 to 2017 is achievable, assuming we have a reasonable regulatory environment and gradually rising interest rates. Over time, the performance of life insurance stocks has become more closely correlated with the ratio of free cash flow to operating earnings. Since the financial crisis, investors have shown increasing skepticism toward reported earnings for life insurers. Unlike metrics whose correlation to stock price performance can vary based on the macro environment and investor sentiment, nothing is more fundamental than cash. Growing free cash flow by investing capital at attractive risk-adjusted returns is the surest way to maximize shareholder value over time. That is why free cash flow generation has become an enterprisewide imperative at MetLife and will be informing all of our major business decisions in the months and years ahead.









“Nothing is more fundamental than cash. ... That is why free cash flow generation has become an enterprisewide imperative at MetLife and will be informing all of our major business decisions in the months and years ahead.”
				Strategy Highlights Helping to drive MetLife’s success in 2014 was the notable progress we made on the company’s strategic initiatives. We are pleased to have reached our goal of $600 million in net expense saves ahead of schedule, and we remain on track to achieve $1 billion in gross expense saves by the end of 2015. Both parts of this strategic initiative are important — delivering cost savings that fall to the bottom line, and reinvesting in the business to drive future growth. We will continue to invest a significant portion of our reinvestment dollars in technology improvements that make it easier to do business with MetLife.
				Managing the amount of risk we take on is another critical element in MetLife’s business strategy. From a high of $28.4 billion in 2011, MetLife reduced sales of variable annuities (VAs) to $6.3 billion in 2014. We believe our strategic initiative to Refocus the U.S. Business is essentially complete, and in 2015 we are looking to resume growth in our annuity business through a range of products. For example, our new guaranteed minimum withdrawal benefit VA, “FlexChoice,” has a better risk profile while still offering customers a competitive benefit. We believe the design of the new product will contribute to a more than 50 percent increase in total annuity sales in 2015. Even with a rebound in annuity sales, we anticipate that VA risk will moderate over time. We continue to emphasize growth in less capital-intensive protection products, and expect the related businesses to grow at a faster rate


ii		MetLife 2014 Annual Report

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CHAIRMAN’S LETTER



				than Retail Annuities. As a result, the demands that the annuity business places on our overall capital base should go down over time. Much of our anticipated growth in protection-oriented products will take place outside of the United States, consistent with MetLife’s strategic initiative to Grow Emerging Markets. MetLife’s emerging market sales grew by a healthy 24 percent in 2014, or 14 percent excluding a large Mexico group contract. We believe emerging markets will remain a growth engine for the company over the longer term, even as a strong dollar dampens the earnings contribution from non-U.S. markets in the near term. Returning Capital MetLife’s strong business performance has allowed the company to significantly increase the amount of capital it returns to shareholders. MetLife increased its quarterly dividend payment to common shareholders by 27 percent in 2014, on top of a 49 percent increase in 2013. The current annual dividend is $1.40 per common share, up from 74 cents in 2012. MetLife also announced $2 billion in share buybacks in 2014, our first since the financial crisis in 2008. MetLife announced an initial $1 billion in share buybacks in June of 2014, which we completed before year-end. In December, we announced an additional $1 billion in share buybacks for 2015. As a result of weakness in MetLife’s stock price in the early part of this year, we aggressively repurchased shares, and our second $1 billion program is nearly complete. We believe it is prudent to hold an elevated amount of capital until there is greater clarity on the prudential standards that will apply to MetLife. As of year-end 2014, MetLife held $6.1 billion in cash and liquid assets at its holding companies. Interest Rates and Return on Equity Low interest rates continue to be a headwind for the life insurance industry. In our view, the current rate environment is largely explained by unprecedented market intervention from central banks and a sluggish global economy. Over the long term, we believe the 10-year Treasury yield should be 4.0–4.5 percent based on the Federal Reserve’s 2 percent inflation target and expectations for long-term economic growth. We assume the 10-year Treasury yield normalizes by year-end 2017, but also see risk of a lower-for-longer environment for interest rates. MetLife’s strategy of shifting our product mix toward less interest-sensitive products has helped mitigate the impact of a low-rate scenario. However, if interest rates remain low indefinitely, it would likely be difficult to sustain our 2014 operating ROE of 12 percent over the long term. This is not a MetLife-specific challenge. Maintaining current return targets in a long-term low rate scenario would likely be a challenge for most businesses, particularly those in the financial services industry. Fortunately, absolute returns do not tell the whole story. It is also important to consider relative returns. If interest rates remain low indefinitely, there would likely be a downward reset in return expectations across all asset classes.
Capital Returns in 2014 • 27 percent dividend increase • $2 billion in share buybacks announced


		MetLife 2014 Annual Report		iii

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CHAIRMAN’S LETTER

“In addition to a solid performance relative to the risk-free rate, the quality of the company’s operating ROE has improved....”

Because equity returns are measured against the risk-free rate, the spread between MetLife’s operating ROE and the 10-year Treasury yield is a key metric. For example, if investors consider a 12 percent operating ROE acceptable when the risk-free rate is 4 percent, they should consider a 10 percent operating ROE acceptable when the risk-free rate is 2 percent. In each case the spread over the risk-free rate is an identical 800 basis points. On this basis, there is reason to be optimistic about MetLife’s prospects even if interest rates stay low.

If you look at the spread between MetLife’s operating ROE and the 10-year Treasury yield going back to 2000, the year we went public, you can see that the company’s recent performance has been comparatively strong (see chart, p. iv). During the past three years, from 2012 to 2014, the spread between MetLife’s operating ROE and the 10-year Treasury yield has averaged 960 basis points, close to pre-financial crisis levels.

In addition to a solid performance relative to the risk free rate, the quality of the company’s operating ROE has improved — largely due to lower leverage and de-risking in the U.S. business. MetLife also has a better business mix as a result of our 2010 acquisition of Alico and our strategy of focusing on the sale of less capital-intensive protection-oriented products. This favorable shift in the company’s product mix should continue to improve our operating ROE relative to the risk-free rate and reduce our cost of equity capital over time.

Operating ROE¹ Spread over 10-Year Treasury Yield²

Returns relative to risk-free rate are near pre-crisis levels

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1 Excludes accumulated other comprehensive income other than foreign currency translation adjustments.

2 10-year Treasury yield is average in each period. Historical reported results for the years 2000 through 2007 have not been modified for current period events such as the adoption of new accounting pronouncements and subsequent events, including acquisitions and dispositions, discontinued operations and divested business.

Regulatory Matters

As is well known by now, MetLife has filed a legal challenge to its designation as a Systemically Important Financial Institution by the Financial Stability Oversight Council (FSOC).


iv		MetLife 2014 Annual Report

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CHAIRMAN’S LETTER

“We believe we have a strong legal case to present to the court and look forward to its eventual decision.”

When we filed the challenge in January, I said we had hoped to avoid litigation in light of the substantial and compelling evidence we presented to FSOC demonstrating that MetLife is not systemically important. The Dodd-Frank Act is clear that size alone does not make a company systemic. We believe we have a strong legal case to present to the court and look forward to its eventual decision.

As a former regulator, I want to emphasize that MetLife has always supported appropriate regulation of the life insurance industry and has operated under a stringent state regulatory system for decades. However, adding a new federal standard for just the largest life insurers while retaining a different standard for everyone else will harm competition and drive up the cost of financial protection without making the financial system safer.

We believe the government should preserve a level playing field in the life insurance industry. If additional regulation is necessary, the government has a superior tool at its disposal — an approach that focuses on potentially systemic activities regardless of the size of the firm. FSOC has already embraced this activities-based approach for the asset management industry.

Litigation takes time to resolve, and in the meantime, the Federal Reserve is now one of MetLife’s regulators. We are cooperating fully with representatives from the Federal Reserve Bank of New York as they carry out their supervisory duties. At the same time, we continue to discuss with regulators and lawmakers in Washington the need for capital rules that reflect the business of insurance. With the enactment of the Insurance Capital Standards Clarification Act in December of 2014, the Federal Reserve now has the flexibility it needs to appropriately tailor capital rules for life insurers.

Conclusion

MetLife is committed to creating long-term value for shareholders. Since 2011, we have made progress on this commitment by growing operating earnings per share at close to a double digit rate and improving operating ROE from 10 percent to 12 percent. Also, we are beginning to see better free cash flow performance, as the ratio of free cash flow to operating earnings improved to 44 percent in 2014. Finally, the improvement in earnings, operating ROE and cash flow has occurred while we have continued to reduce the level of risk in the business.

On behalf of MetLife’s Board of Directors, management, associates and advisors, I want to say thank you for the trust you have placed in us to run your company. We will continue to strive every day to earn it.

Sincerely,

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Steven A. Kandarian

Chairman of the Board, President and Chief Executive Officer

MetLife, Inc.

March 12, 2015


		MetLife 2014 Annual Report		v

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TABLE OF CONTENTS


		Note Regarding Forward-Looking Statements			1

		Selected Financial Data			2

		Business			3

		Management’s Discussion and Analysis of Financial Condition and Results of Operations			5

		Quantitative and Qualitative Disclosures About Market Risk			85

		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			91

		Management’s Annual Report on Internal Control Over Financial Reporting			91

		Report of the Company’s Registered Public Accounting Firm			91

		Financial Statements and Supplementary Data			93

		Board of Directors			242

		Executive Officers			242

		Contact Information			243

		Corporate Information			243

As used in this Annual Report, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.

Note Regarding Forward-Looking Statements

This Annual Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.

Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) difficult conditions in the global capital markets; (2) increased volatility and disruption of the capital and credit markets, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities, generate fee income and market-related revenue and finance statutory reserve requirements and may require us to pledge collateral or make payments related to declines in value of specified assets, including assets supporting risks ceded to certain of our captive reinsurers or hedging arrangements associated with those risks; (3) exposure to financial and capital market risks, including as a result of the disruption in Europe and possible withdrawal of one or more countries from the Euro zone; (4) impact of comprehensive financial services regulation reform on us, as a non-bank systemically important financial institution, or otherwise; (5) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how we conduct our business, including those compelling the liquidation of certain financial institutions; (6) regulatory, legislative or tax changes relating to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (7) adverse results or other consequences from litigation, arbitration or regulatory investigations; (8) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (9) investment losses and defaults, and changes to investment valuations; (10) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (11) impairments of goodwill and realized losses or market value impairments to illiquid assets; (12) defaults on our mortgage loans; (13) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (14) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (15) downgrades in our claims paying ability, financial strength or credit ratings; (16) a deterioration in the experience of the “closed block” established in connection with the reorganization of Metropolitan Life Insurance Company; (17) availability and effectiveness of reinsurance or indemnification arrangements, as well as any default or failure of counterparties to perform; (18) differences between actual claims experience and underwriting and reserving assumptions; (19) ineffectiveness of risk management policies and procedures; (20) catastrophe losses; (21) increasing cost and limited market capacity for statutory life insurance reserve financings; (22) 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; (23) 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 the adjustment for nonperformance risk; (24) our ability to address difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from business acquisitions, including our acquisition of American Life Insurance Company and Delaware American Life Insurance Company, and integrating and managing the growth of such acquired businesses, or arising from dispositions of businesses or legal entity reorganizations; (25) regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (26) MetLife, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (27) the possibility that MetLife, Inc.’s Board of Directors may influence the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (28) changes in accounting standards, practices and/or policies; (29) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (30) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (31) inability to attract and retain sales representatives; (32) provisions of laws and our incorporation documents may delay, deter or prevent takeovers and corporate combinations involving MetLife; (33) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery systems, cyber- or other information security systems and management continuity planning; (34) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; and (35) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission.

MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S. Securities and Exchange Commission.


MetLife, Inc.		1

Selected Financial Data

The following selected financial data has been derived from the Company’s audited consolidated financial statements. The statement of operations data for the years ended December 31, 2014, 2013 and 2012, and the balance sheet data at December 31, 2014 and 2013 have been derived from the Company’s audited consolidated financial statements included elsewhere herein. The statement of operations data for the years ended December 31, 2011 and 2010, and the balance sheet data at December 31, 2012, 2011 and 2010 have been derived from the Company’s audited consolidated financial statements not included herein. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes included elsewhere herein.


	Years Ended December 31,
	2014			2013			2012			2011			2010
	(In millions, except per share data)

Statement of Operations Data (1)

Revenues

Premiums	$	39,067		$	37,674		$	37,975		$	36,361		$	27,071

Universal life and investment-type product policy fees		9,946			9,451			8,556			7,806			6,028

Net investment income		21,153			22,232			21,984			19,585			17,493

Other revenues		2,030			1,920			1,906			2,532			2,328

Net investment gains (losses)		(197	)		161			(352	)		(867	)		(408	)

Net derivative gains (losses)		1,317			(3,239	)		(1,919	)		4,824			(265	)

Total revenues		73,316			68,199			68,150			70,241			52,247


Expenses

Policyholder benefits and claims		39,102			38,107			37,987			35,471			29,187

Interest credited to policyholder account balances		6,943			8,179			7,729			5,603			4,919

Policyholder dividends		1,376			1,259			1,369			1,446			1,485

Goodwill impairment		—			—			1,868			—			—

Other expenses		17,091			16,602			17,755			18,537			12,927

Total expenses		64,512			64,147			66,708			61,057			48,518


Income (loss) from continuing operations before provision for income tax		8,804			4,052			1,442			9,184			3,729

Provision for income tax expense (benefit)		2,465			661			128			2,793			1,110

Income (loss) from continuing operations, net of income tax		6,339			3,391			1,314			6,391			2,619

Income (loss) from discontinued operations, net of income tax		(3	)		2			48			24			44

Net income (loss)		6,336			3,393			1,362			6,415			2,663

Less: Net income (loss) attributable to noncontrolling interests		27			25			38			(8	)		(4	)

Net income (loss) attributable to MetLife, Inc.		6,309			3,368			1,324			6,423			2,667

Less: Preferred stock dividends		122			122			122			122			122

Preferred stock redemption premium		—			—			—			146			—

Net income (loss) available to MetLife, Inc.’s common shareholders	$	6,187		$	3,246		$	1,202		$	6,155		$	2,545


EPS Data (1), (2)
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:

Basic	$	5.48		$	2.94		$	1.08		$	5.79		$	2.83

Diluted	$	5.42		$	2.91		$	1.08		$	5.74		$	2.81
Income (loss) from discontinued operations, net of income tax, per common share:

Basic	$	—		$	—		$	0.04		$	0.02		$	0.05

Diluted	$	—		$	—		$	0.04		$	0.02		$	0.05
Net income (loss) available to MetLife, Inc.’s common shareholders per common share:

Basic	$	5.48		$	2.94		$	1.12		$	5.81		$	2.88

Diluted	$	5.42		$	2.91		$	1.12		$	5.76		$	2.86

Cash dividends declared per common share	$	1.33		$	1.01		$	0.74		$	0.74		$	0.74


2		MetLife, Inc.


	December 31,
	2014		2013		2012		2011		2010
	(In millions)

Balance Sheet Data (1)

Separate account assets	$	316,994	$	317,201	$	235,393	$	203,023	$	183,138

Total assets	$	902,337	$	885,296	$	836,781	$	796,226	$	728,249

Policyholder liabilities and other policy-related balances (3)	$	417,141	$	418,487	$	438,191	$	421,267	$	399,135

Short-term debt	$	100	$	175	$	100	$	686	$	306

Long-term debt	$	16,286	$	18,653	$	19,062	$	23,692	$	27,586

Collateral financing arrangements	$	4,196	$	4,196	$	4,196	$	4,647	$	5,297

Junior subordinated debt securities	$	3,193	$	3,193	$	3,192	$	3,192	$	3,191

Separate account liabilities	$	316,994	$	317,201	$	235,393	$	203,023	$	183,138

Accumulated other comprehensive income (loss)	$	10,649	$	5,104	$	11,397	$	6,083	$	1,145

Total MetLife, Inc.’s stockholders’ equity	$	72,053	$	61,553	$	64,453	$	57,519	$	46,853

Noncontrolling interests	$	507	$	543	$	384	$	370	$	365


	Years Ended December 31,
	2014		2013		2012		2011		2010
Other Data (1), (4)

Return on MetLife, Inc.’s common stockholders’ equity		9.4%		5.4%		2.0%		12.2%		6.9%

Return on MetLife, Inc.’s common stockholders’ equity, excluding accumulated other comprehensive income (loss)		10.9%		6.2%		2.4%		13.2%		7.0%

(1)	On November 1, 2010, MetLife, Inc. acquired American Life Insurance Company (“American Life”) and Delaware American Life Insurance Company (“DelAm”) (collectively, “ALICO”). Results of such acquisition are reflected in the selected financial data since the acquisition date.

(2)	For the years ended December 31, 2012 and 2010, all shares related to the assumed issuance of shares in settlement of the applicable purchase contracts have been excluded from the calculation of diluted earnings per common share, as these assumed shares are anti-dilutive.

(3)	Policyholder liabilities and other policy-related balances include future policy benefits, policyholder account balances (“PABs”), other policy-related balances, policyholder dividends payable and the policyholder dividend obligation.

(4)	Return on MetLife, Inc.’s common stockholders’ equity is defined as net income (loss) available to MetLife, Inc.’s common shareholders divided by MetLife, Inc.’s average common stockholders’ equity.

Business

MetLife has grown to become a global provider of life insurance, annuities, employee benefits and asset management. Through our subsidiaries and affiliates, we hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. Over the past several years, we have grown our core businesses, as well as successfully executed on our growth strategy. This has included completing a number of transactions that have resulted in the acquisition and, in some cases, divestiture of certain businesses while also further strengthening our balance sheet to position MetLife for continued growth.

MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”). In addition, the Company reports certain of its results of operations in Corporate & Other, which includes MetLife Home Loans LLC (“MLHL”), the surviving, non-bank entity of the merger of MetLife Bank, National Association (“MetLife Bank”) with and into MLHL, and other business activities. 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. See “Business — Segments and Corporate & Other” in MetLife’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”), “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Consolidated Company Outlook” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.

In November 2014, MetLife Insurance Company of Connecticut (“MICC”), a wholly-owned subsidiary of MetLife, Inc., re-domesticated from Connecticut to Delaware, changed its name to MetLife Insurance Company USA and merged with its subsidiary, MetLife Investors USA Insurance Company (“MLI-USA”), and its affiliate, MetLife Investors Insurance Company (“MLIIC”), each a U.S. insurance company that issued variable annuity products in addition to other products, and Exeter Reassurance Company, Ltd. (“Exeter”), a former offshore, reinsurance subsidiary of MetLife, Inc. and affiliate of MICC that mainly reinsured guarantees associated with variable annuity products (the “Mergers”). The surviving entity of the Mergers was MetLife Insurance Company USA (“MetLife USA”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Other Key Information — Significant Events” for further information on the Mergers.


MetLife, Inc.		3

In the first quarter of 2014, the Company entered into a definitive agreement to sell its wholly-owned subsidiary, MetLife Assurance Limited (“MAL”). The sale of MAL was completed in May 2014. As a result, the operations of MAL have been classified as divested business for all periods presented. See Note 3 of the Notes to the Consolidated Financial Statements.

In the fourth quarter of 2013, MetLife, Inc. completed its acquisition of Administradora de Fondos de Pensiones Provida S.A. (“ProVida”), the largest private pension fund administrator in Chile based on assets under management and number of pension fund contributors. The acquisition of ProVida supports the Company’s growth strategy in emerging markets and further strengthens the Company’s overall position in Chile. See Note 3 of the Notes to the Consolidated Financial Statements.

Certain international subsidiaries have a fiscal year cutoff of November 30^th. Accordingly, the Company’s consolidated financial statements reflect the assets and liabilities of such subsidiaries as of November 30, 2014 and 2013 and the operating results of such subsidiaries for the years ended November 30, 2014, 2013 and 2012. The Company is in the process of converting to calendar year reporting for these subsidiaries. We expect to substantially complete these conversions by 2016. The impact of the conversions on our financial statements to date has been de minimis and, therefore, has been reported in net income in the quarter of conversion.

In the U.S., we provide a variety of insurance and financial services products, including life, dental, disability, property & casualty, guaranteed interest, stable value and annuities, through both proprietary and independent retail distribution channels, as well as at the workplace.

Outside the U.S., we provide life, medical, dental, credit and other accident & health insurance, as well as annuities, endowment and retirement & savings products to both individuals and groups. We believe these businesses will continue to grow more quickly than our U.S. businesses.

In the Americas, excluding Latin America, we market our products and services through various distribution channels. Our retail life, disability and annuities products targeted to individuals are sold via sales forces, comprised of MetLife employees, as well as third-party organizations. Our group and corporate benefit funding products are sold via sales forces primarily comprised of MetLife employees. Personal lines property & casualty insurance products are directly marketed to employees at their employer’s worksite. Personal lines property & casualty insurance products are also marketed and sold to individuals by independent agents, property & casualty specialists through a direct marketing channel, and via sales forces comprised of MetLife employees. MetLife sales employees work with all distribution channels to better reach and service customers, brokers, consultants and other intermediaries.

In Asia, Latin America, and EMEA, we market our products and services through a multi-distribution strategy which varies by geographic region and stage of market development. The various distribution channels include: career agency, bancassurance, direct marketing, brokerage, other third-party distribution, and e-commerce. In developing countries, the career agency channel covers the needs of the emerging middle class with primarily traditional products (e.g., whole life, term, endowment and accident & health). In more developed and mature markets, career agents, while continuing to serve their existing customers to keep pace with their developing financial needs, also target upper middle class and mass affluent customer bases with a more sophisticated product set including more investment-sensitive products, such as universal life insurance, unit-linked life insurance, mutual funds and single premium deposit insurance. In the bancassurance channel, we have leveraged partnerships and developed extensive and far reaching capabilities in all regions. Our direct marketing operations, the largest of which is in Japan, deploy both broadcast marketing approaches (e.g. direct response TV, web-based lead generation) and traditional direct marketing techniques such as inbound and outbound telemarketing.

Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and other revenues for the years ended December 31, 2014, 2013 and 2012. Financial information, including revenues, expenses, operating earnings, and total assets by segment, as well as premiums, universal life and investment-type product policy fees and other revenues by major product groups, is provided in Note 2 of the Notes to the Consolidated Financial Statements. Operating revenues and operating earnings are performance measures that are not based on accounting principles generally accepted in the United States of America (“GAAP”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures” for definitions of such measures.

In the U.S., our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, MetLife, Inc. and its U.S. insurance subsidiaries are subject to regulation under the insurance holding company laws of various U.S. jurisdictions. As a non-bank systemically important financial institution (“non-bank SIFI”), MetLife, Inc. is also subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal Reserve Bank of New York (collectively, with the Federal Reserve Board, the “Federal Reserve”). 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. See “Business — Regulation — U.S. Regulation” in the 2014 Form 10-K.

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 countries 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. As a global systemically important insurer (“G-SII”), MetLife, Inc. may also become subject to additional capital requirements. See “Business — Regulation — International Regulation” in the 2014 Form 10-K.


4		MetLife, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations


		Page

Forward-Looking Statements and Other Financial Information		6

Executive Summary		6

Industry Trends		9

Summary of Critical Accounting Estimates		13

Economic Capital		19

Acquisitions and Dispositions		20

Results of Operations		21

Effects of Inflation		40

Investments		40

Derivatives		56

Off-Balance Sheet Arrangements		58

Insolvency Assessments		59

Policyholder Liabilities		59

Liquidity and Capital Resources		66

Adoption of New Accounting Pronouncements		82

Future Adoption of New Accounting Pronouncements		83

Non-GAAP and Other Financial Disclosures		83

Subsequent Events		84


MetLife, Inc.		5

Forward-Looking Statements and Other Financial Information

For purposes of this discussion, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated. This discussion should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Selected Financial Data,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere herein, and “Risk Factors” included in the 2014 Form 10-K.

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” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements may turn out to be wrong. 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, operating earnings and operating earnings available to common shareholders, that are not based on GAAP. Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is our measure of segment performance. Operating earnings is also a measure by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. See “— Non-GAAP and Other Financial Disclosures” for definitions of these and other measures.

Executive Summary

Overview

MetLife is a global provider of life insurance, annuities, employee benefits and asset management. MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in Corporate & Other, which includes MLHL and other business activities. See “Business — Segments and Corporate & Other” in the 2014 Form 10-K, “— Consolidated Company Outlook” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other.

During 2014, we experienced solid sales growth across all of our regions with strong sales of group life, dental and disability products, as well as new product offerings. As a result of our continued focus on pricing discipline and risk management, sales of our variable annuity products declined. During 2014, we benefited from higher investment income, driven by growth in our investment portfolio, as well as higher fee income, primarily the result of improved equity market performance. Lower investment yields were driven by the sustained low interest rate environment; however, we did benefit from a decrease in interest credited expenses. Derivative gains in 2014 were driven by changes in foreign currency exchange rates and interest rates.


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Income (loss) from continuing operations, net of income tax	$	6,339		$	3,391		$	1,314

Less: Net investment gains (losses)		(197	)		161			(352	)

Less: Net derivative gains (losses)		1,317			(3,239	)		(1,919	)

Less: Goodwill impairment		—			—			(1,868	)

Less: Other adjustments to continuing operations (1)		(1,376	)		(1,597	)		(2,492	)

Less: Provision for income tax (expense) benefit		(87	)		1,683			2,174

Operating earnings		6,682			6,383			5,771

Less: Preferred stock dividends		122			122			122

Operating earnings available to common shareholders	$	6,560		$	6,261		$	5,649

(1)	See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments.

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

During the year ended December 31, 2014, income (loss) from continuing operations, net of income tax, increased $2.9 billion over 2013. The increase was predominantly due to a favorable change in net derivative gains (losses) of $4.6 billion ($3.0 billion, net of income tax) driven by changes in interest rates and foreign currency exchange rates. This was offset by an unfavorable change in net investment gains (losses) of


6		MetLife, Inc.

$358 million ($233 million, net of income tax) primarily driven by a loss on the disposition of MAL. Income (loss) from continuing operations, before provision for income tax also reflects a $262 million ($174 million, net of income tax) favorable change as a result of our annual assumption reviews related to reserves and deferred policy acquisition costs (“DAC”).

Operating earnings available to common shareholders increased $299 million over 2013. This increase reflects higher net investment income from portfolio growth, higher asset-based fee revenues and a decrease in interest credited expense, partially offset by unfavorable mortality, morbidity and claims experience, as well as the impact of decreasing investment yields on net investment income. A tax reform bill was enacted in Chile on September 29, 2014 which includes, among other things, a gradual increase in the corporate tax rate. Our Chilean businesses, including ProVida, incurred a one-time tax charge of $41 million as a result of this legislation. Excluding the impact of this tax reform, the fourth quarter 2013 acquisition of ProVida increased operating earnings available to common shareholders by $166 million, net of income tax. Our 2014 results also include:

•

$104 million, net of income tax, of favorable reserve adjustments related to disability premium waivers in our retail life business;

•

a $32 million one-time tax benefit related to the filing of the Company’s U.S. federal tax return;

•

a $117 million, net of income tax, increase in our litigation reserve related to asbestos;

•

a $58 million non-tax deductible charge related to the Patient Protection and Affordable Care Act (“PPACA”), which, effective January 1, 2014, mandated that an annual fee be imposed on health insurers;

•

a charge of $57 million, net of income tax, related to delayed settlement interest on unclaimed funds held by state governments in our retail life business; and

•

charges totaling $57 million, net of income tax, related to a settlement with the New York State Department of Financial Services (the “Department of Financial Services”) and the District Attorney, New York County, regarding their respective inquiries into whether American Life and DelAm conducted business in New York without a license and whether representatives acting on behalf of the companies solicited, sold or negotiated insurance products in New York without a license.

Our 2013 results include:

•

a $101 million, net of income tax, increase in our litigation reserve related to asbestos; and

•

a $57 million, net of income tax, reserve strengthening in Australia.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

During the year ended December 31, 2013, income (loss) from continuing operations, net of income tax, increased $2.1 billion over 2012. The change was predominantly due to a non-cash charge in 2012 of $1.9 billion ($1.6 billion, net of income tax) for goodwill impairment associated with our U.S. Retail annuities business. In addition, operating earnings available to common shareholders increased by $612 million and net investment gains (losses) increased by $513 million ($333 million, net of income tax) primarily due to an increase in net gains on sales of fixed maturity securities in 2013 coupled with a decrease in impairments of fixed maturity securities. These increases were partially offset by an unfavorable change in net derivatives gains (losses) of $1.3 billion ($858 million, net of income tax) driven by changes in interest rates and foreign currency exchange rates. Also included in income (loss) from continuing operations, net of income tax, were the results of divested businesses, which improved $448 million ($290 million, net of income tax) over 2012.

The increase in operating earnings available to common shareholders was primarily driven by higher asset-based fee revenues due to growth in our average separate account assets and an increase in net investment income due to growth in our investment portfolio. The sustained low interest rate environment negatively impacted investment yields; however, it also resulted in lower crediting rates. These favorable results were partially offset by an increase in expenses. During the fourth quarter of 2013, we increased our litigation reserve related to asbestos by $101 million, net of income tax. During 2013, we also increased our other litigation reserves by $46 million, net of income tax. The fourth quarter 2013 acquisition of ProVida in Chile increased operating earnings available to common shareholders by $48 million, net of income tax. In addition, results for 2012 included a $52 million, net of income tax, charge representing a multi-state examination payment related to unclaimed property and our use of the U.S. Social Security Administration’s Death Master File to identify potential life insurance claims, as well as the acceleration of benefit payments to policyholders under the settlements of such claims.

Consolidated Company Outlook

As part of an enterprise-wide strategic initiative, we announced that, by 2016, we expected to increase our operating return on common stockholders’ equity (“operating ROE”), excluding accumulated other comprehensive income (“AOCI”), to the 12% to 14% range, driven by higher operating earnings. This target assumes that regulatory capital rules appropriately reflect the life insurance business model and that we have clarity on the rules in a reasonable time frame, allowing for meaningful share repurchases prior to 2016. However, due to substantially lower share repurchases, regulatory uncertainty regarding the designation of MetLife, Inc. as a non-bank SIFI, lower investment margins (primarily in the U.S.) as a result of the sustained low interest rate environment and the impact on our foreign operations of the strengthening of the U.S. dollar, we expect to be at the lower end of the 12% to 14% range.

Since we announced this strategic initiative, we have continued to expand our business outside of the U.S., thereby continuing to increase our exposure to foreign currency fluctuations. In order to enhance the understanding of our performance in light of such expansion, we have developed an additional method of calculating operating ROE that includes the impact of foreign currency translation adjustments (“FCTA”) in both components of the ratio (operating earnings and equity). The original method of calculating operating ROE excludes all components of AOCI, including FCTA; the new method refines the calculation by excluding AOCI other than FCTA. FCTA can have a positive or negative impact on operating ROE depending on the strength of the U.S. dollar compared to other currencies. Reflecting FCTA in both components of the ratio eliminates volatility in the ratio due to foreign currency fluctuations.


MetLife, Inc.		7

We expect to achieve our operating ROE target by primarily focusing on the following:

•

Growth in premiums, fees and other revenues driven by:

–

Accelerated growth in Group, Voluntary & Worksite Benefits;

–

Increased fee revenue reflecting the benefit of higher equity markets on our separate account balances; and

–

Increases in our businesses outside of the U.S., notably accident & health, from continuing organic growth throughout our various geographic regions and leveraging of our multichannel distribution network.

•

Expanding our presence in emerging markets, including potential merger and acquisition activity. We expect that by 2016, 20% or more of our operating earnings will come from emerging markets, with the acquisition of ProVida contributing to this increase. However, we expect that the strengthening of the U.S. dollar and the increased earnings from the favorable U.S. equity markets could negatively impact this ratio.

•

Disciplined underwriting. We see no significant changes to the underlying trends that drive underwriting results; however, unanticipated catastrophes could result in a high volume of claims.

•

Expense management in the light of the low interest rate environment, and continued expense control throughout the Company.

•

Continued disciplined approach to investing and asset/liability management (“ALM”), through our enterprise risk and ALM governance process.

Part of this strategic initiative has been to leverage our scale to improve the value we provide to customers and shareholders and achieve $1 billion in annual efficiencies, up to $400 million of which will be reinvested in technology, platforms and functionality to improve our current operations and develop new capabilities. We also continue to balance our product mix between protection products and more capital-intensive products in order to maintain predictable operating earnings and cash flows. To this end, we introduced new variable annuity products and/or enhancements in late 2014 and early 2015. We believe that 2014 will prove to be an inflection point for annuity sales and anticipate profitable growth in 2015 and beyond.

Finally, effective January 1, 2015, we implemented certain segment reporting changes related to the measurement of segment operating earnings. The changes will be applied retrospectively beginning with the first quarter of 2015 and will not impact total consolidated operating earnings or net income. These changes include the following:

•

Revise our capital allocation methodology. We expect this to have an impact on net investment income at the segment level, as well as Corporate & Other;

•

Move certain tax benefits from Corporate & Other to the business segments. The impact will be almost entirely in the Retail segment;

•

Move our consumer direct business from Corporate & Other to the Latin America segment, which is where we report our sponsor direct business; and

•

Change our expense allocation. This will primarily impact Corporate & Other and the EMEA segment.

Other Key Information

Basis of Presentation

Segment Information

In the first quarter of 2014, the Company entered into a definitive agreement to sell its wholly-owned subsidiary, MAL. The sale of MAL was completed in May 2014. As a result, the operations of MAL have been classified as divested business for all periods presented. See Note 3 of the Notes to the Consolidated Financial Statements. Consequently, the results for Corporate Benefit Funding decreased by $12 million, net of $8 million of income tax, and $21 million, net of $13 million of income tax, for the years ended December 31, 2013 and 2012, respectively. Also, the results for Corporate & Other decreased by $14 million, net of $7 million of income tax, and $16 million, net of $8 million of income tax, for the years ended December 31, 2013 and 2012, respectively.

Significant Events

In November 2014, MICC, a wholly-owned subsidiary of MetLife, Inc., re-domesticated from Connecticut to Delaware, changed its name to MetLife Insurance Company USA and merged with its subsidiary, MLI-USA, and its affiliate, MLIIC, each a U.S. insurance company that issued variable annuity products in addition to other products, and Exeter, a former offshore, reinsurance subsidiary of MetLife, Inc. and affiliate of MICC that mainly reinsured guarantees associated with variable annuity products. The surviving entity of the Mergers was MetLife USA. The Mergers have provided increased transparency relative to our capital allocation and variable annuity risk management. In addition, the Company expects that the Mergers (i) may mitigate to some degree the impact of any restrictions on the use of captive reinsurers that could be adopted by insurance regulators by reducing our exposure to and use of captive reinsurers; and (ii) will reduce the reliance on MetLife, Inc. to fund derivatives collateral requirements. See Note 8 of the Notes to the Consolidated Financial Statements for further information on the Mergers,


8		MetLife, Inc.

and see “Business — Regulation — U.S. Regulation — Insurance Regulation — Insurance Regulatory Examinations and Other Activities” in the 2014 Form 10-K and “— Liquidity and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions” included elsewhere herein for information on our use of captive reinsurers.

In the fourth quarter of 2013, MetLife, Inc. completed its acquisition of ProVida, the largest private pension fund administrator in Chile based on assets under management and number of pension fund contributors. The acquisition of ProVida supports the Company’s growth strategy in emerging markets and further strengthens the Company’s overall position in Chile. See Note 3 of the Notes to the Consolidated Financial Statements.

In 2012, Superstorm Sandy made landfall in the northeastern United States causing extensive property damage. MetLife’s property & casualty business’ gross losses from Superstorm Sandy were approximately $150 million, before income tax. As of December 31, 2012, we recognized total net losses related to the catastrophe of $90 million, net of income tax and reinsurance recoverables and including reinstatement premiums, which impacted the Retail and Group, Voluntary & Worksite Benefits segments. The Retail and Group, Voluntary & Worksite Benefits segments recorded net losses related to the catastrophe of $49 million and $41 million, each net of income tax reinsurance recoverables and reinstatement premiums, respectively. We did not incur any losses related to Superstorm Sandy in 2014 or 2013.

Industry Trends

We continue to be impacted by the unstable 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 are sensitive to changing market factors. Global market factors, including interest rates, credit spreads, equity prices, real estate markets, foreign currency exchange rates, consumer spending, business investment, government spending, the volatility and strength of the capital markets, deflation and inflation, all affect the business and economic environment and, ultimately, the amount and profitability of our business. Disruptions in one market or asset class can also spread to other markets or asset classes. Upheavals in the financial markets can also affect our business through their effects on general levels of economic activity, employment and customer behavior. While our diversified business mix and geographically diverse business operations partially mitigate these risks, correlation across regions, countries and global market factors may reduce the benefits of diversification. Financial markets have also been affected periodically by concerns over U.S. fiscal policy, although these concerns have abated since late 2013. However, unless long-term steps are taken to raise the debt ceiling and reduce the federal deficit, rating agencies have warned of the possibility of future downgrades of U.S. Treasury securities. These issues could, on their own, or combined with the possible slowing of the global economy generally, have severe repercussions to the U.S. and global credit and financial markets, further exacerbate concerns over sovereign debt of other countries and disrupt economic activity in the U.S. and elsewhere.

Concerns about the economic conditions, capital markets and the solvency of certain European Union (“EU”) member states, including Portugal, Ireland, Italy, Greece and Spain (“Europe’s perimeter region”), and of financial institutions that have significant direct or indirect exposure to debt issued by these countries, have been a cause of elevated levels of market volatility. More recently, economic conditions in Europe’s perimeter region seem to be stabilizing or improving, as evidenced by the stabilization of credit ratings, particularly in Spain, Portugal and Ireland. However, the election of a new government in Greece in January 2015 has renewed fears about the possibility of an exit of Greece from the Euro zone. Such an event would have uncertain impacts on interest rates and risk markets. Greater European Central Bank (“ECB”) support, stronger liquidity facilities and gradually improving macroeconomic conditions may mitigate the consequences of such exit on the rest of Europe. See “— Investments — Current Environment” for information regarding our exposure to obligations of European governments and private obligors.

The financial markets have also been affected by concerns that other EU member states could experience similar financial troubles or that some countries could default on their obligations, have to restructure their outstanding debt, or that financial institutions with significant holdings of sovereign or private debt issued by borrowers in Europe’s perimeter region could experience financial stress, any of which could have significant adverse effects on the European and global economies and on financial markets, generally. In September 2012, the ECB announced a new bond buying program, Outright Monetary Transactions (“OMT”), intended to stabilize the European financial crisis. This program involves the potential purchase by the ECB of sovereign bonds with maturities of one to three years. The OMT has not been activated to date, but the possibility of its use by the ECB helped to lower sovereign yields in Europe’s perimeter region. However, in October 2014, the Court of Justice of the European Union (“ECJ”) heard arguments relating to a lawsuit challenging the legality of the OMT. On January 14, 2015, the Advocate General of the ECJ issued his opinion that the OMT is not necessarily outside of the mandate of the ECB; this opinion, however, is not binding on the ECJ. While the ECJ’s decision is not expected until later in 2015, the outcome could affect the ECB’s ability and willingness to purchase sovereign bonds and strain economic stability in Europe.

In the second half of 2014, the ECB cut interest rates further, imposing a negative rate on bank deposits, and announcing additional accommodative monetary policy measures in an effort to lessen the risk of deflation in the Euro zone. These measures included incentivizing banks to extend loans and, in November 2014, buying private sector asset-backed securities and covered bonds. At its meeting on January 22, 2015, the ECB expanded its current asset purchase program to €60 billion per month in bond purchases commencing in March 2015 through September 2016. These initiatives are intended to counter the threat of deflation, lower borrowing costs in the Euro zone, encourage corporations to issue more asset-backed securities and place pressure on the euro/U.S. dollar exchange rate. Economic growth in the Euro zone continues to be weak, with concerns over low inflation becoming more pronounced as countries in Europe’s perimeter region in particular continue to pursue policies to reduce their relative cost of production and reduce macroeconomic imbalances. In addition, concerns about the political and economic stability of countries in regions outside the EU, including Ukraine, Russia, Argentina and the Middle East, have contributed to global market volatility. See “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant 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 — If Difficult Conditions in


MetLife, Inc.		9

the Global Capital Markets and the Economy Generally Persist, They May Materially Adversely Affect Our Business and Results of Operations” in the 2014 Form 10-K. See also “— Investments — Current Environment — Selected Country and Sector Investments” for information regarding our investments in Ukraine, Russia, and Argentina.

We face substantial exposure to the Japanese economy given our operations there. Despite some recovery in gross domestic product (“GDP”) growth and rising inflation in the first half of 2014, momentum has slowed. Meanwhile, structural weaknesses and debt sustainability have yet to be addressed effectively, which leaves the economy vulnerable to further disruption. 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 and its nominal yields on government debt have remained at a lower level than that of any other developed country. However, frequent changes in government have prevented policy makers from implementing fiscal reform measures to put public finances on a sustainable path. In January 2013, the government and the Bank of Japan pledged to strengthen policy coordination to end deflation and to achieve sustainable economic growth. This was followed by the announcement of a supplementary budget stimulus program totaling 2% of GDP and the adoption of a 2% inflation target by the Bank of Japan. In early April 2013, the Bank of Japan announced a new round of monetary easing measures including increased government bond purchases at longer maturities. In October 2013, the government agreed to raise the consumption tax from 5% to 8% effective April 1, 2014. This contributed to a decrease in the growth rate of the economy to a recessionary level, causing the government to delay a planned increase in the consumption tax to 10% until 2017. On October 31, 2014, the Bank of Japan announced a program to purchase larger quantities of government bonds. Such purchases are intended to keep borrowing costs low and the yen weak thereby supporting economic growth. Despite continued weakness in the yen, inflation is not expected to rise materially given still weak GDP growth. Japan’s public debt trajectory could continue to rise until a strategy to consolidate public finances and growth-enhancing reforms are implemented. On December 30, 2014, the government of Japan proposed a tax reform plan that, if enacted, would lower the Japanese tax rate by approximately 2% effective April 1, 2015. If the tax reform plan is enacted in its current form, we expect to reflect the effects of the rate reduction, currently estimated as $170 to $180 million, in our financial results in the period of enactment, most likely the second quarter of 2015. In addition, we expect this tax law change will favorably affect our estimated annual effective tax rate for 2015 by approximately 0.2% as compared to 2014.

Impact of a Sustained Low Interest Rate Environment

As a global insurance company, we are affected by the monetary policy of central banks around the world, as well as the monetary policy of the Federal Reserve Board in the United States. While the Federal Reserve Board has taken a number of actions in recent years to spur economic activity by keeping interest rates low, the Federal Reserve Board may reverse this policy and begin raising rates sometime over the next two years, at a pace which may have an impact on the pricing levels of risk-bearing investments, and may adversely impact the level of product sales.

On October 29, 2014, the Federal Reserve Board’s Federal Open Market Committee (“FOMC”), citing sufficient underlying strength in the economy to support progress toward maximum employment and the substantial improvement in the outlook for labor market conditions since the inception of its asset purchase program, decided to conclude the program. Most recently, on January 28, 2015, the FOMC reaffirmed that it anticipates keeping the target range for the federal funds rate at 0 to 0.25%, subject to labor market conditions and inflation indicators and expectations. The possibility of the Federal Reserve Board increasing the federal funds rate in the future may affect interest rates and risk markets in the U.S. and other developed and emerging economies. However, the timing of any increases of the federal funds rate by the Federal Reserve Board is uncertain and subject to change depending on the Federal Reserve Board’s assessment of economic growth, inflation and other risks.

Despite the end of the Federal Reserve Board’s quantitative easing program and the potential for future raises in interest rates in the U.S., central banks in other parts of the world, including the ECB and the Bank of Japan, have pursued accommodative monetary policies. See “—Financial and Economic Environment.” However, we cannot predict with certainty the effect of these programs and policies on interest rates or the impact on the pricing levels of risk-bearing investments at this time. See “— Investments — Current Environment.”

In 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, commercial, agricultural or residential mortgage loans and mortgage-backed securities in our investment portfolio with greater frequency in order to borrow at lower market rates. Therefore, some of our products expose us to the risk that a reduction in interest rates will reduce the difference between the amounts that we are required to credit on contracts in our general account and the rate of return we are able to earn on investments intended to support obligations under these contracts. This difference between interest earned and interest credited, or margin, is a key metric for the management of, and reporting for, many of our businesses.

Our expectations regarding future margins are an important component impacting the amortization of certain intangible assets such as DAC and 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 assumption review.

Mitigating Actions

The Company continues to be proactive in its investment and interest crediting rate strategies, as well as its product design and product mix. To mitigate the risk of unfavorable consequences from the low interest rate environment in the U.S., the Company applies disciplined ALM strategies, including the use of derivatives, primarily interest rate swaps, floors and swaptions. A significant portion of these derivatives were entered into prior to the onset of the current low U.S. interest rate environment. In some cases, the Company has entered into offsetting positions as part of its overall ALM strategy and to reduce volatility in net income. Lowering interest crediting rates on some products, or adjusting the dividend scale on traditional products, can help offset decreases in investment margins on some products. Our ability to lower interest crediting rates could be limited by competition, requirements to obtain regulatory approval, or contractual guarantees of minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our margins could decrease or potentially become negative. We are able to limit or close certain products to new sales in order to manage exposures. Business actions, such as shifting the sales focus to less interest rate sensitive products, can also mitigate this risk. In addition, the Company is well diversified across product, distribution, and


10		MetLife, Inc.

geography. Certain of our non-U.S. businesses, reported within our Latin America and EMEA segments, which accounted for approximately 16% of our operating earnings in 2014, are not significantly interest rate or market sensitive; in particular, they do not have any direct sensitivity to U.S. interest rates. The Company’s primary exposure within these segments is insurance risk. We expect our non-U.S. businesses to grow faster than our U.S. businesses and, over time, to become a larger percentage of our total business. As a result of the foregoing, the Company expects to be able to substantially mitigate the negative impact of a sustained low interest rate environment in the U.S. on the Company’s profitability. Based on a near to intermediate term analysis of a sustained lower interest rate environment in the U.S., the Company anticipates operating earnings will continue to increase, although at a slower growth rate.

Interest Rate Stress Scenario

The following summarizes the impact of a hypothetical interest rate stress scenario on our operating earnings and the mark-to-market of our derivative positions that do not qualify as accounting hedges assuming a continued low interest rate environment in the U.S.

The hypothetical interest rate stress scenario is based on a constant set of U.S. interest rates and credit spreads in the U.S., as compared to our business plan interest rates and credit spreads, which are based on consensus interest rate view and credit spreads as of December 2014. For example, our business plan assumes a 10-year U.S. treasury rate of 2.17% at December 31, 2014 to rise during 2015 to 2.80% by December 31, 2015 and rise to 3.52% by December 31, 2016. The hypothetical interest rate stress scenario assumes the 10-year treasury rate to be 2.00% at December 31, 2014 and remain constant at that level until December 31, 2016. We make similar assumptions for interest rates at other maturities, and hold this interest rate curve constant through December 31, 2016. In addition, in the interest rate stress scenario, we assume credit spreads remain constant from December 2014 through the end of 2016, as compared to our business plan which assumes rising credit spreads through 2015 and thereafter remaining constant through the end of 2016. Further, we also include the impact of low interest rates on our pension and postretirement plan expenses. We allocate this impact across our segments and it is included in the segment discussion below. The discount rate used to value these plans is tied to high quality corporate bond yields. Accordingly, an extended low interest rate environment will result in increased pension and other postretirement benefit liabilities and expenses. Higher total return on the fixed income portfolio of pension and other postretirement benefit plan assets will partially offset this increase in pension and other postretirement plan liabilities.

Based on the above assumptions, we estimate an unfavorable impact on our consolidated operating earnings from the hypothetical U.S. interest rate stress scenario of approximately $5 million in each of 2015 and 2016.

In addition to its impact on operating earnings, we estimated the effect of the hypothetical U.S. interest rate stress scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges. We applied the hypothetical U.S. interest rate stress scenario to these derivatives and compared the impact to that from interest rates in our business plan. We hold a significant position in long duration receive-fixed interest rate swaps to hedge reinvestment risk. These swaps are most sensitive to the 30-year and 10-year swap rates and we recognize gains as rates drop and recognize losses as rates rise. This estimated impact on the derivative mark-to-market does not include that of our VA program derivatives as the impact of low interest rates in the freestanding derivatives would be largely offset by the mark-to-market in net derivative gains (losses) for the related embedded derivative. See “— Results of Operations — Consolidated Results” for discussions on our net derivative gains and losses.

Based on these additional assumptions, we estimate the impact of the hypothetical U.S. interest rate stress scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges to be an increase in net income of $425 million and $300 million in 2015 and 2016, respectively.

Segments and Corporate & Other

The following discussion summarizes the impact of the above hypothetical U.S. interest rate stress scenario on the operating earnings of our segments, as well as Corporate & Other. See also “— Policyholder Liabilities — Policyholder Account Balances” for information regarding the account values subject to minimum guaranteed crediting rates.

Retail

Life & Other – Our interest rate sensitive products include traditional life, universal life, and retained asset accounts. Because the majority of our traditional life insurance business is participating, we can largely offset lower investment returns on assets backing our traditional life products through adjustments to the applicable dividend scale. In our universal life products, we manage interest rate risk through a combination of product design features and ALM strategies, including the use of hedges such as interest rate swaps and floors. While we have the ability to lower crediting rates on certain in-force universal life policies to mitigate margin compression, such actions would be partially offset by increases in our liabilities related to policies with secondary guarantees. Our retained asset accounts have minimum interest crediting rate guarantees which range from 0.5% to 4.0%, all of which are currently at their respective minimum interest crediting rates. While we expect to experience margin compression as we re-invest at lower rates, the interest rate derivatives held in this portfolio will partially mitigate this risk.

Annuities – The impact on operating earnings from margin compression is concentrated in our deferred annuities where there are minimum interest rate guarantees. Under low U.S. interest rate scenarios, we assume that a larger percentage of customers will maintain their funds with us to take advantage of the attractive minimum guaranteed crediting rates and we expect to experience margin compression as we reinvest cash flows at lower interest rates. Partially offsetting this margin compression, we assume we will lower crediting rates on contractual reset dates for the portion of business that is not currently at minimum crediting rates. Additionally, we have various derivative positions, primarily interest rate floors, to partially mitigate this risk.

Reinvestment risk is defined for this purpose as the amount of reinvestment in 2015 and 2016 that would impact operating earnings due to reinvesting cash flows in the hypothetical U.S. interest rate stress scenario. For the deferred annuities business, $2.8 billion and $2.6 billion in 2015 and 2016, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $35.3 billion and $36.0 billion in 2015 and 2016, respectively.


MetLife, Inc.		11

We estimate an unfavorable operating earnings impact on our Retail segment from the hypothetical U.S. interest rate stress scenario discussed above of $5 million and $15 million in 2015 and 2016, respectively.

Group, Voluntary & Worksite Benefits

Group – In general, most of our group life insurance products in this segment are renewable term insurance and, therefore, have significant repricing flexibility. Interest rate risk arises mainly from minimum interest rate guarantees on retained asset accounts. These accounts have minimum interest crediting rate guarantees which range from 0.5% to 3.0%. All of these account balances are currently at their respective minimum interest crediting rates and we would expect to experience margin compression as we reinvest at lower interest rates. We have used interest rate floors to partially mitigate the risks of a sustained U.S. low interest rate environment. We also have exposure to interest rate risk in this business arising from our group disability policy claim reserves. For these products, lower reinvestment rates cannot be offset by a reduction in liability crediting rates for established claim reserves. Group disability policies are generally renewable term policies. Rates may be adjusted on in-force policies at renewal based on the retrospective experience rating and current interest rate assumptions. We review the discount rate assumptions and other assumptions associated with our long-term disability claim reserves no less frequently than annually. Our most recent review at the end of 2014 resulted in no change to the applicable discount rates.

Voluntary & Worksite – We have exposure to interest rate risk in this business arising mainly from our long-term care (“LTC”) policy reserves. For these products, lower reinvestment rates cannot be offset by a reduction in liability crediting rates for established claim reserves. LTC policies are guaranteed renewable, and rates may be adjusted on a class basis with regulatory approval to reflect emerging experience. Our LTC block is closed to new business. The Company makes use of derivative instruments to more closely match asset and liability duration and immunize the portfolio against changes in interest rates. Reinvestment risk is defined for this purpose as the amount of reinvestment in 2015 and 2016 that would impact operating earnings due to reinvesting cash flows in the hypothetical U.S. interest rate stress scenario. For the LTC portfolio, $1.9 billion of the asset base in both 2015 and 2016 will be subject to reinvestment risk on an average asset base of $9.8 billion and $10.5 billion in 2015 and 2016, respectively.

We estimate a favorable operating earnings impact on our Group, Voluntary & Worksite Benefits segment from the hypothetical U.S. interest rate stress scenario discussed above of $5 million and $25 million in 2015 and 2016, respectively.

Corporate Benefit Funding

This segment contains both short and long duration products consisting of capital market products, pension closeouts, structured settlements, and other benefit funding products. The majority of short duration products are managed on a floating rate basis, which mitigates the impact of the low interest rate environment in the U.S. The long duration products have very predictable cash flows and we have matched these cash flows through our ALM strategies. We also use interest rate swaps to help protect income in this segment against a low interest rate environment in the U.S. Based on the cash flow estimates, only a small component is subject to reinvestment risk. Reinvestment risk is defined for this purpose as the amount of reinvestment in 2015 and 2016 that would impact operating earnings due to reinvesting cash flows in the hypothetical interest rate stress scenario. For the long duration business, none of the asset base in 2015 will be subject to reinvestment risk on an average asset base of $58.6 billion. In 2016, $1 billion of the asset base will be subject to reinvestment risk on an average asset base of $60.6 billion.

We estimate a favorable operating earnings impact on our Corporate Benefit Funding segment from the hypothetical U.S. interest rate stress scenario discussed above of $25 million and $80 million in 2015 and 2016, respectively.

Asia

Our Asia segment has a portion of its investments in U.S. dollar denominated assets. The following describes the impact on our Asia segment’s operating earnings under the hypothetical U.S. interest rate stress scenario.

Life & Other – Our Japan business offers traditional life insurance and accident & health products. To the extent the Japan life insurance portfolio is U.S. interest rate sensitive and we are unable to lower crediting rates to the customer, operating earnings will decline. We manage interest rate risk on our life products through a combination of product design features and ALM strategies.

Annuities – We sell annuities in Asia which are predominantly single premium products with crediting rates set at the time of issue. This allows us to tightly manage product ALM, cash flows and net spreads, thus maintaining profitability.

We estimate an unfavorable operating earnings impact on our Asia segment from the hypothetical U.S. interest rate stress scenario discussed above of $10 million and $25 million in 2015 and 2016, respectively.

Corporate & Other

Corporate & Other contains the surplus portfolios for the enterprise, the portfolios used to fund the capital needs of the Company and various reinsurance agreements. The surplus portfolios are subject to reinvestment risk; however, lower net investment income is significantly offset by lower interest expense on both fixed and variable rate debt. Under a lower interest rate environment, fixed rate debt is assumed to be either paid off when it matures or refinanced at a lower interest rate resulting in lower overall interest expense. Variable rate debt is indexed to the three-month London Interbank Offered Rate (LIBOR), which results in lower interest expense incurred.

We estimate an unfavorable operating earnings impact on Corporate & Other from the hypothetical U.S. interest rate stress scenario discussed above of $20 million and $70 million in 2015 and 2016, respectively.


12		MetLife, Inc.

Competitive Pressures

The life insurance industry remains highly competitive. The product development and product life cycles have shortened in many product segments, leading to more intense competition with respect to product features. Larger companies have the ability to invest in brand equity, product development, technology and risk management, which are among the fundamentals for sustained profitable growth in the life insurance industry. In addition, several of the industry’s products can be quite homogeneous and subject to intense price competition. Sufficient scale, financial strength and financial flexibility are becoming prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the capacity to invest in additional distribution capability and the information technology needed to offer the superior customer service demanded by an increasingly sophisticated industry client base. We believe that the continued volatility of the financial markets, its impact on the capital position of many competitors, and subsequent actions by regulators and rating agencies have altered the competitive environment. In particular, we believe that these factors have highlighted financial strength as the most significant differentiator from the perspective of some customers and certain distributors. We believe the Company is well positioned to compete in this environment.

Regulatory Developments

The U.S. life insurance industry is regulated primarily at the state level, with some products and services also subject to federal regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving standards for the life insurance industry. Regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. In addition, regulators have undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products, as well as reviews of the utilization of affiliated captive reinsurers and offshore entities to reinsure insurance risks.

The regulation of the global financial services industry has received renewed scrutiny as a result of the disruptions in the financial markets. Significant regulatory reforms have been recently adopted and additional reforms proposed, and these or other reforms could be implemented. See “Business — Regulation,” “Risk Factors — Regulatory and Legal Risks — Our Insurance 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 and State Securities Laws and Regulations, and State Insurance Regulations Regarding Suitability of Annuity Product Sales, May Affect Our Operations and Our Profitability” in the 2014 Form 10-K. For example, the Dodd-Frank Reform and Consumer Protection Act (“Dodd-Frank”), which was signed by President Obama in July 2010, effected the most far-reaching overhaul of financial regulation in the U.S. in decades. The full impact of Dodd-Frank on us will depend on the numerous rulemaking initiatives required or permitted by Dodd-Frank which are in various stages of implementation, many of which are not likely to be completed for some time.

Mortgage and Foreclosure-Related Exposures

MetLife no longer engages in the origination, sale and servicing of forward and reverse residential mortgage loans. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company’s exit from MetLife Bank businesses and Note 21 of the Notes to the Consolidated Financial Statements for further information regarding our mortgage and foreclosure-related exposures.

Notwithstanding MetLife Bank’s exit from the origination and servicing businesses, MLHL remains obligated to repurchase loans or compensate for losses upon demand due to alleged defects by MetLife Bank or its predecessor servicers in past servicing of the loans and material representations made in connection with MetLife Bank’s sale of the loans. Reserves for representation and warranty repurchases and indemnifications were $85 million and $104 million at December 31, 2014 and 2013, respectively. Reserves for estimated future losses due to alleged deficiencies on loans originated and sold, as well as servicing of the loans including servicing acquired, are estimated based on unresolved claims and projected losses under investor servicing contracts where MetLife Bank’s past actions or inactions are likely to result in missing certain stipulated investor timelines. Reserves for servicing defects were $38 million and $46 million at December 31, 2014 and 2013, respectively. Management is satisfied that adequate provision has been made in the Company’s consolidated financial statements for those representation and warranty obligations that are currently probable and reasonably estimable.

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 in the Consolidated Financial Statements. For a discussion of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:

(i)

liabilities for future policy benefits and the accounting for reinsurance;

(ii)

capitalization and amortization of DAC and the establishment and amortization of VOBA;

(iii)

estimated fair values of investments in the absence of quoted market values;

(iv)

investment impairments;

(v)

estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation;

(vi)

measurement of goodwill and related impairment;

(vii)

measurement of employee benefit plan liabilities;

(viii)

measurement of income taxes and the valuation of deferred tax assets; and

(ix)

liabilities for litigation and regulatory matters.


MetLife, Inc.		13

In addition, the application of acquisition accounting requires the use of estimation techniques in determining the estimated fair values of assets acquired and liabilities assumed — the most significant of which relate to aforementioned critical accounting estimates. In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates.

Liability for Future Policy Benefits

Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type and geographical area. These assumptions are established at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. If experience is less favorable than assumed, additional liabilities may be established, resulting in a charge to policyholder benefits and claims.

Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.

Liabilities for unpaid claims are estimated based upon our historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.

Future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts are based on estimates of the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on total expected assessments. Liabilities for universal and variable life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical experience of the appropriate underlying equity index, such as the S&P 500 Index.

We regularly review our estimates of liabilities for future policy benefits and compare them with our actual experience. Differences between actual experience and the assumptions used in pricing these policies and guarantees, as well as in the establishment of the related liabilities, result in variances in profit and could result in losses.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our liability for future policy benefits.

Reinsurance

Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. We periodically review actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties to our reinsurance agreements using criteria similar to that evaluated in our security impairment process. See “— Investment Impairments.” Additionally, for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of accounting.

See Note 6 of the Notes to the Consolidated Financial Statements for additional information on our reinsurance programs.

Deferred Policy Acquisition Costs and Value of Business Acquired

We incur significant costs in connection with acquiring new and renewal insurance business. Costs that relate directly to the successful acquisition or renewal of insurance contracts are deferred as DAC. In addition to commissions, certain direct-response advertising expenses and other direct costs, deferrable costs include the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed. We utilize various techniques to estimate the portion of an employee’s time spent on qualifying acquisition activities that result in actual sales, including surveys, interviews, representative time studies and other methods. These estimates include assumptions that are reviewed and updated on a periodic basis or more frequently to reflect significant changes in processes or distribution methods.

VOBA represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in force at the acquisition date. For certain acquired blocks of business, the estimated fair value of the in-force contract obligations exceeded the book value of assumed in-force insurance policy liabilities, resulting in negative VOBA, which is presented separately from VOBA as an additional insurance liability included in other policy-related balances. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. Actual experience on the purchased business may vary from these projections. The recovery of DAC and VOBA is dependent upon the future profitability of the related business.

Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Our practice to determine the


14		MetLife, Inc.

impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably likely to result in a decrease (increase) in the DAC and VOBA amortization of approximately $198 million, with an offset to our unearned revenue liability of approximately $22 million for this factor. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate account return after the five-year reversion period is over. The current long-term rate of return assumption for the variable universal life contracts and variable deferred annuity contracts is 7.25%.

We also periodically review other long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business. Assumptions used in the calculation of estimated gross margins and profits which may have significantly changed are updated annually. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.

Our most significant assumption updates resulting in a change to expected future gross margins and profits and the amortization of DAC and VOBA are due to revisions to expected future investment returns, expenses, in-force or persistency assumptions and policyholder dividends on participating traditional life contracts, variable and universal life contracts and annuity contracts. We expect these assumptions to be the ones most reasonably likely to cause significant changes in the future. Changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time.

At December 31, 2014, 2013 and 2012, DAC and VOBA for the Company was $24.4 billion, $26.7 billion and $24.8 billion, respectively. Amortization of DAC and VOBA associated with the variable and universal life and the annuity contracts was significantly impacted by movements in equity markets. The following illustrates the effect on DAC and VOBA of changing each of the respective assumptions, as well as updating estimated gross margins or profits with actual gross margins or profits during the years ended December 31, 2014, 2013 and 2012. Increases (decreases) in DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization.


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Investment return	$	(45	)	$	(66	)	$	(161	)

Separate account balances		43			157			39

Net investment gain (loss)		(42	)		195			(44	)

Guaranteed minimum income benefits		(63	)		337			23

Expense		24			36			10

In-force/Persistency		94			72			368

Policyholder dividends and other		(74	)		8			(4	)

Total	$	(63	)	$	739		$	231

The following represent significant items contributing to the changes to DAC and VOBA amortization in 2014:

•

The increase in equity markets during the year increased separate account balances, which led to higher actual and expected future gross profits on variable universal life contracts and variable deferred annuity contracts resulting in a decrease of $43 million in DAC and VOBA amortization.

•

Changes in net investment gains (losses) resulted in the following changes in DAC and VOBA amortization.

–

Actual gross profits decreased as a result of an increase in liabilities associated with guarantee obligations on variable annuities, resulting in a decrease of DAC and VOBA amortization of $118 million, excluding the impact from our nonperformance risk and risk margins, which are described below. This decrease in actual gross profits was more than offset by freestanding derivative gains associated with the hedging of such guarantee obligations, which resulted in an increase in DAC and VOBA amortization of $219 million.

–

The widening of the Company’s nonperformance risk adjustment decreased the valuation of guaranteed liabilities, increased actual gross profits and increased DAC and VOBA amortization by $44 million. This was more than offset by the higher risk margins, which increased the guarantee liability valuations, decreased actual gross profits and decreased DAC and VOBA amortization by $53 million.

–

The remainder of the impact of net investment gains (losses), which decreased DAC and VOBA amortization by $50 million, was primarily attributable to 2014 investment activities.

•

The change in current and future projected guaranteed minimum income benefits (“GMIBs”) liability resulted in an increase to DAC amortization of $63 million.

•

Better than expected persistency and changes in assumptions regarding persistency caused an increase in actual and expected future gross profits resulting in a net decrease in DAC and VOBA amortization of $94 million.


MetLife, Inc.		15

The following represent significant items contributing to the changes to DAC and VOBA amortization in 2013:

•

Changes in net investment gains (losses) resulted in the following changes in DAC and VOBA amortization:

–

Actual gross profits increased as a result of a decrease in liabilities associated with guarantee obligations on variable annuities, resulting in an increase of DAC and VOBA amortization of $1.1 billion, excluding the impact from our nonperformance risk and risk margins, which are described below. This increase in actual gross profits was more than offset by freestanding derivative losses associated with the hedging of such guarantee obligations, which resulted in a decrease in DAC and VOBA amortization of $1.2 billion.

–

The tightening of our nonperformance risk adjustment increased the valuation of guarantee liabilities, decreased actual gross profits and decreased DAC and VOBA amortization by $94 million. This was partially offset by lower risk margins, which decreased the guarantee liability valuations, increased actual gross profits and increased DAC and VOBA amortization by $60 million.

–

The remainder of the impact of net investment gains (losses), which decreased DAC and VOBA amortization by $72 million, was primarily attributable to 2013 investment activities.

•

The hedging and reinsurance losses associated with the insurance liabilities of the GMIBs decreased actual gross profits and decreased DAC and VOBA amortization by $349 million.

The following represent significant items contributing to the changes to DAC and VOBA amortization in 2012:

•

The increase in actual, as well as changes in projected, investment returns resulted in an increase in actual and a reduction in expected future gross profits on variable universal life contracts and variable deferred annuity contracts resulting in an increase of $161 million in DAC and VOBA amortization.

•

Better than expected persistency and changes in assumptions regarding persistency, especially in the U.S. deferred variable annuity contracts, resulted in an increase in actual and expected future gross profits resulting in a decrease of $368 million in DAC and VOBA amortization.

Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been recognized if such gains and losses had been realized. The increase in unrealized investment gains (losses) decreased the DAC and VOBA balance by $702 million in 2014, while the change in unrealized investment gains increased the DAC and VOBA balance by $1.3 billion and decreased the DAC and VOBA balance by $713 million in 2013 and 2012, respectively. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment losses.

Estimated Fair Value of Investments

In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the estimated fair value of investments.

The methodologies, assumptions and inputs utilized are described in Note 10 of the Notes to the Consolidated Financial Statements.

Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain investments.

Investment Impairments

One of the significant estimates related to available-for-sale (“AFS”) securities is our impairment evaluation. The assessment of whether an other-than-temporary impairment (“OTTI”) occurred is based on our case-by-case evaluation of the underlying reasons for the decline in estimated fair value on a security-by-security basis. Our review of each fixed maturity and equity security for OTTI includes an analysis of gross unrealized losses by three categories of severity and/or age of gross unrealized loss. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments. Accordingly, such an unrealized loss position may not impact our evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, greater weight and consideration are given to a decline in estimated fair value and the likelihood such estimated fair value decline will recover.

Additionally, we consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in our evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Factors we consider in the OTTI evaluation process are described in Note 8 of the Notes to the Consolidated Financial Statements.

The determination of the amount of allowances and impairments on the remaining invested asset classes is highly subjective and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available.


16		MetLife, Inc.

See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of the amount of allowances and impairments.

Derivatives

The determination of estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 10 of the Notes to the Consolidated Financial Statements for additional details on significant inputs into the over-the-counter (“OTC”) derivative pricing models and credit risk adjustment.

We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees. The projections of future benefits and future fees require capital market and actuarial assumptions, including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk-free rates. The valuation of these embedded derivatives also includes an adjustment for our nonperformance risk and risk margins for non-capital market inputs. The nonperformance risk adjustment, which is captured as a spread over the risk-free rate in determining the discount rate to discount the cash flows of the liability, is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.

The table below illustrates the impact that a range of reasonably likely variances in credit spreads would have on our consolidated balance sheet, excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value. However, these estimated effects do not take into account potential changes in other variables, such as equity price levels and market volatility, which can also contribute significantly to changes in carrying values. Therefore, the table does not necessarily reflect the ultimate impact on the consolidated financial statement under the credit spread variance scenarios presented below.

In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated over the near term. The ranges do not reflect extreme market conditions experienced during the financial crisis as we do not consider those to be reasonably likely events in the near future.


	Changes in Balance Sheet Carrying Value At December 31, 2014

	Policyholder Account Balances			DAC and VOBA
	(In millions)

100% increase in our credit spread	$	(413	)	$	(593	)

As reported	$	(146	)	$	(557	)

50% decrease in our credit spread (1)	$	—		$	(537	)

(1) Results in less than a $1 million impact to policyholder account balances.

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

Variable annuities with guaranteed minimum benefits may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates, changes in our nonperformance risk, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income. If interpretations change, there is a risk that features previously not bifurcated may require bifurcation and reporting at estimated fair value in the consolidated financial statements and respective changes in estimated fair value could materially affect net income.

Additionally, we ceded the risk associated with certain of the variable annuities with guaranteed minimum benefits described in the preceding paragraphs. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously for the guarantees directly written by us with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. Because certain of the direct guarantees do not meet the definition of an embedded derivative and, thus are not accounted for at fair value, significant fluctuations in net income may occur since the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a corresponding and offsetting change in fair value of the direct guarantee.

See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our derivatives and hedging programs.


MetLife, Inc.		17

Goodwill

Goodwill is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test.

For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, the implied fair value of the reporting unit goodwill is compared to the carrying value of that goodwill to measure the amount of impairment loss, if any. In such instances, the implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business acquisition. The Company tests goodwill for impairment by either performing a qualitative assessment or a two-step quantitative test. The qualitative assessment is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company may elect not to perform the qualitative assessment for some or all of its reporting units and instead perform a two-step quantitative impairment test. In performing the two-step quantitative impairment test, the Company may use a market multiple valuation approach and a discounted cash flow valuation approach. For reporting units which are particularly sensitive to market assumptions, the Company may use additional valuation methodologies to estimate the reporting units’ fair values. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units include projected operating earnings, current book value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account value of in-force business, projections of new and renewal business, as well as margins on such business, the level of interest rates, credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit.

Effective January 1, 2015, the Company implemented certain segment reporting changes, which were approved by the chief operating decision maker in the fourth quarter of 2014. As a result, goodwill was re-tested for impairment during the fourth quarter of 2014 using estimated revised carrying amounts of the reporting units. The Company concluded that the fair values of all reporting units were in excess of their carrying value and, therefore, goodwill was not impaired. See Note 2 of the Notes to the Consolidated Financial Statements.

During the 2014 and 2013 annual goodwill impairment tests, we concluded that the fair values of all reporting units were in excess of their carrying values and, therefore, goodwill was not impaired.

In 2012, we performed the annual goodwill impairment test on our Retail Annuities reporting unit using both the market multiple and discounted cash flow valuation approaches. Results for both approaches indicated that the fair value of the Retail Annuities reporting unit was below its carrying value. As a result, an actuarial appraisal, which estimates the net worth of the reporting unit, the value of existing business and the value of new business, was performed. This appraisal resulted in a fair value of the Retail Annuities reporting unit that was less than the carrying value, indicating a potential for goodwill impairment. The actuarial appraisal reflected the expected market impact to a buyer of changes in the regulatory environment, continued low interest rates for an extended period of time, and other market and economic factors. We performed Step 2 of the goodwill impairment process, which compares the implied fair value of the reporting unit’s goodwill with its carrying value. This analysis indicated that the recorded goodwill associated with this reporting unit was not recoverable. Therefore, we recorded a non-cash charge of $1.9 billion ($1.6 billion, net of income tax) for the impairment of the entire goodwill balance that is reported in goodwill impairment in the consolidated statements of operations and comprehensive income for the year ended December 31, 2012.

We apply significant judgment when determining the estimated fair value of our reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position.

See Note 11 of the Notes to the Consolidated Financial Statements for additional information on our goodwill.

Employee Benefit Plans

Certain subsidiaries of MetLife, Inc. sponsor and/or administer various plans that provide defined benefit pension and other postretirement benefits covering eligible employees and sales representatives. The calculation of the obligations and expenses associated with these plans requires an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases and healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal rates and mortality. In consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as historical experience of the plan and its assets, currently available market and industry data, and expected benefit payout streams.

We determine the expected rate of return on plan assets based upon an approach that considers inflation, real return, term premium, credit spreads, equity risk premium and capital appreciation, as well as expenses, expected asset manager performance, asset weights and the effect of rebalancing. Given the amount of plan assets as of December 31, 2013, the beginning of the measurement year, if we had assumed an expected rate of return for both our pension and other postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs would have been a decrease of $92 million and an increase of $92 million, respectively, in 2014. This considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return.

We determine the discount rates used to value the pension and postretirement obligations, based upon rates commensurate with current yields on high quality corporate bonds. Given our pension and postretirement obligations as of December 31, 2013, the beginning of the measurement year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic benefit costs would have been a decrease of $130 million and an increase of $144 million, respectively, in 2014. This considers only changes in our assumed discount rates without consideration of possible


18		MetLife, Inc.

changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant effect on the Company’s consolidated financial statements and liquidity.

See Note 18 of the Notes to the Consolidated Financial Statements for additional discussion of assumptions used in measuring liabilities relating to our employee benefit plans.

Income Taxes

We provide for federal, state and foreign income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Our accounting for income taxes represents our best estimate of various events and transactions. These tax laws are complex and are subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions, both domestic and foreign.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such determination, the Company considers many factors, including:

(i)

the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;

(ii)

the jurisdiction in which the deferred tax asset was generated;

(iii)

the length of time that carryforwards can be utilized in the various taxing jurisdiction;

(iv)

future taxable income exclusive of reversing temporary differences and carryforwards;

(v)

future reversals of existing taxable temporary differences;

(vi)

taxable income in prior carryback years; and

(vii)

tax planning strategies.

Disputes over interpretations of the tax laws may be subject to review and adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon audit. We determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in the financial statements. We may be required to change our provision for income taxes when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.

See Note 19 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.

Litigation Contingencies

We are a party to a number of legal actions and are involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on our financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult to estimate due to the limitation of available data and uncertainty regarding numerous variables that can affect liability estimates. The data and variables that impact the assumptions used to estimate our asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the law in the jurisdictions in which claims are filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims against us when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.

See Note 21 of the Notes to the Consolidated Financial Statements for additional information regarding our assessment of litigation contingencies.

Economic Capital

Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in our business.

Our economic capital model 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


MetLife, Inc.		19

calibrating required economic capital shock factors to a specific confidence level and time horizon and 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.

For our domestic segments, 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, operating earnings or income (loss) from continuing operations, net of income tax.

Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.

MetLife 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. See “— Executive Summary — Consolidated Company Outlook” for information regarding the change in our capital allocation methodology.

Acquisitions and Dispositions

In July 2014, all regulatory approvals necessary to establish the previously announced life insurance joint venture in Vietnam among MetLife, Inc. (through MetLife Limited), Joint Stock Commercial Bank for Investment & Development of Vietnam and Bank for Investment & Development of Vietnam Insurance Joint Stock Corporation were received. Operations of the joint venture (BIDV MetLife Life Insurance Limited Liability Company) commenced in the fourth quarter of 2014.

In April 2014, MetLife, Inc. and Malaysia’s AMMB Holdings Bhd (“AMMB”) successfully completed the formation of their previously announced strategic partnership, in which each now holds approximately 50% of both AmMetLife Insurance Berhad and AmMetTakaful Berhad, each of which became parties to exclusive 20-year distribution agreements with AMMB bank affiliates.

See Note 3 of the Notes to the Consolidated Financial Statements for further information regarding the Company’s acquisitions and dispositions.


20		MetLife, Inc.

Results of Operations

Consolidated Results

Sales experience was mixed across our businesses for the year ended December 31, 2014 as compared to 2013. With the slow and steady economic recovery in the U.S., our group term life, dental and disability businesses generated premium growth through stronger sales and improved persistency, with the dental business also benefiting from the positive impact of pricing actions on existing business. The introduction of new products also drove growth in our voluntary benefits business. The sustained low interest rate environment has contributed to the underfunding of pension plans; as a result, we experienced a decrease in sales of pension closeouts. Competitive pricing and a relative increase in participation drove an increase in structured settlement sales. Sales of domestic variable annuities declined as we continued to focus on pricing discipline and risk management. Sales in the majority of our other businesses abroad improved. In our Retail segment, higher fixed and indexed annuity sales were partially offset by lower sales of life products, mainly driven by the discontinuance of our lifetime secondary guarantees on universal life products.


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Revenues

Premiums	$	39,067		$	37,674		$	37,975

Universal life and investment-type product policy fees		9,946			9,451			8,556

Net investment income		21,153			22,232			21,984

Other revenues		2,030			1,920			1,906

Net investment gains (losses)		(197	)		161			(352	)

Net derivative gains (losses)		1,317			(3,239	)		(1,919	)

Total revenues		73,316			68,199			68,150


Expenses

Policyholder benefits and claims and policyholder dividends		40,478			39,366			39,356

Interest credited to policyholder account balances		6,943			8,179			7,729

Goodwill impairment		—			—			1,868

Capitalization of DAC		(4,183	)		(4,786	)		(5,289	)

Amortization of DAC and VOBA		4,132			3,550			4,199

Amortization of negative VOBA		(442	)		(579	)		(622	)

Interest expense on debt		1,216			1,282			1,356

Other expenses		16,368			17,135			18,111

Total expenses		64,512			64,147			66,708


Income (loss) from continuing operations before provision for income tax		8,804			4,052			1,442

Provision for income tax expense (benefit)		2,465			661			128

Income (loss) from continuing operations, net of income tax		6,339			3,391			1,314

Income (loss) from discontinued operations, net of income tax		(3	)		2			48

Net income (loss)		6,336			3,393			1,362

Less: Net income (loss) attributable to noncontrolling interests		27			25			38

Net income (loss) attributable to MetLife, Inc.		6,309			3,368			1,324

Less: Preferred stock dividends		122			122			122

Net income (loss) available to MetLife, Inc.’s common shareholders	$	6,187		$	3,246		$	1,202

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

During the year ended December 31, 2014, income (loss) from continuing operations, before provision for income tax, increased $4.8 billion ($2.9 billion, net of income tax) from 2013 primarily driven by a favorable change in net derivative gains (losses), partially offset by an unfavorable change in net investment gains (losses). Income (loss) from continuing operations, before provision for income tax also reflects a $262 million ($174 million, net of income tax) favorable change as a result of our annual assumption reviews related to reserves and DAC.

We manage our investment portfolio using disciplined ALM principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted net investment income and risk-adjusted total return. Our investment portfolio is heavily weighted


MetLife, Inc.		21

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. We also use derivatives as an integral part of our management of the investment portfolio to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels.

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 use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. Certain 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.

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. 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.

The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:


	Years Ended December 31,
	2014			2013
	(In millions)

Non-VA program derivatives

Interest rate	$	927		$	(1,609	)

Foreign currency exchange rate		(25	)		(1,225	)

Credit		89			187

Equity		(62	)		(61	)

Non-VA embedded derivatives		(99	)		123

Total non-VA program derivatives		830			(2,585	)


VA program derivatives

Market risks in embedded derivatives		31			6,101

Nonperformance risk on embedded derivatives		13			(952	)

Other risks in embedded derivatives		(266	)		(169	)

Total embedded derivatives		(222	)		4,980

Freestanding derivatives hedging embedded derivatives		709			(5,634	)

Total VA program derivatives		487			(654	)

Net derivative gains (losses)	$	1,317		$	(3,239	)

The favorable change in net derivative gains (losses) on non-VA program derivatives was $3.4 billion ($2.2 billion, net of income tax). This was primarily due to long-term interest rates decreasing in 2014 and increasing in 2013, favorably impacting receive-fixed interest rate swaps and interest rate swaptions. These freestanding derivatives were primarily hedging long duration liability portfolios. The strengthening of the U.S. dollar relative to other key currencies, as well as the Japanese yen weakening less against the U.S. dollar in 2014 versus 2013, favorably impacted foreign currency swaps and forwards that primarily hedge foreign denominated fixed maturity securities. 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 $1.1 billion ($742 million, net of income tax). This was due to a favorable change of $965 million ($627 million, net of income tax) related to the change in the nonperformance risk adjustment on embedded derivatives and a favorable change of $273 million ($178 million, net of income tax) on market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks, partially offset by an unfavorable change of $97 million ($63 million, net of income tax) on other risks in embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.


22		MetLife, Inc.

The aforementioned $965 million ($627 million, net of income tax) favorable change in the nonperformance risk adjustment was due to a favorable change of $629 million, before income tax, as a result of changes in capital market inputs, such as long-term interest rates and key equity index levels, on the variable annuity guarantees, as well as a favorable change of $336 million, before income tax, related to changes in our own credit spread.

When equity index levels decrease in isolation, the variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk free rate, thus creating a gain from including an adjustment for nonperformance risk.

When the risk free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk free interest rate, thus creating a gain from including an adjustment for nonperformance risk.

When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk. For each of these primary market drivers, the opposite effect occurs when they move in the opposite direction.

The foregoing $273 million ($178 million, net of income tax) favorable change was comprised of a $6.3 billion ($4.1 billion, net of income tax) favorable change in freestanding derivatives hedging market risks in embedded derivatives, which was largely offset by a $6.1 billion ($3.9 billion, net of income tax) unfavorable change in market risks in embedded derivatives.

The primary changes in market factors are summarized as follows:

•

Long-term interest rates decreased in 2014 and increased in 2013, contributing to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives. For example, the 30-year U.S. swap rate decreased by 31% in 2014 and increased by 40% in 2013.

•

Key equity index levels increased less in 2014 than in 2013, contributing to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives. For example, the S&P 500 increased by 11% in 2014 and increased by 30% in 2013.

•

Changes in foreign currency exchange rates contributed to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives. For example, the U.S. dollar strengthened against the Japanese yen by 14% in 2014 as compared with 22% in 2013.

The foregoing $97 million ($63 million, net of income tax) unfavorable change in other risks in embedded derivatives was primarily due to an increase in the risk margin adjustment caused by higher policyholder behavior risks, along with updates to the actuarial assumptions, partially offset by favorable changes in all other risk factors.

The unfavorable change in net investment gains (losses) of $358 million ($233 million, net of income tax) primarily reflects a 2014 loss on the disposition of MAL, partially offset by 2014 gains on sales of real estate and real estate joint ventures.

Our 2014 results include a $161 million ($105 million, net of income tax) benefit associated with our annual assumption review related to reserves and DAC, of which $137 million ($89 million, net of income tax) was recognized in net derivative gains (losses). Of the $161 million benefit, $82 million ($53 million, net of income tax) was related to DAC and $79 million ($52 million, net of income tax) was associated with reserves.

The $137 million gain recognized in net derivative gains (losses) associated with our annual assumption review was included within the other risks in embedded derivatives caption in the table above.

As a result of our annual assumption review, changes were made to economic, policyholder behavior, mortality and other assumptions. The most significant impacts were in the Retail Life and Annuity blocks of businesses and are summarized as follows:

•

Changes in economic assumptions resulted in a decrease in reserves, offset by unfavorable DAC, resulting in a net benefit of $229 million ($149 million, net of income tax).

•

Changes to policyholder behavior and mortality assumptions resulted in reserve increases, offset by favorable DAC, resulting in a net loss of $175 million ($114 million, net of income tax).

•

The remaining updates resulted in a decrease in reserves, coupled with favorable DAC, resulting in a benefit of $107 million ($70 million, net of income tax). The most notable update was related to our projection of closed block results.

Our 2013 results include a $101 million ($69 million, net of income tax) charge associated with our annual assumption review related to reserves and DAC, of which $138 million ($90 million, net of income tax) was recognized in net derivative gains (losses). Of the $101 million charge, $228 million ($150 million, net of income tax) was related to reserves, offset by $127 million ($81 million, net of income tax) associated with DAC. The $138 million loss recorded in net derivative gains (losses) associated with our annual assumption review was included within the other risks in embedded derivatives caption in the table above.

Income (loss) from continuing operations, before provision for income tax, related to the divested businesses, excluding net investment gains (losses) and net derivative gains (losses), improved $156 million to a loss of $13 million in 2014 from a loss of $169 million in 2013. Included in this improvement was a decrease in total revenues of $142 million, before income tax, and a decrease in total expenses of $298 million, before income tax. The divested businesses include certain MetLife Bank businesses and MAL.

Income tax expense for the year ended December 31, 2014 was $2.5 billion, or 28% of income (loss) from continuing operations before provision for income tax, compared with $661 million, or 16% of income (loss) from continuing operations before provision for income tax, for


MetLife, Inc.		23

the year ended December 31, 2013. The Company’s 2014 and 2013 effective tax rates differed from the U.S. statutory rate of 35% primarily due to non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. The Company’s 2013 effective tax rate also reflected tax benefits in Japan related to the 2012 branch restructuring and the estimated reversal of temporary differences. Our 2014 results include a $38 million tax charge related to a portion of the aforementioned settlement of a licensing matter, and the PPACA fee, both of which were not deductible for income tax purposes, as well as a $54 million tax charge related to tax reform in Chile and a $45 million tax charge related to the repatriation of earnings from Japan. These charges were partially offset by a $32 million one-time tax benefit related to the filing of the Company’s U.S. federal tax return. In addition, in 2013, the Company received an income tax refund from the Japanese tax authority and recorded a $119 million reduction to income tax expense.

As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use operating 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 operating earnings and operating 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. Operating earnings and operating earnings available to common shareholders should not be viewed as substitutes for income (loss) from continuing operations, net of income tax, and net income (loss) available to MetLife, Inc.’s common shareholders, respectively. Operating earnings available to common shareholders increased $299 million, net of income tax, to $6.6 billion, net of income tax, for the year ended December 31, 2014 from $6.3 billion, net of income tax, for the year ended December 31, 2013.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

During the year ended December 31, 2013, income (loss) from continuing operations, before provision for income tax, increased $2.6 billion ($2.1 billion, net of income tax) from 2012 primarily driven by a 2012 goodwill impairment charge combined with favorable changes in net investment gains (losses) and operating earnings, partially offset by an unfavorable change in net derivative gains (losses). Also included in income (loss) from continuing operations, before provision for income tax, are the improved results of the divested businesses.


	Years Ended December 31,
	2013			2012
	(In millions)

Non-VA program derivatives

Interest rate	$	(1,609	)	$	271

Foreign currency exchange rate		(1,225	)		(426	)

Credit		187			(105	)

Equity		(61	)		1

Non-VA embedded derivatives		123			(61	)

Total non-VA program derivatives		(2,585	)		(320	)


VA program derivatives

Market risks in embedded derivatives		6,101			4,303

Nonperformance risk on embedded derivatives		(952	)		(1,659	)

Other risks in embedded derivatives		(169	)		(1,344	)

Total embedded derivatives		4,980			1,300

Freestanding derivatives hedging embedded derivatives		(5,634	)		(2,899	)

Total VA program derivatives		(654	)		(1,599	)

Net derivative gains (losses)	$	(3,239	)	$	(1,919	)

The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $2.3 billion ($1.5 billion, net of income tax). This was primarily due to long-term interest rates increasing more in 2013 than in 2012, unfavorably impacting receive-fixed interest rate swaps, net long interest rate floors and receiver swaptions. These freestanding derivatives were primarily hedging long duration liability portfolios. The weakening of the Japanese yen relative to other key currencies unfavorably impacted foreign currency forwards and futures that primarily hedge certain bonds. 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 $945 million ($614 million, net of income tax). This was due to a favorable change of $1.2 billion ($763 million, net of income tax) on other risks in embedded derivatives, a favorable change of $707 million ($460 million, net of income tax) related to the change in the nonperformance risk adjustment on embedded derivatives and an


24		MetLife, Inc.

unfavorable change of $937 million ($609 million, net of income tax) on market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.

The nonperformance risk adjustment loss of $952 million ($619 million, net of income tax) in 2013 was comprised of a loss of $337 million due to a decrease in our own credit spread, as well as a loss of $615 million due to the impact of changes in capital market inputs, such as long-term interest rates and key equity index levels, on the variable annuity guarantees. We calculate the nonperformance risk adjustment as the change in the embedded derivative discounted at the risk adjusted rate (which includes our own credit spread to the extent that the embedded derivative is in-the-money) less the change in the embedded derivative discounted at the risk-free rate.

The foregoing $1.2 billion ($763 million, net of income tax) favorable change in other risks in embedded derivatives was primarily due to the cross effect of capital markets changes and refinements in the attribution analysis and valuation model, including periodic updates to actuarial assumptions and updates to better reflect product features, which accounted for $961 million of this favorable change. Other items contributing to this change included:

•

A decrease in the risk margin adjustment caused by lower policyholder behavior risks, which resulted in a favorable year over year change in the valuation of the embedded derivatives.

•

The mismatch of fund performance between actual and modeled funds and periodic updates to the mapping of policyholder funds into groups of representative indices, which resulted in a favorable year over year change in the valuation of the embedded derivatives.

•

A combination of other factors, such as in-force changes, resulted in an unfavorable year over year change in the valuation of the embedded derivatives.

The foregoing $937 million ($609 million, net of income tax) unfavorable change is comprised of a $2.7 billion ($1.8 billion, net of income tax) unfavorable change in freestanding derivatives that hedge market risks in embedded derivatives, which was partially offset by a $1.8 billion ($1.2 billion, net of income tax) favorable change in market risks in embedded derivatives.

The primary changes in market factors are summarized as follows:

•

Long-term interest rates increased more in 2013 than in 2012, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives.

•

Key equity index levels increased more in 2013 than in 2012 contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives.

•

Key equity volatility measures decreased less in 2013 than in 2012, contributing to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives.

•

Changes in foreign currency exchange rates contributed to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives.

The favorable change in net investment gains (losses) primarily reflects an increase in net gains on sales of fixed maturity securities in 2013 coupled with a decrease in fixed maturity securities impairments from lower intent-to-sell impairments and improving economic fundamentals.

During our 2013 goodwill impairment testing, we determined that goodwill was not impaired. In 2012, we recorded a $1.9 billion ($1.6 billion, net of income tax) non-cash charge for goodwill impairment associated with our U.S. Retail annuities business.

Our 2013 results include a $101 million ($69 million, net of income tax) charge associated with the global review of assumptions related to reserves and DAC, of which $138 million ($90 million, net of income tax) was recognized in net derivative gains (losses). Of the $101 million charge, $228 million ($150 million, net of income tax) was related to reserves, offset by $127 million ($81 million, net of income tax) associated with DAC.

The foregoing $138 million loss recorded in net derivative gains (losses) associated with the global review of assumptions was included within the other risks in embedded derivatives caption in the table above.

As a result of the global review of assumptions, changes were made to policyholder behavior and mortality assumptions, as well as to economic assumptions. The most significant impacts were in Retail Annuities.

•

Changes to policyholder behavior and mortality assumptions resulted in reserve increases, offset by favorable DAC, for a net loss of $154 million ($103 million, net of income tax).

•

Changes in economic assumptions resulted in a decrease in reserves, offset by unfavorable DAC, for a net benefit of $53 million ($34 million, net of income tax).

Income (loss) from continuing operations, before provision for income tax, related to divested businesses, excluding net investment gains (losses) and net derivative gains (losses), increased $448 million to a loss of $169 million in 2013 from a loss of $617 million in 2012. Included in this improvement was a decrease in total revenues of $970 million, before income tax, and a decrease in total expenses of $1.4 billion, before income tax.

Income tax expense for the year ended December 31, 2013 was $661 million, or 16% of income (loss) from continuing operations before income tax, compared with $128 million, or 9% of income (loss) from continuing operations before income tax, for 2012. Foreign earnings include one-time tax benefits of $119 million related to the receipt of a Japan tax refund, $69 million related to the estimated reversal of Japan temporary differences, and $65 million related to the change in repatriation assumptions for foreign earnings of certain European operations. In addition, as previously mentioned, the year ended December 31, 2012 included a $1.9 billion ($1.6 billion, net of income tax) non-cash charge for goodwill impairment. The tax benefit associated with this charge was limited to $247 million on the associated tax goodwill.

Operating earnings available to common shareholders increased $612 million, net of income tax, to $6.3 billion, net of income tax, for the year ended December 31, 2013 from $5.6 billion, net of income tax, in 2012.


MetLife, Inc.		25

Reconciliation of income (loss) from continuing operations, net of income tax, to operating earnings available to common shareholders

Year Ended December 31, 2014


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA			Corporate & Other			Total
	(In millions)
Income (loss) from continuing operations, net of income tax	$	2,574		$	1,073		$	1,371		$	457		$	1,181		$	407		$	(724	)	$	6,339
Less: Net investment gains (losses)		(7	)		(39	)		(432	)		30			512			(17	)		(244	)		(197	)
Less: Net derivative gains (losses)		564			525			352			(60	)		(532	)		114			354			1,317
Less: Goodwill impairment		—			—			—			—			—			—			—			—
Less: Other adjustments to continuing operations (1)		(671	)		(167	)		(112	)		(243	)		(122	)		36			(97	)		(1,376	)
Less: Provision for income tax (expense) benefit		42			(111	)		52			48			35			(88	)		(65	)		(87	)

Operating earnings	$	2,646		$	865		$	1,511		$	682		$	1,288		$	362			(672	)		6,682

Less: Preferred stock dividends																				122			122

Operating earnings available to common shareholders																			$	(794	)	$	6,560

Year Ended December 31, 2013


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA			Corporate & Other			Total
	(In millions)
Income (loss) from continuing operations, net of income tax	$	1,498		$	397		$	1,192		$	666		$	582		$	349		$	(1,293	)	$	3,391
Less: Net investment gains (losses)		70			(21	)		(8	)		20			343			(16	)		(227	)		161
Less: Net derivative gains (losses)		(724	)		(676	)		(235	)		(24	)		(1,057	)		(6	)		(517	)		(3,239	)
Less: Goodwill impairment		—			—			—			—			—			—			—			—
Less: Other adjustments to continuing operations (1)		(926	)		(172	)		87			167			(435	)		75			(393	)		(1,597	)
Less: Provision for income tax (expense) benefit		554			304			53			(71	)		487			(33	)		389			1,683

Operating earnings	$	2,524		$	962		$	1,295		$	574		$	1,244		$	329			(545	)		6,383

Less: Preferred stock dividends																				122			122

Operating earnings available to common shareholders																			$	(667	)	$	6,261

Year Ended December 31, 2012


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA			Corporate & Other			Total
	(In millions)
Income (loss) from continuing operations, net of income tax	$	(44	)	$	824		$	1,220		$	479		$	976		$	293		$	(2,434	)	$	1,314
Less: Net investment gains (losses)		212			(7	)		107			(2	)		(342	)		31			(351	)		(352	)
Less: Net derivative gains (losses)		162			(63	)		(157	)		38			(170	)		61			(1,790	)		(1,919	)
Less: Goodwill impairment		(1,692	)		—			—			—			—			—			(176	)		(1,868	)
Less: Other adjustments to continuing operations (1)		(1,260	)		(141	)		77			(193	)		(32	)		(22	)		(921	)		(2,492	)
Less: Provision for income tax (expense) benefit		532			75			(10	)		53			483			(48	)		1,089			2,174

Operating earnings	$	2,002		$	960		$	1,203		$	583		$	1,037		$	271			(285	)		5,771

Less: Preferred stock dividends																				122			122

Operating earnings available to common shareholders																			$	(407	)	$	5,649

(1)	See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments.


26		MetLife, Inc.

Reconciliation of GAAP revenues to operating revenues and GAAP expenses to operating expenses

Year Ended December 31, 2014


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA			Corporate & Other			Total
	(In millions)
Total revenues	$	21,843		$	19,278		$	9,016		$	5,598		$	12,583		$	4,307		$	691		$	73,316
Less: Net investment gains (losses)		(7	)		(39	)		(432	)		30			512			(17	)		(244	)		(197	)
Less: Net derivative gains (losses)		564			525			352			(60	)		(532	)		114			354			1,317
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		(1	)		—			—			—			11			10			—			20
Less: Other adjustments to revenues (1)		(79	)		(167	)		17			41			371			857			56			1,096

Total operating revenues	$	21,366		$	18,959		$	9,079		$	5,587		$	12,221		$	3,343		$	525		$	71,080

Total expenses	$	17,929		$	17,630		$	6,885		$	5,033		$	10,862		$	3,744		$	2,429		$	64,512
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		26			—			—			—			(3	)		12			—			35
Less: Goodwill impairment		—			—			—			—			—			—			—			—
Less: Other adjustments to expenses (1)		565			—			129			284			507			819			153			2,457

Total operating expenses	$	17,338		$	17,630		$	6,756		$	4,749		$	10,358		$	2,913		$	2,276		$	62,020

Year Ended December 31, 2013


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA			Corporate & Other			Total
	(In millions)
Total revenues	$	19,574		$	17,343		$	8,967		$	5,165		$	13,204		$	3,937		$	9		$	68,199
Less: Net investment gains (losses)		70			(21	)		(8	)		20			343			(16	)		(227	)		161
Less: Net derivative gains (losses)		(724	)		(676	)		(235	)		(24	)		(1,057	)		(6	)		(517	)		(3,239	)
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		(9	)		—			—			—			2			14			—			7
Less: Other adjustments to revenues (1)		(119	)		(172	)		297			85			1,386			667			110			2,254

Total operating revenues	$	20,356		$	18,212		$	8,913		$	5,084		$	12,530		$	3,278		$	643		$	69,016

Total expenses	$	17,316		$	16,762		$	7,132		$	4,285		$	12,552		$	3,477		$	2,623		$	64,147
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		(197	)		—			—			—			(15	)		16			—			(196	)
Less: Goodwill impairment		—			—			—			—			—			—			—			—
Less: Other adjustments to expenses (1)		995			—			210			(82	)		1,838			590			503			4,054

Total operating expenses	$	16,518		$	16,762		$	6,922		$	4,367		$	10,729		$	2,871		$	2,120		$	60,289

Year Ended December 31, 2012


	Retail			Group, Voluntary & Worksite Benefits			Corporate Benefit Funding			Latin America			Asia			EMEA		Corporate & Other			Total
	(In millions)
Total revenues	$	19,939		$	17,436		$	9,460		$	4,845		$	12,793		$	4,279	$	(602	)	$	68,150
Less: Net investment gains (losses)		212			(7	)		107			(2	)		(342	)		31		(351	)		(352	)
Less: Net derivative gains (losses)		162			(63	)		(157	)		38			(170	)		61		(1,790	)		(1,919	)
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		—			—			—			—			—			15		—			15
Less: Other adjustments to revenues (1)		(77	)		(140	)		803			232			549			813		616			2,796

Total operating revenues	$	19,642		$	17,646		$	8,707		$	4,577		$	12,756		$	3,359	$	923		$	67,610

Total expenses	$	19,483		$	16,206		$	7,584		$	4,289		$	11,746		$	3,792	$	3,608		$	66,708
Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)		19			—			—			—			4			18		—			41
Less: Goodwill impairment		1,692			—			—			—			—			—		176			1,868
Less: Other adjustments to expenses (1)		1,164			1			726			425			577			832		1,537			5,262

Total operating expenses	$	16,608		$	16,205		$	6,858		$	3,864		$	11,165		$	2,942	$	1,895		$	59,537

(1)	See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments.


MetLife, Inc.		27

Consolidated Results — Operating


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	39,022		$	37,583		$	37,355

Universal life and investment-type product policy fees		9,541			9,085			8,212

Net investment income		20,484			20,394			20,287

Other revenues		2,033			1,954			1,756

Total operating revenues		71,080			69,016			67,610


Operating expenses

Policyholder benefits and claims and policyholder dividends		39,478			37,746			37,105

Interest credited to policyholder account balances		5,661			6,015			6,242

Capitalization of DAC		(4,182	)		(4,786	)		(5,284	)

Amortization of DAC and VOBA		4,027			4,083			4,177

Amortization of negative VOBA		(396	)		(524	)		(555	)

Interest expense on debt		1,178			1,159			1,190

Other expenses		16,254			16,596			16,662

Total operating expenses		62,020			60,289			59,537

Provision for income tax expense (benefit)		2,378			2,344			2,302


Operating earnings		6,682			6,383			5,771

Less: Preferred stock dividends		122			122			122

Operating earnings available to common shareholders	$	6,560		$	6,261		$	5,649

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

The primary drivers of the increase in operating earnings were higher net investment income from portfolio growth, higher asset-based fee income and a decrease in interest credited expense, partially offset by unfavorable mortality, morbidity and claims experience and the impact of decreasing investment yields on net investment income. Excluding the impact of the aforementioned tax reform charge in Chile, the fourth quarter 2013 acquisition of ProVida increased operating earnings by $166 million. Changes in foreign currency exchange rates had a $127 million negative impact on results compared to 2013.

We benefited from strong sales and business growth across many of our products as evidenced by higher asset-based fee income from growth in our businesses abroad. However, we continue to focus on pricing discipline and risk management which resulted in a decrease in sales of our variable annuity products. This decline in sales, in combination with surrenders and withdrawals, resulted in negative net flows, which caused lower average separate account assets and, consequently, lower asset-based fee income in our Retail segment. Excluding the impact of the divested businesses and the acquisition of ProVida, growth in our investment portfolios in the majority of our segments generated higher net investment income. Our property & casualty businesses benefited from an increase in average premium per policy. These positive results were partially offset by an associated increase in DAC amortization. The changes in business growth discussed above resulted in a $409 million increase in operating earnings.

Market factors, including the sustained low interest rate environment, continued to impact our investment yields, as well as our crediting rates. Excluding the results of the divested businesses, the acquisition of ProVida and the impact of inflation-indexed investments in the Latin America segment, investment yields decreased. Certain of our inflation-indexed products are backed by inflation-indexed investments. Changes in inflation cause fluctuations in net investment income with a corresponding fluctuation in policyholder benefits, resulting in a minimal impact to operating earnings. Investment yields were negatively impacted by the adverse impact of the sustained low interest rate environment on fixed maturity securities and mortgage loans yields, lower returns on our hedge funds, as well as increased holdings of lower yielding Japanese government securities in the Japan fixed annuity business. These decreases were partially offset by higher returns on interest rate derivatives, real estate joint ventures and private equity investments. Yields were also favorably impacted by increased sales of foreign currency-denominated fixed annuities in Japan, resulting in an increase in higher yielding foreign currency-denominated fixed maturity securities. The sustained low interest rate environment also resulted in lower interest credited expense as we set interest credited rates lower on both new business and certain in-force business with rate resets that are contractually tied to external indices or contain discretionary rate reset provisions. Our average separate account balances grew with the equity markets driving higher fee income in our annuity business. However, this was partially offset by higher DAC amortization due to the significant prior period equity market increase, as well as higher asset-based commissions and costs associated with our variable annuity guaranteed minimum death benefits (“GMDBs”). The changes in market factors discussed above resulted in a $147 million decrease in operating earnings.


28		MetLife, Inc.

Less favorable mortality and morbidity was driven by our Group, Voluntary & Worksite Benefits segment. In addition, in our property & casualty businesses, catastrophe-related losses increased due to severe storm activity in 2014. Non-catastrophe related claim costs also increased as a result of severe winter weather in 2014. Claims experience in our Latin America segment was also unfavorable. The combined impact of mortality, morbidity and claims experience decreased operating earnings by $146 million.

On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC. These annual updates, which occurred in both years, resulted in a $12 million decrease in operating earnings in 2014 as compared to 2013. In addition to our annual updates, refinements to DAC and certain insurance-related liabilities that were recorded in both years increased operating earnings by $75 million. Such refinements include favorable reserve adjustments in 2014 related to disability premium waivers and a 2014 charge related to delayed settlement interest on unclaimed funds held by state governments, both in our life business within our Retail segment, as well as a write-down of DAC and VOBA in 2013 related to pension reform in Poland within our EMEA segment. Also, our 2013 results include a reserve strengthening in Australia within our Asia segment of $57 million, net of reinsurance.

A $112 million decrease in expenses was primarily driven by lower employee-related costs. In addition, our 2014 results include charges totaling $57 million related to the aforementioned settlement of a licensing matter with the Department of Financial Services and the District Attorney, New York County. The PPACA fee reduced operating earnings by $58 million in 2014. We increased our litigation reserves related to asbestos more in 2014 than in 2013 resulting in a $16 million decline in operating earnings.

The Company’s 2014 and 2013 effective tax rates differed from the U.S. statutory rate of 35% primarily due to non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. In 2014, the Company realized a $32 million tax benefit related to the filing of the Company’s U.S. federal tax return, as well as additional tax benefits of $36 million related to the separate account dividends received deduction and $58 million primarily related to foreign earnings taxed at rates lower than the U.S. and other tax preference items. However, this was partially offset by a $38 million tax charge related to a portion of the aforementioned settlement of a licensing matter and the PPACA fee, both of which were not deductible for income tax purposes.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

During the fourth quarter of 2013, we increased our litigation reserve related to asbestos by $101 million. During 2013, we also increased our other litigation reserves by $46 million. The fourth quarter 2013 acquisition of ProVida in Chile increased operating earnings by $48 million. In addition, the year ended December 31, 2012 included a $52 million charge representing a multi-state examination payment related to unclaimed property and our use of the U.S. Social Security Administration’s Death Master File to identify potential life insurance claims, as well as the acceleration of benefit payments to policyholders under the settlements of such claims. Changes in foreign currency exchange rates had a $58 million negative impact on results compared to 2012.

In 2013, we made additional changes to variable annuity guarantee features which, in combination with product changes made in 2012, resulted in a significant decrease in variable annuity sales in our Retail segment. The demand for foreign currency-denominated fixed annuity products in Japan also declined as a result of a weakening yen and a sharp increase in equity markets, which decreased sales. However, as a result of significant positive net flows in our Retail segment since 2012, we experienced growth in our average separate account assets. This, combined with an increase in surrenders in Japan driven by market conditions, generated higher policy fee income of $382 million. Deposits and funding agreement issuances in 2013 in our Corporate Benefit Funding segment, combined with positive net flows from our universal life business resulted in growth in our investment portfolio which generated higher net investment income of $394 million. This increase in net investment income was partially offset by a $138 million corresponding increase in interest credited on certain liabilities, most notably in the Corporate Benefit Funding segment. A decrease in commissions, which was primarily driven by the decline in annuity sales, was partially offset by a decrease in related DAC capitalization, which combined, resulted in a $103 million increase in operating earnings. An increase in average premium per policy, coupled with an increase in exposures in our property & casualty businesses resulted in a $106 million increase in operating earnings. Overall business growth was the primary driver of higher DAC amortization of $302 million in 2013. In our international segments, higher premiums were more than offset by higher policyholder benefits and operating expenses, resulting in a $123 million decrease in operating earnings.

Market factors, including the sustained low interest rate environment, continued to impact our investment yields, as well as our crediting rates. Excluding the results of the divested businesses and the impact of inflation-indexed investments in the Latin America segment, investment yields declined. Certain of our inflation-indexed products are backed by inflation-indexed investments. Changes in inflation cause fluctuations in net investment income with a corresponding fluctuation in policyholder benefits, resulting in a minimal impact to operating earnings. Yield changes were primarily driven by the impact of the low interest rate environment on fixed maturity securities and mortgage loans and from lower returns on real estate joint ventures. These declines were partially offset by higher income on interest rate derivatives, improved returns on other limited partnership interests and the favorable impact of the continued repositioning of the Japan portfolio to higher yielding investments. A significant portion of these derivatives was entered into prior to the onset of the current low interest rate environment to mitigate the risk of low interest rates in the U.S. The low interest rate environment also resulted in lower interest credited expense as we set interest credited rates lower on both new business and certain in-force business with rate resets that are contractually tied to external indices or contain discretionary rate reset provisions. Our average separate account balance grew with the equity markets driving higher fee income in our annuity business. This continued positive equity market performance also resulted in lower DAC amortization. The changes in market factors discussed above resulted in a $256 million increase in operating earnings.

We experienced less favorable mortality in our Group, Voluntary & Worksite Benefits and Retail segments. In our Group, Voluntary & Worksite Benefits segment, mixed claims experience with a net unfavorable result was driven by an increase in claims incidence. In our property & casualty businesses, catastrophe-related losses decreased as compared to 2012, primarily due to Superstorm Sandy in 2012; however, this was partially offset by an increase in non-catastrophe claim costs, which were primarily the result of higher frequencies. The combined impact of mortality and claims experience decreased operating earnings by $101 million.


MetLife, Inc.		29

Our annual assumption updates resulted in a $20 million increase in operating earnings primarily driven by the Asia segment. In addition to our annual updates, other adjustments and DAC refinements were recorded in both 2013 and 2012 and resulted in a $21 million decrease in operating earnings. Also, as a result of a review of our own recent claims experience, and in consideration of the worsening trend for the industry in Australia, we strengthened our group total and permanent disability claim reserves in Australia, which reduced operating earnings by $57 million.

In addition, an increase in operating expenses, primarily employee-related costs, was partially offset by a decline in expenses, most notably in our Retail segment, primarily driven by savings from the Company’s enterprise-wide strategic initiative and resulted in an $82 million decrease in operating earnings.

In 2013, the Company realized additional tax benefits of $187 million compared to 2012, primarily from the higher utilization of tax preferenced investments and the Company’s decision to permanently reinvest certain foreign earnings.

Segment Results and Corporate & Other

Retail


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	7,280		$	6,528		$	6,532

Universal life and investment-type product policy fees		5,074			4,912			4,561

Net investment income		7,953			7,898			7,670

Other revenues		1,059			1,018			879

Total operating revenues		21,366			20,356			19,642


Operating expenses

Policyholder benefits and claims and policyholder dividends		9,851			9,028			9,010

Interest credited to policyholder account balances		2,245			2,331			2,375

Capitalization of DAC		(969	)		(1,309	)		(1,753	)

Amortization of DAC and VOBA		1,515			1,384			1,607

Interest expense on debt		1			—			—

Other expenses		4,695			5,084			5,369

Total operating expenses		17,338			16,518			16,608

Provision for income tax expense (benefit)		1,382			1,314			1,032

Operating earnings	$	2,646		$	2,524		$	2,002

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

Changes to our guarantee features since 2012, along with continued management of sales in 2014 by focusing on pricing discipline and risk management, drove a $4.5 billion, or 41%, decrease in variable annuity sales. Life sales were also lower, mainly driven by the discontinuance of our lifetime secondary guarantees on universal life products. These declines were partially offset by an increase in fixed and indexed annuity sales. We expect our sales of annuities to increase in the future. To this end, we introduced new variable annuity products and/or enhancements in late 2014 and early 2015. A significant portion of our operating earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact DAC amortization and asset-based commissions. Separate account balances are driven by sales, movements in the market, surrenders, withdrawals, benefit payments, transfers and policy charges. Separate account balances increased over 2013 as a result of continued strong market performance, partially offset by negative net flows as surrenders and withdrawals exceeded sales.

A $124 million increase in operating earnings was attributable to business growth. Our life businesses had positive net flows, despite a decline in universal life sales, which resulted in higher net investment income. This favorable impact was partially offset by increases in DAC amortization and interest credited expenses, as well as lower fees, as 2013 benefited from the first year fees received on the now discontinued lifetime secondary guarantees on our universal life products. In our deferred annuities business, the impact of negative net flows contributed to a decrease in asset-based fee income, partially offset by a reduction in interest credited expenses in the general account. Additionally, costs associated with our variable annuity GMDBs were lower. In our property & casualty business, an increase in average premium per policy in both our auto and homeowners businesses contributed to the increase in operating earnings. In addition, we earned more income on a larger invested asset base, which resulted from a higher amount of allocated equity as compared to 2013.


30		MetLife, Inc.

A $48 million decrease in operating earnings was attributable to market factors, including equity markets and interest rates. Strong equity market performance led to higher asset-based commissions, which were, in part, driven by separate account balances, higher DAC amortization and costs associated with our GMDBs. The more favorable separate account returns in 2013 drove lower DAC amortization in 2013 as compared to 2014 where equity returns were much less favorable. These negative impacts were partially offset by higher asset-based fee income in 2014 due to increased average separate account balances. This positive equity market performance also drove higher net investment income from private equity investments. The sustained low interest rate environment resulted in a decline in net investment income on our fixed maturity securities and mortgage loans as proceeds from maturing investments were reinvested at lower yields. This negative interest rate impact was partially offset by lower interest credited expense as we reduced interest credited rates on contracts with discretionary rate reset provisions, and lower DAC amortization in our life business. Lower returns in our hedge funds also decreased operating earnings and were partially offset by higher income from real estate joint ventures and increased prepayment fees.

Less favorable mortality experience in our variable and universal life business, primarily driven by three large, unreinsured claims, partially offset by favorable experience in the traditional life and immediate annuities businesses, resulted in a $40 million decrease in operating earnings. In our property & casualty business, non-catastrophe claim costs increased by $8 million as a result of higher frequencies in our auto business offset by lower frequencies in our homeowners business. Catastrophe-related losses increased $5 million as compared to 2013. In addition, favorable morbidity experience in our individual disability income business resulted in a $6 million increase in operating earnings.

On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC. These annual updates, which occurred in both years, resulted in a net operating earnings decrease of $11 million and were primarily related to unfavorable DAC unlockings in the variable annuity business, partially offset by favorable DAC unlockings in our traditional and universal life businesses. Refinements to DAC and certain insurance-related liabilities that were recorded in both periods resulted in a $7 million increase in operating earnings, which included $104 million of favorable reserve adjustments in 2014 related to disability premium waivers and a 2014 charge of $57 million related to delayed settlement interest on unclaimed funds held by state governments, both in our life business. Operating earnings increased due to a decline in expenses of $109 million, mainly the result of lower employee-related costs and the 2013 increase in litigation reserves.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts (with the exception of sales data) discussed below are net of income tax.

A $245 million increase in operating earnings was largely attributable to business growth. This growth was generated, in part, in the life and annuity businesses, despite sales declines in those businesses. Our life businesses had positive net flows, mainly in the universal life business, which is reflected in higher net investment income, partially offset by an increase in DAC amortization. On the annuities side, average separate account assets grew, driven by strong sales in 2012, resulting in an increase in asset-based fees. In our property & casualty business, an increase in average premium per policy in both our auto and homeowners businesses contributed to the increase in operating earnings. In addition, we earned more income on a larger invested asset base, which resulted from a higher amount of allocated equity in the business as compared to 2012.

The rising equity markets increased our average separate account balances driving an increase in asset-based fee income. This continued positive equity market performance also drove higher net investment income from other limited partnership interests and resulted in lower DAC amortization. These positive impacts were partially offset by higher asset-based commissions, which are also, in part, determined by separate account balances and higher costs associated with our variable annuity GMDBs. The sustained low interest rate environment resulted in a decline in net investment income on our fixed maturity securities and mortgage loans as proceeds from maturing investments are reinvested at lower yields. Additionally, we had a lower interest crediting rate on allocated equity in 2013, which resulted in lower net investment income. These negative interest rate impacts were partially offset by higher income earned on interest rate derivatives and lower interest credited expense as we reduced interest credited rates on contracts with discretionary rate reset provisions. Lower returns on real estate joint ventures also decreased operating earnings. The net impact of these items resulted in a $174 million increase in operating earnings. Also, the impact of the sustained low interest rate environment contributed to less favorable experience resulting in a reduction to our dividend scale, mainly within the closed block, which was announced in the fourth quarter of 2012. This dividend action favorably impacted operating earnings by $61 million. With respect to the results of the closed block, the impact of this dividend action was more than offset by other unfavorable earnings drivers that also affected the closed block and have been incorporated in these discussions.

Less favorable mortality experience in the variable and universal life, and income annuities businesses, partially offset by increases in the traditional life business, resulted in a $20 million decrease in operating earnings. This decrease was more than offset by the $26 million charge in 2012 for the expected acceleration of benefit payments to policyholders under a multi-state examination related to unclaimed property. In addition, unfavorable morbidity experience in our individual income disability business resulted in a $6 million decrease in operating earnings. Our property & casualty business non-catastrophe claim costs increased $33 million in 2013, mainly the result of higher frequencies in both our auto and homeowners businesses, as well as higher severities in our homeowners business, partially offset by lower severities in our auto business. Catastrophe-related losses decreased $28 million as compared to 2012, primarily due to Superstorm Sandy in 2012.

The combined impact of the 2013 and 2012 annual assumption updates resulted in a net operating earnings decrease of $55 million. This unfavorable impact was primarily related to 2012 DAC unlockings in the variable annuity business, partially offset by less unfavorable life business unlockings in 2013. In addition to our annual updates, certain insurance-related liabilities and DAC refinements recorded in both 2013 and 2012 resulted in a $76 million increase in operating earnings.

Also contributing to the increase in operating earnings was a decline in expenses of $30 million, primarily driven by $100 million of savings from the Company’s enterprise-wide strategic initiative, partially offset by an increase of $61 million related to increases in litigation reserves and postretirement benefit obligations.


MetLife, Inc.		31

Group, Voluntary & Worksite Benefits


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	15,979		$	15,250		$	14,794

Universal life and investment-type product policy fees		716			688			662

Net investment income		1,844			1,856			1,768

Other revenues		420			418			422

Total operating revenues		18,959			18,212			17,646


Operating expenses

Policyholder benefits and claims and policyholder dividends		14,897			14,227			13,691

Interest credited to policyholder account balances		156			155			167

Capitalization of DAC		(143	)		(141	)		(138	)

Amortization of DAC and VOBA		149			140			133

Interest expense on debt		1			1			1

Other expenses		2,570			2,380			2,351

Total operating expenses		17,630			16,762			16,205

Provision for income tax expense (benefit)		464			488			481

Operating earnings	$	865		$	962		$	960

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

The macroeconomic environment is demonstrating steady growth and instilling further confidence in the U.S. economy. The improvement in the U.S. economy and overall employment remain slow and steady. In 2014, premiums increased across the segment. Our term life, dental and disability businesses generated premium growth through stronger sales and improved persistency, with the dental business also benefiting from pricing actions on existing business. In addition, premiums in our term life business increased due to the impact of experience adjustments on our participating contracts; however, changes in premiums for these contracts were almost entirely offset by the related changes in policyholder benefits. The introduction of new products also drove growth in the voluntary benefits business. Although we have discontinued selling our LTC product, we continue to collect premiums and administer the existing block of business, contributing to asset growth in the segment.

Our life business experienced less favorable mortality in 2014, mainly due to an increase in claims severity in the term life business and increased claims incidence in the group universal life business, which resulted in a $48 million decrease in operating earnings. Unfavorable claims experience in our disability business, driven by higher approvals, was partially offset by higher net closures. In addition, increased utilization of services across the channels of our dental business was partially offset by the impact of lapses on certain insurance liabilities, higher net closures in our LTC business and favorable claims incidence in our accidental death and dismemberment (“AD&D”) business. Our overall net unfavorable claims experience resulted in a $14 million decrease in operating earnings. The impact of favorable refinements to certain insurance and other liabilities in 2014 resulted in an increase in operating earnings of $27 million. In our property & casualty business, catastrophe-related losses increased by $21 million as compared to 2013, mainly due to severe storm activity in 2014. In addition, severe winter weather in 2014 increased non-catastrophe claim costs by $18 million, which was the result of higher frequencies in both our auto and homeowners businesses, as well as higher severities in our homeowners business, partially offset by lower severities in our auto business. These unfavorable results were partially offset by additional favorable development of prior year non-catastrophe losses, which improved operating earnings by $15 million.

The impact of changes in market factors, including lower yields on our fixed maturity securities and mortgage loans, and decreased income on alternative investments, partially offset by higher returns on our real estate joint ventures and private equity investments, resulted in lower investment yields. Unlike in the Retail and Corporate Benefit Funding segments, in the Group Voluntary & Worksite Benefits segment, a change in investment yield does not necessarily drive a corresponding change in the rates credited on certain insurance liabilities. The decrease in investment yields, slightly offset by lower crediting rates in 2014, reduced operating earnings by $35 million.

The increase in average premium per policy in both our auto and homeowners businesses improved operating earnings by $42 million. Growth in premiums and deposits in 2014, partially offset by a reduction in other liabilities, PABs and allocated equity, resulted in an increase in our average invested assets, increasing operating earnings by $30 million. Consistent with the growth in average invested assets from premiums and deposits, primarily in our LTC business, interest credited on long-duration contracts and PABs increased by $24 million. The PPACA fee increased other expenses by $58 million in 2014; however, the impact of the assessment was significantly offset by a related increase in premiums in the dental business. The remaining increase in other operating expenses, including higher marketing and sales support costs in our property & casualty business, was partially offset by the remaining increase in premiums, fees and other revenues.


32		MetLife, Inc.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

An increase in average premium per policy in both our auto and homeowners businesses improved operating earnings by $44 million. In addition, an increase in exposures resulted in an $11 million increase in operating earnings. The positive impact from higher premiums on this increase in exposures exceeded the negative impact from the related claims. Exposures are defined generally as each automobile for the auto line of business and each residence for the homeowners line of business. An increase in allocated equity and growth in premiums and deposits in 2013, partially offset by a reduction in other liabilities, resulted in an increase in our average invested assets, increasing operating earnings by $34 million. Consistent with the growth in average invested assets from 2013 premiums and deposits, primarily in our LTC business, interest credited on long-duration contracts and policyholder account balances increased by $19 million. In the fourth quarter of 2012, we recorded a $50 million impairment charge on an intangible asset related to a previously acquired dental business. The favorable impact of this 2012 charge was almost entirely offset by higher operating expenses in 2013, primarily from postretirement benefit costs across the segment and an increase in marketing, advertising and sales-related expenses in our property & casualty business.

The impact of market factors, including increased income on interest rate derivatives, improved returns on real estate joint ventures and higher prepayment fees received, partially offset by lower returns on our fixed maturity securities, resulted in improved investment yields. The increase in investment yields, as well as lower crediting rates in 2013, the result of the maturity of certain long-duration contracts and PABs at higher rates, contributed $33 million to operating earnings.

Our life businesses experienced less favorable mortality in 2013, mainly due to unfavorable claims experience in the group term life and group universal life businesses, which resulted in a $46 million decrease in operating earnings. The impact of favorable reserve refinements in 2012 resulted in a decrease in operating earnings of $23 million. An increase in claims incidence in our disability, LTC and AD&D businesses, partially offset by favorable claims experience in our dental business, resulted in a $42 million decrease in operating earnings. In our property & casualty business, lower catastrophe-related losses improved operating earnings by $43 million, primarily due to the impact of Superstorm Sandy in 2012. This increase in operating earnings was partially offset by higher non-catastrophe claim costs of $18 million, the result of higher frequencies, partially offset by lower severities, in both our auto and homeowners businesses. Less favorable development of prior year non-catastrophe losses also reduced operating results by $13 million.

Corporate Benefit Funding


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	2,768		$	2,767		$	2,681

Universal life and investment-type product policy fees		226			247			225

Net investment income		5,799			5,621			5,542

Other revenues		286			278			259

Total operating revenues		9,079			8,913			8,707


Operating expenses

Policyholder benefits and claims and policyholder dividends		5,106			5,180			5,039

Interest credited to policyholder account balances		1,140			1,233			1,358

Capitalization of DAC		(31	)		(27	)		(29	)

Amortization of DAC and VOBA		19			23			22

Interest expense on debt		9			9			8

Other expenses		513			504			460

Total operating expenses		6,756			6,922			6,858

Provision for income tax expense (benefit)		812			696			646

Operating earnings	$	1,511		$	1,295		$	1,203

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

The sustained low interest rate environment has contributed to the underfunding of pension plans, which limits our customers’ ability to engage in full pension plan closeout terminations. However, we expect that customers may choose to close out portions of pension plans over time, at costs reflecting current interest rates and availability of capital. Lower pension plan closeouts in 2014 resulted in a decrease in premiums. However, competitive pricing and a relative increase in participation drove an increase in structured settlement sales in 2014. Changes in premiums for these businesses were almost entirely offset by the related changes in policyholder benefits.


MetLife, Inc.		33

The sustained low interest rate environment impacted our interest credited rates, as well as our investment yields. Many of our funding agreements and guaranteed interest contract liabilities have interest credited rates that are contractually tied to external indices and, as a result, we set lower interest credited rates on new business, as well as on existing business with terms that can fluctuate. The sustained low interest rate environment drove lower investment yields on mortgage loans and fixed maturity securities. In addition, hedge fund income declined. These unfavorable changes were partially offset by the impact of changes in market factors that drove higher income on interest rate derivatives and improved returns on real estate joint ventures. The impact of lower interest credited expense offset by lower investment returns resulted in an increase in operating earnings of $34 million.

The impact of 2014 deposits and funding agreement issuances, as well as increases in allocated equity and other liabilities, resulted in higher invested assets, which drove an increase in net investment income that was partially offset by the related increase in interest credited expense and resulted in a $122 million increase in operating earnings. In addition, strong investment performance and large case sales for our separate account products drove higher average account balances which resulted in an increase in separate account fees of $8 million.

Favorable mortality in 2014, primarily in our structured settlements business, resulted in a $24 million increase in operating earnings. The net impact of insurance liability refinements that were recorded in both years increased operating earnings by $28 million.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

The impact of 2013 deposits and funding agreement issuances contributed to an increase in invested assets, resulting in an increase of $164 million in operating earnings. Growth in deposits and funding agreement issuances generally results in a corresponding increase in interest credited on certain insurance liabilities; this decreased operating earnings by $118 million compared to 2012.

The sustained low interest rate environment continued to impact our investment returns, as well as interest credited on certain insurance liabilities. Lower investment returns on our fixed maturity securities, mortgage loans and real estate joint ventures were partially offset by increased earnings on interest rate derivatives and our securities lending program. Many of our funding agreement and guaranteed interest contract liabilities have interest credited rates that are contractually tied to external indices and, as a result, we set lower interest credited rates on new business, as well as on existing business with terms that can fluctuate. The impact of lower interest credited expense was partially offset by lower investment returns and resulted in a net increase in operating earnings of $81 million.

Mortality results were mixed across our products and resulted in a slight increase in operating earnings. The net impact of insurance liability refinements in both 2013 and 2012 decreased operating earnings by $25 million.

Higher costs associated with technology initiatives and pension and postretirement benefit plans, as well as an increase in litigation reserves, were partially offset by lower employee-related expenses realized through operating efficiencies. This increase in operating expenses was slightly offset by higher fees earned on our separate account balances, which grew during 2013 as a result of an increase in average separate account deposits. The net impact of these items was a $10 million decrease in operating earnings.

Latin America


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	2,967		$	2,824		$	2,578

Universal life and investment-type product policy fees		1,239			991			785

Net investment income		1,347			1,246			1,198

Other revenues		34			23			16

Total operating revenues		5,587			5,084			4,577


Operating expenses

Policyholder benefits and claims and policyholder dividends		2,743			2,454			2,231

Interest credited to policyholder account balances		394			417			393

Capitalization of DAC		(385	)		(424	)		(353	)

Amortization of DAC and VOBA		321			310			224

Amortization of negative VOBA		(1	)		(2	)		(5	)

Interest expense on debt		—			—			(1	)

Other expenses		1,677			1,612			1,375

Total operating expenses		4,749			4,367			3,864

Provision for income tax expense (benefit)		156			143			130

Operating earnings	$	682		$	574		$	583


34		MetLife, Inc.

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings increased by $108 million over 2013. The impact of changes in foreign currency exchange rates decreased operating earnings by $57 million compared to 2013.

A tax reform bill was enacted in Chile on September 29, 2014 which includes, among other things, a gradual increase in the corporate tax rate. Our Chilean businesses, including ProVida, incurred a one-time tax charge of $41 million as a result of this legislation. Excluding the aforementioned tax reform, our operating earnings increased by $166 million in 2014 due to the fourth quarter 2013 acquisition of ProVida.

Latin America experienced organic growth and increased sales of life products in several countries, as well as in our U.S. sponsored direct business. This was partially offset by decreased pension and accident & health sales in Mexico and Brazil. The resulting increase in premiums was partially offset by related changes in policyholder benefits. Growth in our businesses and the impact of inflation drove an increase in average invested assets, which generated higher net investment income and higher policy fee income, partially offset by a corresponding increase in interest credited on certain insurance liabilities. Increases in marketing costs and commissions resulted in higher operating expenses. Business growth also drove an increase in DAC amortization. The items discussed above were the primary drivers of an $80 million increase in operating earnings.

The net impact of changes in market factors resulted in a $21 million decrease in operating earnings. This decrease was primarily driven by higher interest credited expense, the unfavorable impact of inflation, and lower yields from alternative investments and mortgage loans in Chile, partially offset by higher investment yields on fixed income securities in Chile and Brazil.

Tax-related adjustments in both 2014 and 2013 increased operating earnings by $47 million, excluding the aforementioned tax reform. These tax-related adjustments include 2014 tax benefits related to the devaluation of the peso in Argentina, inflation in Argentina and Chile, and a 2013 tax rate change in Mexico. These increases were partially offset by unfavorable claims experience, primarily due to increased claims severity and frequency in Mexico, Chile and Brazil, which decreased operating earnings by $32 million. In addition, higher expenses, primarily generated by employee- and information technology-related costs across several countries, decreased operating earnings by $19 million.

On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC, which resulted in a net operating earnings decrease of $7 million. In addition to our annual updates, other refinements to DAC and other adjustments recorded in both 2014 and 2013 resulted in a $7 million decrease in operating earnings.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings decreased by $9 million from 2012. The impact of changes in foreign currency exchange rates decreased operating earnings by $10 million compared to 2012. The fourth quarter 2013 acquisition of ProVida increased operating earnings by $48 million.

Higher premiums from sales growth in several countries were partially offset by the related changes in policyholder benefits. The growth in our businesses drove an increase in average invested assets, which generated higher net investment income and higher policy fee income, partially offset by a corresponding increase in interest credited on certain insurance liabilities. However, the increase in sales also generated a more significant increase in operating expenses, including commissions, which were partially offset by a corresponding increase in DAC capitalization. The items discussed above were the primary drivers of a $2 million decrease in operating earnings.

The net impact of market factors resulted in a slight decrease in operating earnings as lower investment yields and higher interest credited expense were offset by the favorable impact of inflation. Investment yields decreased primarily due to lower returns on fixed maturity securities in Brazil, Chile and Argentina, partially offset by improved yields on alternative investments, primarily in Chile.

Higher expenses, primarily generated by employee-related costs across several countries, decreased operating earnings by $30 million. In addition, operating earnings decreased $18 million due to certain tax-related charges in both 2013 and 2012.

The 2013 annual assumption update resulted in a net operating earnings increase of $7 million. In addition to our annual updates, other refinements to DAC and other adjustments recorded in both 2013 and 2012 resulted in a $14 million decrease in operating earnings. In addition, operating earnings increased by $11 million due to favorable claims experience in Mexico.


MetLife, Inc.		35

Asia


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	7,566		$	7,801		$	8,344

Universal life and investment-type product policy fees		1,693			1,722			1,491

Net investment income		2,856			2,915			2,895

Other revenues		106			92			26

Total operating revenues		12,221			12,530			12,756


Operating expenses

Policyholder benefits and claims and policyholder dividends		5,724			5,755			5,819

Interest credited to policyholder account balances		1,544			1,690			1,784

Capitalization of DAC		(1,914	)		(2,143	)		(2,288	)

Amortization of DAC and VOBA		1,397			1,542			1,563

Amortization of negative VOBA		(364	)		(427	)		(456	)

Interest expense on debt		—			—			5

Other expenses		3,971			4,312			4,738

Total operating expenses		10,358			10,729			11,165

Provision for income tax expense (benefit)		575			557			554

Operating earnings	$	1,288		$	1,244		$	1,037

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings increased by $44 million over 2013. The impact of changes in foreign currency exchange rates reduced operating earnings by $52 million for 2014 as compared with 2013 and resulted in significant variances in the financial statement line items. For example, while premiums, fees and other revenues decreased 3% on a reported basis, they increased 3% on a constant currency basis.

Asia’s premiums, fees and other revenues increased over 2013 primarily driven by broad based in-force growth across the region, including in our ordinary life business in Japan and our group insurance business in Australia. Positive net flows in Korea and Japan, combined with growth in our life business in India and Bangladesh, resulted in higher average invested assets and generated an increase in net investment income. Changes in premiums for these businesses were offset by related changes in policyholder benefits. The combined impact of the items discussed above improved operating earnings by $83 million.

Investment returns were negatively affected by the adverse impact of the sustained low interest rate environment on mortgage loans and an increase in lower yielding Japanese government securities, combined with lower returns on our other limited partnership interests and decreased prepayment fee income. These declines in yields were partially offset by the favorable impact of increased sales of foreign currency-denominated fixed annuities resulting in an increase in higher yielding foreign currency-denominated fixed maturity securities in Japan. Declines in yields, combined with the impact of foreign currency hedges, resulted in a $41 million decrease in operating earnings.

Our 2013 results include a strengthening of group and permanent disability claim reserves of $57 million, net of reinsurance, in Australia. In addition, refinements to DAC and certain insurance-related liabilities that were recorded in both years resulted in a $14 million increase in operating earnings. Our 2014 results for Korea decreased $5 million as a result of unfavorable claims experience, primarily in our life business, and regulatory changes.

Our 2014 results include a $9 million tax benefit related to U.S. taxation of dividends from Japan and a $4 million tax benefit resulting from a tax rate change in Japan. Our 2013 results include a $17 million tax benefit in Japan related to the estimated reversal of temporary differences and a one-time tax benefit of $10 million related to the disposal of our interest in a Korean asset management company at the beginning of 2013.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings increased by $207 million over 2012. The impact of changes in foreign currency exchange rates reduced operating earnings by $55 million for 2013 as compared to 2012 and resulted in significant variances in the financial statement line items.

Asia’s premiums and fee income increased over 2012 primarily driven by broad based in-force growth across the region, including growth of ordinary life and accident & health products in Japan, group insurance in Australia, and growth of ordinary life products in Korea


36		MetLife, Inc.

and India. Higher surrenders of fixed annuity products in Japan, driven by market conditions, also contributed to higher fee income, higher DAC amortization and a decrease in interest credited to policyholders as surrenders exceeded new business volume. Changes in premiums for these businesses were offset by related changes in policyholder benefits. Positive net flows in Japan and Bangladesh resulted in an increase in average invested assets over 2012, generating an increase in net investment income. The combined impact of the items discussed above improved operating earnings by $113 million.

Investment yields increased from the continued repositioning of the Japan investment portfolio to higher yielding investments, higher prepayment fees and improved results from real estate joint ventures. This was partially offset by lower returns on other limited partnership interests. These improvements in investment yields, combined with the positive impact of foreign currency hedges, increased operating earnings by $92 million.

The combined impact of the 2013 and 2012 annual assumption updates resulted in a net operating earnings increase of $56 million. Also in 2013, as a result of a review of our own recent claims experience, and in consideration of the worsening trend for the industry in Australia, we strengthened our group total and permanent disability claim reserves in Australia, which reduced operating earnings by $57 million, net of reinsurance.

The 2013 results include a $17 million tax benefit recorded in Japan related to the reversal of temporary differences. The 2013 results also include a $10 million one-time tax benefit related to the release of certain reserves and the disposal of our interest in a Korea asset management company at the beginning of 2013. In addition, 2012 results include a one-time tax expense of $16 million, including the adjustment of net operating loss carryforwards in Hong Kong.

EMEA


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	2,309		$	2,297		$	2,370

Universal life and investment-type product policy fees		466			386			333

Net investment income		508			498			535

Other revenues		60			97			121

Total operating revenues		3,343			3,278			3,359


Operating expenses

Policyholder benefits and claims and policyholder dividends		1,053			1,039			1,196

Interest credited to policyholder account balances		148			147			126

Capitalization of DAC		(680	)		(714	)		(723	)

Amortization of DAC and VOBA		613			683			626

Amortization of negative VOBA		(31	)		(95	)		(94	)

Interest expense on debt		—			1			1

Other expenses		1,810			1,810			1,810

Total operating expenses		2,913			2,871			2,942

Provision for income tax expense (benefit)		68			78			146

Operating earnings	$	362		$	329		$	271

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings increased by $33 million over 2013. The impact of changes in foreign currency exchange rates reduced operating earnings by $18 million for 2014 as compared to 2013.

In 2014, we converted to calendar year reporting for certain of our subsidiaries, which resulted in a $17 million increase to operating earnings. This was partially offset by a refinement in DAC in the United Kingdom (“U.K.”), which resulted in a $5 million decrease to operating earnings. Our 2013 results were negatively impacted as a result of a $30 million tax charge related to the write-off of a U.K. tax loss carryforward and by a $26 million write-down of DAC and VOBA related to pension reform in Poland. The Company received tax benefits in both years following its decision to permanently reinvest certain foreign earnings outside of the U.S., however, since the 2013 benefit was larger, operating earnings decreased by $18 million. In addition, our 2013 results benefited by $8 million due to liability refinements and a change in the local corporate tax rate in Greece.


MetLife, Inc.		37

On an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC, which resulted in a net operating earnings increase of $6 million for 2014 as compared to 2013. The amortization, or release, of negative VOBA associated with the conversion of certain policies generally results in an increase in operating earnings. In 2014, the number of policies converted declined and so, relative to 2013, this reduced operating earnings by $11 million.

An increase in sales over 2013, primarily in the Middle East and central, eastern and southern Europe, was partially offset by the impact of regulatory changes in the U.K. Net investment income increased, driven by an increase in average invested assets from business growth in Egypt, the Persian Gulf and Russia, in addition to a slight increase in yields from the lengthening of the Ireland and Greece shorter-term portfolios into higher yielding longer duration fixed maturity securities. Our 2014 results also included certain legal and re-branding expenses, while operating earnings benefited as a result of a review of certain tax liabilities. The combined impact of the items discussed above increased operating earnings by $13 million.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings increased by $58 million over 2012. The impact of changes in foreign currency exchange rates increased operating earnings by $7 million for 2013 as compared to 2012. The third quarter 2012 acquisition of life insurance businesses from the members of the Aviva Plc. group increased operating earnings by $14 million. This was offset by the disposal of certain blocks of business in the U.K. in the fourth quarter of 2012, which decreased operating earnings by $42 million.

Operating earnings decreased as a result of a $30 million tax charge in 2013 related to the write-off of a U.K. tax loss carryforward. Operating earnings were negatively impacted by a $26 million write-down of DAC and VOBA related to proposed pension reforms in Poland. In addition, 2012 results benefited by $12 million primarily due to a release of negative VOBA associated with the conversion of certain policies. These items were more than offset by a $79 million tax benefit following the Company’s decision to permanently reinvest certain foreign earnings. In addition, operating earnings benefited from adjustments totaling $8 million in Greece for liability refinements in our ordinary and deferred annuity businesses, as well as the impact of a change in the local corporate tax rate, both in the first quarter of 2013.

Business growth was driven primarily by Russia, Egypt, Poland and the Persian Gulf, partially offset by management’s decision to cease fixed annuity sales in the U.K. Operating expenses increased compared to 2012 including the effect of higher corporate allocations; however, this was offset by expense reduction initiatives primarily in France and Poland. The combined impact of the items discussed above increased operating earnings by $59 million.

An increase in average invested assets due to growth in Ireland, Russia, Egypt and Poland contributed to an increase in operating earnings of $9 million. Operating earnings decreased by $20 million reflecting lower investment yields on certain alternative asset classes, primarily in Greece, floating-rate securities, primarily in Ireland and Poland and the impact of a low rate environment on fixed-rate securities, primarily in Greece and Ukraine.

The 2013 and 2012 annual assumption updates resulted in a net operating earnings increase of $12 million, primarily related to assumption updates in the Persian Gulf and Greece.


38		MetLife, Inc.

Corporate & Other


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Operating revenues

Premiums	$	153		$	116		$	56

Universal life and investment-type product policy fees		127			139			155

Net investment income		177			360			679

Other revenues		68			28			33

Total operating revenues		525			643			923


Operating expenses

Policyholder benefits and claims and policyholder dividends		104			63			119

Interest credited to policyholder account balances		34			42			39

Capitalization of DAC		(60	)		(28	)		—

Amortization of DAC and VOBA		13			1			2

Interest expense on debt		1,167			1,148			1,176

Other expenses		1,018			894			559

Total operating expenses		2,276			2,120			1,895

Provision for income tax expense (benefit)		(1,079	)		(932	)		(687	)

Operating earnings		(672	)		(545	)		(285	)

Less: Preferred stock dividends		122			122			122

Operating earnings available to common shareholders	$	(794	)	$	(667	)	$	(407	)

The table below presents operating earnings available to common shareholders by source net of income tax:


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Other business activities	$	47		$	62		$	46

Other net investment income		122			234			444

Interest expense on debt		(759	)		(747	)		(764	)

Preferred stock dividends		(122	)		(122	)		(122	)

Acquisition costs		(5	)		(18	)		(37	)

Corporate initiatives and projects		(183	)		(134	)		(114	)

Incremental tax benefit		466			415			347

Other (including asbestos litigation)		(360	)		(357	)		(207	)

Operating earnings available to common shareholders	$	(794	)	$	(667	)	$	(407	)

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings available to common shareholders and operating earnings each decreased by $127 million, primarily due to lower net investment income and higher expenses related to corporate initiatives and projects, partially offset by higher incremental tax benefits.

Operating earnings from other business activities decreased by $15 million. Lower operating earnings from the assumed reinsurance from our former operating joint venture in Japan, primarily due to lower returns in 2014, were partially offset by higher operating earnings from start-up operations.

Other net investment income decreased by $112 million. This decrease was driven by an increase in the amount credited to the segments due to growth in the economic capital managed by Corporate & Other on their behalf, the adverse impact of the sustained low interest rate environment on yields from our fixed maturity securities and lower returns on real estate investments. These decreases were partially offset by improved returns on other limited partnership interests and higher mark-to-market income on residential mortgage loans carried at fair value.


MetLife, Inc.		39

Interest expense on debt increased by $12 million, mainly due to the issuance of $1.0 billion of senior notes in April 2014 and the recognition of issuance costs related to the early redemption of senior notes in May 2014.

Acquisition costs decreased by $13 million due to lower internal resource costs for associates committed to certain acquisition activities.

Expenses related to corporate initiatives and projects increased by $49 million, primarily due to higher relocation costs, severance and consulting expenses. These expenses include a $16 million decrease in restructuring charges, the majority of which related to severance.

Corporate & Other benefits from the impact of certain permanent tax differences, including non-taxable investment income and tax credits for investments in low income housing. As a result, our effective tax rate differs from the U.S. statutory rate of 35%. The tax benefit in 2014 included additional tax benefits of $36 million relating to the separate account dividends received deduction and a $16 million tax benefit related to the timing of certain tax credits. In addition, we received tax benefits of $32 million in 2014 and $10 million in 2013 related to the filing of the Company’s U.S. federal tax returns. These benefits were offset by an $18 million tax charge related to a portion of the aforementioned settlement of a licensing matter that was not deductible for income tax purposes. In addition, we had lower utilization of tax preferenced investments and other benefits which decreased our operating earnings by $5 million from 2013.

Our results for 2014 include charges totaling $57 million related to the settlement of a licensing matter with the Department of Financial Services and the District Attorney, New York County. In addition, we increased our litigation reserves related to asbestos more in 2014 than in 2013 resulting in a $16 million decline in operating earnings. This was partially offset by a $31 million decline in expenses which included decreases in interest on uncertain tax positions and an adjustment on certain reinsurance assets and liabilities. In addition, declines in employee-related costs and lower software amortization totaling $15 million, improved operating earnings.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Unless otherwise stated, all amounts discussed below are net of income tax.

Operating earnings from other business activities increased $16 million. This was due to higher operating earnings from the assumed reinsurance of certain variable annuity products from our former operating joint venture in Japan, partially offset by losses from start-up operations. The increase in operating earnings was primarily due to higher returns in 2013 and reserve assumption updates in 2012.

Other net investment income decreased $183 million, excluding the Federal Home Loan Bank (“FHLB”) advances and the divested MetLife Bank operations. This decrease was driven by an increase in the amount credited to the segments due to growth in the economic capital managed by Corporate & Other on their behalf and lower returns on our fixed maturity securities, real estate joint ventures and alternative investments, partially offset by higher income on our credit derivatives and real estate investments.

Operating earnings on invested assets that were funded using FHLB advances decreased $10 million, reflected by decreases in net investment income and interest expense on debt, due to the transfer of $3.8 billion of FHLB advances and underlying assets from MetLife Bank to Corporate Benefit Funding in April 2012.

Acquisition costs in 2013 include $19 million of lower internal resource costs for associates committed to certain acquisition activities. Expenses associated with corporate initiatives and projects increased $20 million, primarily due to a $13 million increase in expenses associated with the Company’s enterprise-wide strategic initiative, which includes a $29 million decrease in the portion that represents restructuring charges, the majority of which related to severance. We also incurred $7 million in additional costs related to regulatory requirements for bank holding companies.

In 2013, we benefited from the impact of certain permanent tax differences, primarily higher utilization of tax preferenced investments, which improved operating earnings by $68 million from 2012.

Our results for 2013 include a $101 million accrual to increase the litigation reserve related to asbestos and $24 million of higher costs associated with interest on uncertain tax positions. In addition, in 2012, the Company benefited from the positive resolution of certain legal matters totaling $16 million and from a release of rental liability of $15 million. Partially offsetting these decreases in operating earnings was a 2012 charge of $26 million, representing a multi-state examination payment related to unclaimed property and MetLife’s use of the U.S. Social Security Administration’s Death Master File.

Effects of Inflation

Management believes that inflation has not had a material effect on the Company’s consolidated results of operations, except insofar as inflation may affect interest rates.

An increase in inflation could affect our business in several ways. During inflationary periods, the value of fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other materials, potentially putting pressure on profitability if such costs cannot be passed through in our product prices. Inflation could also lead to increased costs for losses and loss adjustment expenses in certain of our businesses, which could require us to adjust our pricing to reflect our expectations for future inflation. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.

Investments

Investment Risks

Our primary investment objective is to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring that assets and liabilities are managed on a cash flow and duration basis. The Investments Department, led by the Chief Investment


40		MetLife, Inc.

Officer, manages investment risks using a risk control framework comprised of policies, procedures and limits, as discussed further below. The Investments Risk Committee, chaired by the Global Risk Management Department (“GRM”), reviews and monitors investment risk limits and tolerances. We are exposed to the following primary sources of investment risks:

•

credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest;

•

interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive on both new funds invested and reinvestment of existing funds;

•

liquidity risk, relating to the diminished ability to sell certain investments, in times of strained market conditions;

•

market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as credit spreads. A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment portfolio, will increase losses associated with credit-based non-qualifying derivatives where we assume credit exposure, and, if credit spreads widen significantly or for an extended period of time, will likely result in higher OTTI. Credit spread tightening will reduce net investment income associated with purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position of the fixed income investment portfolio;

•

currency risk, relating to the variability in currency exchange rates for foreign denominated investments. This risk relates to potential decreases in estimated fair value and net investment income resulting from changes in currency exchange rates versus the U.S. dollar. In general, the weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value of our foreign denominated investments; and

•

real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of tenants and partners, capital markets volatility and the inherent interest rate movement.

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, avoid concentrations in any single issuer and limit overall aggregate credit exposure as measured by our economic capital framework are approved annually by a committee of directors 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 is approximately equal to 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 equity market risks.

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 its 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.

We generally 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, and may include governmental intervention. 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 deems 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. Recently, concerns about the political and economic stability of countries in regions outside the EU, including Ukraine, Russia, Argentina and the Middle East, have contributed to global market volatility. As a global insurance company, we are also affected by the monetary policy of central banks around the world. Financial markets have also been affected by concerns over the direction of U.S. fiscal policy, although these concerns have abated since late 2013. See “— Industry Trends — Financial and Economic Environment.” The Federal Reserve Board has taken a number of policy actions in recent years to spur economic activity, by keeping interest rates low and through its asset purchase programs. See “— Industry Trends — Impact of a Sustained Low Interest Rate Environment.” The ECB has also recently adopted an array of stimulus measures, including an expanded asset purchase program and a negative rate on bank deposits, which are intended to lessen the risk of a prolonged period of deflation and support economic recovery in the Euro zone. See “— Industry Trends — Financial and Economic Environment” for further information on such measures, as well as for information regarding actions taken by central banks around the


MetLife, Inc.		41

world to support the economic recovery, including actions taken by Japan’s central government and the Bank of Japan to boost inflation expectations and achieve sustainable economic growth in Japan. The Federal Reserve may take further actions to influence interest rates in the future, which may have an impact on the pricing levels of risk-bearing investments and may adversely impact the level of product sales.

European Region Investments

Excluding Europe’s perimeter region and Cyprus which are discussed below, our holdings of sovereign debt, corporate debt and perpetual hybrid securities in certain EU member states and other countries in the region that are not members of the EU (collectively, the “European Region”) were concentrated in the U.K., Germany, France, the Netherlands, Poland, Norway and Sweden. The sovereign debt of these countries continues to maintain investment grade credit ratings from all major rating agencies. We maintain general account investments in the European Region to support our insurance operations and related policyholder liabilities in these countries and certain of our non-European Region operations invest in the European Region for diversification. In the European Region, 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. Sovereign debt issued by countries outside of Europe’s perimeter region and Cyprus comprised $8.1 billion, or 99% of our European Region sovereign fixed maturity securities, at estimated fair value, at December 31, 2014. The European Region corporate securities (fixed maturity and perpetual hybrid securities classified as non-redeemable preferred stock) are invested in a diversified portfolio of primarily non-financial services securities, which comprised $22.3 billion, or 72% of European Region total corporate securities, at estimated fair value, at December 31, 2014. Of these European Region sovereign fixed maturity and corporate securities, 92% were investment grade and, for the 8% that were below investment grade, the majority were non-financial services corporate securities at December 31, 2014. European Region financial services corporate securities, at estimated fair value, were $8.9 billion, including $6.4 billion within the banking sector, with 96% invested in investment grade rated corporate securities, at December 31, 2014.

Selected Country and Sector Investments

Concerns about the economic conditions, capital markets and the solvency of certain EU member states, including Europe’s perimeter region and Cyprus, and of financial institutions that have significant direct or indirect exposure to debt issued by these countries, have been a cause of elevated levels of market volatility, and has affected the performance of various asset classes in recent years. More recently, economic conditions in Europe’s perimeter region seem to be stabilizing or improving, as evidenced by the stabilization of credit ratings, particularly in Spain, Portugal and Ireland. This, combined with greater ECB support and gradually improving macroeconomic conditions at the country level, has reduced the risk of default on the sovereign debt of certain countries in Europe’s perimeter region and Cyprus and, with the exception of Greece, the risk of possible withdrawal of one or more countries from the Euro zone. See “— Industry Trends — Financial and Economic Environment.”

In addition to Europe’s perimeter region and Cyprus, other countries, including Ukraine, Russia and Argentina, have experienced market volatility due to economic and/or political concerns. We maintain general account investments in these countries to support our insurance operations and related policyholder liabilities in these countries.

There also has been an increased focus on energy sector investments as a result of declining oil prices. Our net exposure to energy sector fixed maturity securities was $15.3 billion (inclusive of net written credit default swaps with a notional value of $285 million), of which 84% were investment grade, with an unrealized gain of $1.1 billion at December 31, 2014.

We manage direct and indirect investment exposure in both countries and sectors through fundamental credit analysis and we continually monitor and adjust our level of investment exposure in response to current market conditions. We do not expect such general account investments to have a material adverse effect on our results of operations or financial condition.


42		MetLife, Inc.

The following table presents, by country, a summary of fixed maturity securities in these selected countries. The Company has written credit default swaps where the underlying is an index comprised of companies across various sectors in the European Region. At December 31, 2014, the written credit default swaps exposure to Europe’s perimeter region and Cyprus was $119 million in notional amount and $1 million in estimated fair value. The information below is presented on a country of risk basis (e.g. the country where the issuer primarily conducts business).


	Selected Country Fixed Maturity Securities at December 31, 2014
	Sovereign			Financial Services			Non-Financial Services			Total (1)
	(In millions)

Europe’s perimeter region:

Italy	$	38		$	167		$	490		$	695

Ireland		—			10			47			57

Spain		30			261			483			774

Total Europe’s perimeter region		68			438			1,020			1,526

Cyprus		40			—			—			40

Ukraine		22			—			—			22

Russia		292			10			36			338

Argentina		403			6			147			556

Total	$	825		$	454		$	1,203		$	2,482

Investment grade %		43	%		92	%		68	%		64	%

(1)	The par value and amortized cost of the fixed maturity securities were $2.2 billion and $2.3 billion, respectively, at December 31, 2014.

Current Environment - Summary

All of these factors have had and could continue to have an adverse effect on the financial results of companies in the financial services industry, including MetLife. Such global economic conditions, as well as the global financial markets, continue to impact our net investment income, net investment gains (losses), net derivative gains (losses), and level of unrealized gains (losses) within the various asset classes in our investment portfolio, as well as our level of investment in lower yielding cash equivalents and short-term investments and government securities. See “— Industry Trends”, included elsewhere herein and “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant 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” in the 2014 Form 10-K.


MetLife, Inc.		43

Investment Portfolio Results

The following yield table presents the yield and investment income (loss) for our investment portfolio for the periods indicated. As described in the footnotes below, this table reflects certain differences from the presentation of net investment income presented in the GAAP consolidated statements of operations. This yield table presentation is consistent with how we measure our investment performance for management purposes, and we believe it enhances understanding of our investment portfolio results.


	For the Years Ended December 31,
	2014							2013							2012
	Yield% (1)				Amount			Yield% (1)				Amount			Yield% (1)				Amount
					(In millions)							(In millions)							(In millions)

Fixed maturity securities (2) (3)		4.81		%	$	14,946			4.84		%	$	15,098			4.85		%	$	15,243

Mortgage loans (3)		5.15		%		2,928			5.58		%		3,020			5.64		%		3,190

Real estate and real estate joint ventures		3.67		%		376			3.44		%		347			4.59		%		401

Policy loans		5.36		%		629			5.26		%		620			5.25		%		626

Equity securities		4.30		%		133			4.44		%		127			4.60		%		133

Other limited partnership interests		13.01		%		1,033			13.35		%		955			12.76		%		845

Cash and short-term investments		1.07		%		161			0.98		%		168			0.69		%		143

Other invested assets						906							819							595

Total before investment fees and expenses		5.01		%		21,112			5.03		%		21,154			4.96		%		21,176
Investment fees and expenses		(0.13	)			(556	)		(0.13	)			(563	)		(0.13	)			(554	)

Net investment income including Divested Businesses (4), (5)		4.88		%		20,556			4.90		%		20,591			4.83		%		20,622

Less: net investment income from Divested Businesses (4), (5)						(72	)						(197	)						(336	)

Net investment income (6)					$	20,484						$	20,394						$	20,286

(1)

Yields are calculated as investment income as a percent of average quarterly asset carrying values. Investment income excludes recognized gains and losses and reflects GAAP adjustments presented in footnote (6) below. Asset carrying values exclude unrealized gains (losses), collateral received in connection with our securities lending program, freestanding derivative assets, collateral received from derivative counterparties, the effects of consolidating certain variable interest entities (“VIEs”) under GAAP that are treated as consolidated securitization entities (“CSEs”), contractholder-directed unit-linked investments and securitized reverse residential mortgage loans. 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 (loss) includes amounts for fair value option (“FVO”) and trading securities of $103 million, $65 million and $88 million for the years ended December 31, 2014, 2013 and 2012, respectively.

(3)	Investment income from fixed maturity securities and mortgage loans includes prepayment fees.

(4)

Yield calculations include the net investment income and ending carrying values of the divested businesses. The net investment income adjustment for the divested businesses for the years ended December 31, 2014, 2013 and 2012 was $72 million, $197 million and $336 million, respectively. The net investment income adjustment includes scheduled periodic settlement payments on derivatives not qualifying for hedge accounting adjustment that are excluded in the scheduled periodic settlement payments on derivatives not qualifying for hedge accounting line in the GAAP net investment income reconciliation presented below. The scheduled periodic settlement payments excluded were $1 million, $10 million and $16 million for the years ended December 31, 2014, 2013, and 2012, respectively. For the year ended December 31, 2012, the net investment income adjustment for divested businesses of $336 million excluded $177 million of securitized reverse residential mortgage loans that were included in the divested businesses adjustment of $513 million presented below.

(5)	In the first quarter of 2014, MetLife, Inc. began reporting the operations of MAL as divested business. As a result, certain amounts in the prior periods have been reclassified to conform with the current period segment presentation. See “— Executive Summary.”


44		MetLife, Inc.

(6)

Net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications and excludes the effects of consolidating certain VIEs under GAAP that are treated as CSEs and contractholder-directed unit-linked investments. Such reclassifications are presented in the table below.


	Years Ended December 31,
	2014			2013			2012
	(In millions)

Net investment income — in the above yield table	$	20,484		$	20,394		$	20,286

Real estate discontinued operations		(1	)		(9	)		(3	)

Scheduled periodic settlement payments on derivatives not qualifying for hedge accounting		(705	)		(643	)		(448	)

Equity method operating joint ventures		(1	)		(2	)		—

Contractholder-directed unit-linked investments		1,266			2,172			1,473

Divested Businesses		72			197			513

Incremental net investment income from CSEs		38			123			163

Net investment income — GAAP consolidated statements of operations	$	21,153		$	22,232		$	21,984

See “— Results of Operations — Consolidated Results — Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013” and “— Results of Operations — Consolidated Results —Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012,” for an analysis of the year over year changes in net investment income.

Fixed Maturity and Equity Securities Available-for-Sale

Fixed maturity securities AFS, which consisted principally of publicly-traded and privately-placed fixed maturity securities and redeemable preferred stock, were $365.4 billion and $350.2 billion, at estimated fair value, at December 31, 2014 and 2013, respectively, or 71% of total cash and invested assets at both December 31, 2014 and 2013. Publicly-traded fixed maturity securities represented $315.2 billion and $302.3 billion, at estimated fair value, at December 31, 2014 and 2013, respectively, or 86% of total fixed maturity securities at both December 31, 2014 and 2013. Privately-placed fixed maturity securities represented $50.2 billion and $47.9 billion, at estimated fair value, at December 31, 2014 and 2013, respectively, or 14% of total fixed maturity securities at both December 31, 2014 and 2013.

Equity securities AFS, which consisted principally of publicly-traded and privately-held common and non-redeemable preferred stock, including certain perpetual hybrid securities and mutual fund interests, were $3.6 billion and $3.4 billion, at estimated fair value, at December 31, 2014 and 2013, respectively, or 0.7% of total cash and invested assets at both December 31, 2014 and 2013. Publicly-traded equity securities represented $2.5 billion and $2.4 billion, at estimated fair value, or 69% and 71% of total equity securities, at December 31, 2014 and 2013, respectively. Privately-held equity securities represented $1.1 billion and $1.0 billion, at estimated fair value, or 31% and 29% of total equity securities, at December 31, 2014 and 2013, respectively.

Included within fixed maturity and equity securities were $1.0 billion and $1.1 billion of perpetual securities, at estimated fair value, at December 31, 2014 and 2013, respectively. Upon acquisition, we classify perpetual securities that have attributes of both debt and equity as fixed maturity securities if the securities have an interest rate step-up feature which, when combined with other qualitative factors, indicates that the securities have more debt-like characteristics; while those with more equity-like characteristics are classified as equity securities. Many of such securities, commonly referred to as “perpetual hybrid securities” have been issued by non-U.S. financial institutions that are accorded the highest two capital treatment categories by their respective regulatory bodies (i.e. core capital, or “Tier 1 capital” and perpetual deferrable securities, or “Upper Tier 2 capital”).

Included within fixed maturity securities were $1.3 billion and $1.5 billion of redeemable preferred stock with a stated maturity, at estimated fair value, at December 31, 2014 and 2013, respectively. 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.

Valuation of Securities. We are responsible for the determination of estimated fair value of our investments. We determine the estimated fair value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent pricing services (after we determine the independent pricing services’ use of available observable market data). For publicly-traded securities, the number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by observable market data. See Note 10 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not available in the active market or through an independent pricing service, management values the security primarily using market standard internal matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the following section, less than 1% of our fixed maturity securities were valued using non-binding quotations from independent brokers at December 31, 2014.


MetLife, Inc.		45

Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies, including reviewing and approving new transaction types and markets, for ensuring that observable market prices and market-based parameters are used for valuation, wherever possible, and for determining that valuation adjustments, when applied, are based upon established policies and are applied consistently over time. We review our valuation methodologies on an ongoing basis and revise when necessary based on changing market conditions. We gain assurance on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with accounting standards for fair value determination through our controls designed to ensure that the financial assets and financial liabilities are appropriately valued and represent an exit price. We utilize several controls, 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 pricing sources, when available, reviewing independent auditor reports regarding the controls over valuation of securities employed by independent pricing services, and ongoing due diligence to confirm that independent pricing services use market-based parameters for valuation. We determine 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.

We also apply a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If we conclude that prices received from independent pricing services are not reflective of market activity or representative of estimated fair value, we will seek independent non-binding broker quotes or use an internally developed valuation to override these prices. Our internally developed valuations of current estimated fair value, which reflect our estimates of liquidity and nonperformance risks, compared with pricing received from the independent pricing services, did not produce material differences for the vast majority of our fixed maturity securities portfolio. This is, in part, because our 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. As a result, we generally use the price provided by the independent pricing service under our normal pricing protocol.

We have reviewed the significance and observability of inputs used in the valuation methodologies to determine the appropriate fair value hierarchy level for each of our securities. Based on the results of this review and investment class analysis, each instrument is categorized as Level 1, 2 or 3 based on the lowest level significant input to its valuation. See Note 10 of the Notes to the Consolidated Financial Statements for information regarding the valuation techniques and inputs by level within the three level fair value hierarchy by major classes of invested assets.

Fair Value of Fixed Maturity and Equity Securities – AFS

Fixed maturity and equity securities AFS measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources are as follows:


	December 31, 2014
	Fixed Maturity Securities				Equity Securities
	(In millions)				(In millions)

Level 1:

Quoted prices in active markets for identical assets	$	36,879	10.1	%	$	1,558	42.9	%


Level 2:

Independent pricing source		269,667	73.8			768	21.2

Internal matrix pricing or discounted cash flow techniques		36,744	10.1			960	26.4

Significant other observable inputs		306,411	83.9			1,728	47.6


Level 3:

Independent pricing source		5,500	1.5			220	6.1

Internal matrix pricing or discounted cash flow techniques		14,070	3.8			103	2.8

Independent broker quotations		2,565	0.7			22	0.6

Significant unobservable inputs		22,135	6.0			345	9.5

Total estimated fair value	$	365,425	100.0	%	$	3,631	100.0	%

See Note 10 of the Notes to the Consolidated Financial Statements for the fixed maturity securities and equity securities AFS fair value hierarchy.

The composition of fair value pricing sources for and significant changes in Level 3 securities at December 31, 2014 are as follows:

•

The majority of the Level 3 fixed maturity and equity securities AFS were concentrated in four sectors: U.S. and foreign corporate securities, residential mortgage-backed securities (“RMBS”), and asset-backed securities (“ABS”).

•

Level 3 fixed maturity securities are priced principally through market standard valuation methodologies, independent pricing services and, to a much lesser extent, independent non-binding broker quotations using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. Level 3 fixed maturity securities consist of less liquid securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies. Level 3 fixed maturity securities include: sub-prime RMBS; certain below investment grade private securities and less liquid investment grade corporate securities (included in U.S. and foreign corporate securities); less liquid ABS and foreign government securities.


46		MetLife, Inc.

•

During the year ended December 31, 2014, Level 3 fixed maturity securities decreased by $2.2 billion or 9%. The decrease was driven by net transfers out of Level 3, partially offset by purchases in excess of sales and an increase in estimated fair value recognized in other comprehensive income (loss) (“OCI”). The net transfers out of Level 3 of fixed maturity securities were concentrated in ABS, U.S. and foreign corporate securities, and foreign government securities. The purchases in excess of sales were concentrated in RMBS, U.S. and foreign corporate securities, and ABS, and the increase in estimated fair value recognized in OCI for fixed maturity securities was concentrated in U.S. corporate securities.

See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for fixed maturity securities and equity securities AFS measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs; analysis of transfers into and/or out of Level 3; and further information about the valuation techniques and inputs by level by major classes of invested assets that affect the amounts reported above.

Fixed Maturity Securities AFS

See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for further information about fixed maturity securities AFS.

Fixed Maturity Securities Credit Quality — Ratings

The Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) evaluates the fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” If no designation is available from the NAIC, then, as permitted by the NAIC, an internally developed designation is used. The NAIC designations are generally similar to the credit quality ratings of the Nationally Recognized Statistical Rating Organization (“NRSRO”) for fixed maturity securities, except for certain structured securities as described below. Rating agency ratings are based on availability of applicable ratings from rating agencies on the NAIC credit rating provider list, including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), Fitch Ratings (“Fitch”), Dominion Bond Rating Service, A.M. Best Company, Kroll Bond Rating Agency, Egan Jones Ratings Company and Morningstar, Inc. (“Morningstar”). If no rating is available from a rating agency, then an internally developed rating is used.

The NAIC has adopted revised methodologies for certain structured securities comprised of non-agency RMBS, commercial mortgage-backed securities (“CMBS”) and ABS. The NAIC’s objective with the revised methodologies for these structured securities was to increase the accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such structured securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from structured securities. We apply the revised NAIC methodologies to structured securities held by MetLife, Inc.’s insurance subsidiaries that maintain the NAIC statutory basis of accounting. The NAIC’s present methodology is to evaluate structured securities held by insurers using the revised NAIC methodologies on an annual basis. If our insurance subsidiaries acquire structured securities that have not been previously evaluated by the NAIC, but are expected to be evaluated by the NAIC in the upcoming annual review, an internally developed designation is used until a final designation becomes available.

The following table presents total fixed maturity securities by NRSRO rating and the equivalent designations of the NAIC, except for certain structured securities, which are presented using the revised NAIC methodologies as described above, as well as the percentage, based on estimated fair value that each designation is comprised of at:


		December 31,
		2014										2013
NAIC Designation	Rating Agency Rating	Amortized Cost		Unrealized Gain (Loss)			Estimated Fair Value		% of Total			Amortized Cost		Unrealized Gain (Loss)		Estimated Fair Value		% of Total
				(In millions)										(In millions)

1	Aaa/Aa/A	$	233,246	$	23,837		$	257,083		70.4	%	$	230,429	$	11,640	$	242,069		69.1	%

2	Baa		76,754		6,654			83,408		22.8			79,732		4,382		84,114		24.0

	Subtotal investment grade		310,000		30,491			340,491		93.2			310,161		16,022		326,183		93.1

3	Ba		14,967		178			15,145		4.1			13,239		358		13,597		3.9

4	B		8,481		(96	)		8,385		2.3			9,216		162		9,378		2.7

5	Caa and lower		1,296		44			1,340		0.4			932		23		955		0.3

6	In or near default		36		28			64		—			51		23		74		—

	Subtotal below investment grade		24,780		154			24,934		6.8			23,438		566		24,004		6.9

	Total fixed maturity securities	$	334,780	$	30,645		$	365,425		100.0	%	$	333,599	$	16,588	$	350,187		100.0	%


MetLife, Inc.		47

The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and the equivalent designations of the NAIC, except for certain structured securities, which are presented using the NAIC methodologies as described above:


	Fixed Maturity Securities — by Sector & Credit Quality Rating
NAIC Designation:	1			2			3			4			5			6			Total Estimated Fair Value
Rating Agency Rating:	Aaa/Aa/A			Baa			Ba			B			Caa and Lower			In or Near Default			Total Estimated Fair Value
	(In millions)

December 31, 2014

U.S. corporate	$	46,043		$	44,174		$	9,627		$	5,602		$	497		$	11		$	105,954

Foreign corporate		25,368			31,084			3,775			1,358			89			1			61,675

U.S. Treasury and agency		61,516			—			—			—			—			—			61,516

Foreign government		44,837			5,763			744			863			418			41			52,666

RMBS		37,156			1,049			766			551			318			6			39,846

State and political subdivision		14,656			501			30			—			—			—			15,187

CMBS		14,124			30			166			9			3			—			14,332

ABS		13,383			807			37			2			15			5			14,249

Total fixed maturity securities	$	257,083		$	83,408		$	15,145		$	8,385		$	1,340		$	64		$	365,425

Percentage of total		70.4	%		22.8	%		4.1	%		2.3	%		0.4	%		—	%		100.0	%

December 31, 2013

U.S. corporate	$	46,038		$	45,639		$	9,349		$	4,998		$	415		$	30		$	106,469

Foreign corporate		27,957			30,477			2,762			1,910			45			1			63,152

U.S. Treasury and agency		45,123			—			—			—			—			—			45,123

Foreign government		47,767			4,481			648			1,363			178			—			54,437

RMBS		31,385			1,657			753			974			248			38			35,055

State and political subdivision		13,222			598			10			—			—			—			13,830

CMBS		16,393			47			45			14			51			—			16,550

ABS		14,184			1,215			30			119			18			5			15,571

Total fixed maturity securities	$	242,069		$	84,114		$	13,597		$	9,378		$	955		$	74		$	350,187

Percentage of total		69.1	%		24.0	%		3.9	%		2.7	%		0.3	%		—	%		100.0	%


48		MetLife, Inc.

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 ten holdings comprise 2% of total investments at both December 31, 2014 and 2013. The tables below present our U.S. and foreign corporate securities holdings at:


	December 31,
	2014					2013
	Estimated Fair Value		% of Total			Estimated Fair Value		% of Total
	(In millions)					(In millions)

Corporate fixed maturity securities — by sector:

Foreign corporate (1)	$	61,675		36.8	%	$	63,152		37.2	%

U.S. corporate fixed maturity securities — by industry:

Consumer		27,808		16.6			27,953		16.5

Industrial		27,221		16.2			27,462		16.2

Utility		20,029		12.0			19,066		11.2

Finance		18,688		11.1			20,135		11.9

Communications		8,071		4.8			8,074		4.8

Other		4,137		2.5			3,779		2.2

Total	$	167,629		100.0	%	$	169,621		100.0	%

(1)	Includes both U.S. dollar and foreign denominated securities.

Structured Securities

We held $68.4 billion and $67.2 billion of structured securities, at estimated fair value, at December 31, 2014 and 2013, respectively, as presented in the RMBS, CMBS and ABS sections below.

RMBS

The table below presents our RMBS holdings at:


	December 31,
	2014							2013
	Estimated Fair Value		% of Total			Net Unrealized Gains (Losses)		Estimated Fair Value		% of Total			Net Unrealized Gains (Losses)
	(In millions)					(In millions)		(In millions)					(In millions)

By security type:

Collateralized mortgage obligations	$	20,269		50.9	%	$	1,083	$	19,046		54.3	%	$	705

Pass-through securities		19,577		49.1			699		16,009