ITEM 1. BUSINESS
As used in this Form 10-K, "MetLife" or the "Company" refers to MetLife,
Inc., a Delaware corporation incorporated in 1999 (the "Holding Company"), and
its subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan
MetLife, Inc., through its subsidiaries and affiliates, is a leading
provider of insurance and other financial services to individual and
institutional customers. The Company offers life insurance, annuities,
automobile and homeowner's insurance and retail banking services to individuals,
as well as group insurance, reinsurance, and retirement & savings products and
services to corporations and other institutions. The MetLife companies serve
individuals in approximately 13 million households in the United States and
provide benefits to 37 million employees and family members through their plan
sponsors, including 88 of the top one hundred FORTUNE(R) 500 companies. Outside
the United States, the MetLife companies serve approximately 9 million customers
through direct insurance operations in Argentina, Brazil, Chile, China, Hong
Kong, India, Indonesia, Mexico, South Korea, Taiwan and Uruguay.
MetLife is one of the largest insurance and financial services companies in
the United States. The Company's franchises and brand names uniquely position it
to be the preeminent provider of protection and savings and investment products
in the United States. In addition, MetLife's international operations are
focused on markets where the demand for insurance and savings and investment
products is expected to grow rapidly in the future.
MetLife's well-recognized brand names, leading market positions,
competitive and innovative product offerings and financial strength and
expertise should help drive future growth and enhance shareholder value,
building on a long history of fairness, honesty and integrity.
Over the course of the next several years, MetLife will pursue the
following specific strategies to achieve its goals:
- Build on widely recognized brand names
- Capitalize on a large customer base
- Enhance capital efficiency
- Expand distribution channels
- Continue to introduce innovative and competitive products
- Focus on international operations
- Maintain balanced focus on asset accumulation and protection products
- Manage operating expenses commensurate with revenue growth
- Further commitment to a diverse workplace
MetLife is organized into five operating segments: Institutional,
Individual, Auto & Home, International and Reinsurance, as well as Corporate &
Other. Financial information, including revenues, expenses, income and loss, and
total assets by segment, is provided in Note 16 of Notes to Consolidated
The Company's Institutional segment offers a broad range of group insurance
and retirement & savings products and services to corporations and other
Group insurance products and services include group life insurance,
non-medical health insurance products and related administrative services, as
well as other benefits, such as employer-sponsored auto and homeowner's
insurance provided through the Auto & Home segment and prepaid legal services
medical health insurance is comprised of products such as accidental death and
dismemberment, long-term care, short- and long-term disability and dental
insurance. The Company offers group insurance products as employer-paid benefits
or as voluntary benefits where all or a portion of the premiums are paid by the
employee. Revenues applicable to these group insurance products and services
were $11 billion in 2004, representing 69% of total Institutional revenues of
MetLife has built a leading position in the U.S. group insurance market
through long-standing relationships with many of the largest corporate employers
in the United States. MetLife serves companies and institutions with 37 million
employees and family members through their plan sponsors, including 88 of the
top one hundred FORTUNE(R) 500 companies.
MetLife's retirement & savings products and services include an array of
annuity and investment products, as well as bundled administrative and
investment services sold to sponsors of small- and mid-sized 401(k) and other
defined contribution plans, guaranteed interest products and other stable value
products, accumulation and income annuities, and separate account contracts for
the investment of defined benefit and defined contribution plan assets. Revenues
applicable to MetLife's retirement & savings products were $5 billion in 2004,
representing 31% of total Institutional revenues.
The employee benefit market served by Institutional is a dynamic one.
Employers continue to seek ways to reduce the costs of their benefit plans while
still attracting and retaining a motivated workforce. The continued high annual
increases in the cost of providing employee medical care benefits and retiree
benefits have resulted in many employers reviewing all of their benefit
programs. The employee benefit market also reflects employees' increasing
concern about the future of government-funded retirement and safety-net
programs, an increasingly mobile workforce and the desire of employers to share
the market risk of retirement benefits with employees. MetLife believes these
trends are facilitating the introduction and increasing employer support of
"voluntary" products, such as supplemental group life, long-term care insurance,
annuities, auto and homeowner's insurance, and certain critical care products,
as well as leading more employers to adopt defined contribution pension
arrangements, such as 401(k) plans.
MARKETING AND DISTRIBUTION
Institutional markets its products and services through separate sales
forces, comprised of MetLife employees, for both its group insurance and
retirement & savings lines.
MetLife distributes its group insurance products and services through a
regional sales force that is segmented by the size of the target customer.
Marketing representatives sell either directly to corporate and other
institutional customers or through an intermediary, such as a broker or a
consultant. Voluntary products are sold through the same sales channels, as well
as by specialists for these products. As of December 31, 2004, the group
insurance sales channels had approximately 374 marketing representatives.
MetLife group insurance products and services are distributed through the
- The national accounts unit focuses exclusively on MetLife's largest
customers, generally those having more than 25,000 employees. This unit
assigns account executives and other administrative and technical
personnel to a discrete customer or group of customers in order to
provide them with individualized products and services;
- The mid-sized market and large market are served by a regional sales
force which operates from 32 offices and generally concentrates on sales
to employers with fewer than 25,000 employees, through selected national
and regional brokers, as well as through consultants;
- The small market sales force operates out of 36 individual offices
staffed with sales and administrative employees located throughout the
United States. These centers provide comprehensive support services on a
local basis to brokers and other intermediaries by providing an array of
products and services designed for smaller businesses, generally those
with fewer than 500 employees; and
- The voluntary benefits sales force is located in the same offices as the
mid-large market sales force. It specializes in voluntary benefits for
the mid-large market through select brokers and consultants. In
addition, there are specialized sales personnel for the sale of
individual disability income policies through brokers.
MetLife's retirement & savings organization markets retirement, savings,
investment and payout annuity products and services to sponsors and advisors of
benefit plans of all sizes. These products and services are offered to private
and public pension plans, collective bargaining units, nonprofit organizations,
recipients of structured settlements and the current and retired members of
these and other institutions.
MetLife distributes retirement & savings products and services through
dedicated sales teams and relationship managers located in 21 offices around the
country. In addition, the retirement & savings organization works with the
distribution channels in the Individual segment and in the group insurance area
to better reach and service customers, brokers, consultants and other
The Company has entered into several joint ventures and other arrangements
with third parties to expand the marketing and distribution opportunities of
institutional products and services. The Company also seeks to sell its
institutional products and services through sponsoring organizations and
affinity groups. For example, the Company is a preferred provider of long-term
care products for the American Association of Retired Persons and the National
Long-Term Care Coalition, a group of some of the nation's largest employers. In
addition, the Company, together with John Hancock Financial Services, Inc., a
wholly owned subsidiary of Manulife Financial, is a provider for the Federal
Long-Term Care Insurance program. The program, available to most federal
employees and their families, is the largest employer-sponsored long-term care
insurance program in the country based on the number of enrollees.
GROUP INSURANCE PRODUCTS AND SERVICES
MetLife's group insurance products and services include:
Group life. Group life insurance products and services include group
term life (both employer paid basic life and employee paid supplemental
life), group universal life, group variable universal life, dependent life
and survivor income benefits. These products and services are offered as
standard products or may be tailored to meet specific customer needs. This
category also includes specialized life insurance products designed
specifically to provide solutions for non-qualified benefit and retiree
benefit funding purposes.
Non-medical health. Non-medical health insurance consists of short
and long-term disability, disability income, long-term care, dental and
accidental death and dismemberment coverages. MetLife also sells excess
risk and administrative services only arrangements to some employers.
Other products and services. Other products and services include
employer-sponsored auto and homeowner's insurance provided through the Auto
& Home segment and prepaid legal plans.
RETIREMENT & SAVINGS PRODUCTS AND SERVICES
MetLife's retirement & savings products and services include:
Guaranteed interest and stable value products. MetLife offers
guaranteed investment contracts ("GICs"), including separate account and
synthetic (trust) GICs, funding agreements and similar products.
Accumulation and income products. MetLife also sells fixed and
variable annuity products, generally in connection with defined
contribution plans, the termination of pension plans or the funding of
Defined contribution plan services. MetLife provides full service
defined contribution programs to small- and mid-sized companies.
Other retirement & savings products and services. Other retirement &
savings products and services include separate account contracts for the
investment management of defined benefit and defined contribution plans on
behalf of corporations and other institutions.
MetLife's Individual segment offers a wide variety of protection and asset
accumulation products aimed at serving the financial needs of its customers
throughout their entire life cycle. Products offered by Individual include
insurance products, such as traditional, universal and variable life insurance
and variable and fixed annuities. In addition, Individual sales representatives
distribute disability insurance and long-term care insurance products offered
through the Institutional segment, investment products such as mutual funds, as
well as other products offered by the Company's other businesses. Individual's
principal distribution channels are the MetLife Financial Services career agency
system, the New England Financial general agency system, and Independent
Distribution. Individual distributes its products through several additional
distribution channels, including Walnut Street Securities, MetLife Resources and
Texas Life. In total, Individual had approximately 10,800 active sales
representatives at December 31, 2004.
MetLife's broadly recognized brand names and strong distribution channels
have allowed it to become the third largest provider of individual life
insurance and annuities in the United States, with $13 billion of total
statutory individual life and annuity premiums and deposits through September
30, 2004, the latest period for which OneSource, a database that aggregates U.S.
insurance company statutory financial statements, is available. According to
research performed by the Life Insurance Marketing and Research Association
("LIMRA"), based on sales through December 31, 2004, MetLife was the third
largest issuer of individual variable life insurance in the United States and
the eighth largest issuer of all individual life insurance products in the
United States. In addition, according to research done by LIMRA and based on new
annuity deposits through September 30, 2004, MetLife was the fifth largest
annuity writer in the United States.
Reflecting overall trends in the insurance industry, sales of MetLife's
traditional life insurance products have declined in recent years. However,
during the period from 2000 to 2004, the statutory deposits for annuity products
increased at a compound annual growth rate of approximately 19.6%. Annuity
deposits represented approximately 59% of total statutory premiums and deposits
for Individual in 2004. Individual had $12.7 billion of total revenues, or 33%
of MetLife's total revenues in 2004.
MARKETING AND DISTRIBUTION
The Company targets the large middle-income market, as well as affluent
individuals, owners of small businesses and executives of small- to medium-sized
companies. The Company has also been successful in selling its products in
various multicultural markets. Individual products are distributed nationwide
through multiple channels, with the primary distribution systems being the
MetLife Financial Services career agency system, the New England Financial
general agency system, and Independent Distribution.
MetLife Financial Services career agency system. The MetLife Financial
Services career agency system had 5,597 agents under contract in 126 agencies at
December 31, 2004. The career agency sales force focuses on the large
middle-income and affluent markets, including multicultural markets. The Company
supports its efforts in multicultural markets through targeted advertising,
specially trained agents and sales literature written in various languages.
Multicultural markets represented approximately 33% of MetLife Financial
Services' individual life sales in 2004. The average face amount of a life
insurance policy sold through the career agency system in 2004 was approximately
Agents in the career agency system are full-time MetLife employees who are
compensated primarily with commissions based on sales. As MetLife employees,
they also receive certain benefits. Agents in the career agency system are not
authorized to sell other insurers' products without MetLife's approval. At
December 31, 2004, approximately 87% of the agents in the career agency system
were licensed to sell one or more of the following products: variable life
insurance, variable annuities and mutual funds.
From 2000 through 2004, the number of agents under contract in the MetLife
Financial Services career agency system increased from 5,531 to 5,597. The
increase in the number of agents is due to improving retention, which in-turn
drives increased productivity. During the same period, the career agency system
increased productivity, with net sales credits per agent, an industry measure
for agent productivity, growing at a compound annual rate of 17%.
New England Financial general agency system. New England Financial's
general agency system targets high net-worth individuals, owners of small
businesses and executives of small- to medium-sized companies. The average face
amount of a life insurance policy sold through the New England Financial general
agency system in 2004 was approximately $460,000.
At December 31, 2004, New England Financial's sales force included 58
general agencies providing support to 2,383 agents and a network of independent
brokers throughout the United States. The compensation of agents who are
independent contractors and general agents who have exclusive contracts with New
England Financial is based on sales, although general agents are also provided
with an allowance for benefits and other expenses. At December 31, 2004,
approximately 85% of New England Financial's agents were licensed to sell one or
more of the following products: variable life insurance, variable annuities and
Independent Distribution. GenAmerica Financial markets a portfolio of
individual life insurance, annuity contracts, and related financial services to
high net-worth individuals and small- to medium-sized businesses through
multiple distribution channels. These distribution channels include independent
general agents, financial advisors, consultants, brokerage general agencies and
other independent marketing organizations. The average face amount of a life
insurance policy sold through the GenAmerica Financial independent general
agency system in 2004 was approximately $420,000.
The GenAmerica Financial distribution channel sells universal life,
variable universal life, and traditional life insurance products through 1,654
independent general agencies with which it has contractual arrangements. This
reflects a 13% increase in independent general agencies from 2003 to 2004. There
are 380 independent general agents who produced at least $25,000 in first-year
insurance sales in 2004. These agents market GenAmerica Financial products and
are independent contractors who are generally responsible for the expenses of
operating their agencies, including office and overhead expenses, and the
recruiting, selection, contracting, training, and development of agents and
brokers in their agencies. Recruiting and wholesaling efforts are directed from
a nationwide network of regional offices. GenAmerica Financial is actively
developing and implementing programs designed to increase the scale and
productivity of its distribution channels.
In 2003, MetLife Investors Group's management became responsible for the
GenAmerica Financial distribution channel, building on its success in third
party distribution and taking advantage of its scale and established systems.
MetLife Investors Group is a wholesale distribution channel dedicated to
the distribution of variable and fixed annuities and insurance products through
financial intermediaries, including regional broker/dealers, New York Stock
Exchange brokerage firms, financial planners and banks. For the year ended
December 31, 2004, MetLife Investors Group had 534 selling agreements, 458 for
regional broker/dealers and financial planners, 70 for banks, 5 for brokerage
firms and 1 for a third party administrator. As of December 31, 2004, MetLife
Investors Group's sales force consisted of 100 regional vice presidents, or
MetLife Investors Group plans to continue growing existing distribution
relationships and acquiring new relationships by capitalizing on an experienced
management team, leveraging the MetLife brand and resources, and developing high
service, low-cost operations while also adding distribution of other MetLife
Additional distribution channels: The Company distributes its individual
insurance and investment products through several additional distribution
channels, including Walnut Street Securities, MetLife Resources and Texas Life.
Walnut Street Securities. Walnut Street Securities, Inc., a MetLife,
Inc. subsidiary, is a broker/ dealer that markets mutual funds and other
securities, as well as variable life insurance and variable annuity
products, through 1,359 independent registered representatives.
MetLife Resources. MetLife Resources, a division of MetLife, markets
retirement, annuity and other financial products on a national basis
through 427 agents and independent brokers. MetLife Resources targets the
nonprofit, educational and healthcare markets.
Texas Life. Texas Life Insurance Company, a MetLife, Inc. subsidiary,
markets whole life and universal life insurance products under the Texas
Life name through approximately 1,300 active independent insurance brokers.
These brokers are independent contractors who sell insurance for Texas Life
on a nonexclusive basis. A number of MetLife career agents also market
Texas Life products. Texas Life sells universal life insurance policies
with low cash values that are marketed through the use of brochures, as
well as payroll deduction life insurance products.
The Company offers a wide variety of individual insurance, as well as
annuities and investment-type products aimed at serving its customers' financial
needs throughout their entire life cycle.
The Company's individual insurance products include variable life products,
universal life products, traditional life products, including whole life and
term life, and other individual products, including individual disability and
long-term care insurance.
The Company continually reviews and updates its products. It has introduced
new products and features designed to increase the competitiveness of its
portfolio and the flexibility of its products to meet the broad range of asset
accumulation, life-cycle protection and distribution needs of its customers.
Some of these updates have included new universal life policies, updated
variable universal life products, an improved term insurance portfolio, and
enhancements to one of MetLife's whole life products.
Variable life. Variable life products provide insurance coverage through a
contract that gives the policyholder flexibility in investment choices and,
depending on the product, in premium payments and coverage amounts, with certain
guarantees. Most importantly, with variable life products, premiums and account
balances can be directed by the policyholder into a variety of separate accounts
or directed to the Company's general account. In the separate accounts, the
policyholder bears the entire risk of the investment results. MetLife collects
specified fees for the management of these various investment accounts and any
net return is credited directly to the policyholder's account. In some
instances, third-party money management firms manage investment accounts that
support variable insurance products. With some products, by maintaining a
certain premium level, policyholders may have the advantage of various
guarantees that may protect the death benefit from adverse investment
Universal life. Universal life products provide insurance coverage on the
same basis as variable life, except that premiums, and the resulting accumulated
balances, are allocated only to the MetLife general account. Universal life
products may allow the insured to increase or decrease the amount of death
benefit coverage over the term of the contract and the owner to adjust the
frequency and amount of premium payments. The Company credits premiums to an
account maintained for the policyholder. Premiums are credited net of specified
expenses and interest, at interest rates it determines, subject to specified
minimums. Specific charges are made against the policyholder's account for the
cost of insurance protection and for expenses. With some products, by
maintaining a certain premium level, policyholders may have the advantage of
various guarantees that may protect the death benefit from adverse investment
Whole life. Whole life products provide a guaranteed benefit upon the
death of the insured in return for the periodic payment of a fixed premium over
a predetermined period. Premium payments may be required for the entire life of
the contract period, to a specified age or period, and may be level or change in
accordance with a predetermined schedule. Whole life insurance includes policies
that provide a participation feature in the form of dividends. Policyholders may
receive dividends in cash or apply them to increase death benefits, increase
cash values available upon surrender or reduce the premiums required to maintain
the contract in-force. Because the use of dividends is specified by the
policyholder, this group of products provides significant
flexibility to individuals to tailor the product to suit their specific needs
and circumstances, while at the same time providing guaranteed benefits.
Term life. Term life provides a guaranteed benefit upon the death of the
insured for a specified time period in return for the periodic payment of
premiums. Specified coverage periods range from one year to 20 years, but in no
event are they longer than the period over which premiums are paid. Death
benefits may be level over the period or decreasing. Decreasing coverage is used
principally to provide for loan repayment in the event of death. Premiums may be
guaranteed at a level amount for the coverage period or may be non-level and
non-guaranteed. Term insurance products are sometimes referred to as pure
protection products, in that there are typically no savings or investment
elements. Term contracts expire without value at the end of the coverage period
when the insured party is still living.
Other individual products. Individual disability products provide a
benefit in the event of the disability of the insured. In most instances, this
benefit is in the form of monthly income paid until the insured reaches age 65.
In addition to income replacement, the product may be used to provide for the
payment of business overhead expenses for disabled business owners or mortgage
MetLife's long-term care insurance provides a fixed benefit for certain
costs associated with nursing home care and other services that may be provided
to individuals unable to perform certain activities of daily living.
In addition to these products, MetLife's Individual segment supports a
group of low face amount life insurance policies, known as industrial policies,
that its agents sold until 1964.
ANNUITIES AND INVESTMENT PRODUCTS
The Company offers a variety of individual annuities and investment
products, including variable and fixed annuities, mutual funds, and securities.
Variable annuities. The Company offers variable annuities for both asset
accumulation and asset distribution needs. Variable annuities allow the
contractholder to make deposits into various investment accounts, as determined
by the contractholder. The investment accounts are separate accounts and risks
associated with such investments are borne entirely by the contractholder. In
certain variable annuity products, contractholders may also choose to allocate
all or a portion of their account to the Company's general account and are
credited with interest at rates the Company determines, subject to certain
minimums. In addition, contractholders may also elect certain minimum death
benefit and minimum living benefit guarantees for which additional premium and
fees are charged.
Fixed annuities. Fixed annuities are used for both asset accumulation and
asset distribution needs. Fixed annuities do not allow the same investment
flexibility provided by variable annuities, but provide guarantees related to
the preservation of principal and interest credited. Deposits made into these
contracts are allocated to the general account and are credited with interest at
rates the Company determines, subject to certain minimums. Credited interest
rates may be guaranteed not to change for certain limited periods of time,
ranging from one to ten years.
Mutual funds and securities. MetLife, through its broker-dealer
affiliates, offers a full range of mutual funds and other securities products.
AUTO & HOME
Auto & Home, operating through Metropolitan Property and Casualty Insurance
Company and its subsidiaries, offers personal lines property and casualty
insurance directly to employees through employer-sponsored programs, as well as
through a variety of retail distribution channels, including the MetLife
Financial Services career agency system, independent agents, property and
casualty specialists and direct response marketing. Auto & Home primarily sells
auto insurance, which represented 73.1% of Auto & Home's total net premiums
earned in 2004, and homeowner's insurance, which represented 25.2% of Auto &
Home's total net premiums earned in 2004.
Auto & Home's insurance products include:
- auto, including both standard and non-standard private passenger;
- homeowner's, renters, condominium and dwelling; and
- other personal lines, including umbrella (protection against losses in
excess of amounts covered by other liability insurance policies),
recreational vehicles and boat owners.
Auto coverages. Auto insurance policies include coverages for private
passenger automobiles, utility automobiles and vans, motorcycles, motor homes,
antique or classic automobiles and trailers. Auto & Home offers traditional
coverages such as liability, uninsured motorist, no fault or personal injury
protection and collision and comprehensive coverages. Auto & Home also offers
non-standard auto insurance, which accounted for approximately $80 million in
net premiums earned in 2004 and represented approximately 3.7% of total auto net
premiums earned in 2004.
Homeowner's coverages. Homeowner's insurance provides protection for
homeowner's, renters, condominium owners and residential landlords against
losses arising out of damage to dwellings and contents from a wide variety of
perils, as well as coverage for liability arising from ownership or occupancy.
Traditional insurance policies for dwellings represent the majority of Auto
& Home's homeowner's policies providing protection for loss on a "replacement
cost" basis. These policies provide additional coverage for reasonable, normal
living expenses incurred by policyholders that have been displaced from their
MARKETING AND DISTRIBUTION
Personal lines auto and homeowner's insurance products are directly
marketed to employees through employer-sponsored programs. Auto & Home products
are also marketed and sold by the MetLife Financial Services career agency sales
force, independent agents, property and casualty specialists and through a
direct response channel.
Auto & Home is a leading provider of employer-sponsored auto and
homeowner's products. Net premiums earned through Auto & Home's
employer-sponsored distribution channel grew at a compound annual rate of 10.8%,
from $638 million in 2000 to $963 million in 2004. At December 31, 2004,
approximately 1,800 employers offered MetLife Auto & Home products to their
Institutional marketing representatives market the employer-sponsored Auto
& Home products to employers through a variety of means, including broker
referrals and cross-selling to MetLife group customers. Once endorsed by the
employer, MetLife commences marketing efforts to employees. Employees who are
interested in the employer-sponsored auto and homeowner's products can call a
toll-free number for a quote, purchase coverage and authorize payroll deduction
over the telephone. Auto & Home has also developed proprietary software that
permits an employee in most states to obtain a quote for employer-sponsored auto
insurance through Auto & Home's Internet website.
RETAIL DISTRIBUTION CHANNELS
MetLife markets and sells Auto & Home products through its MetLife
Financial Services career agency sales force, independent agents, property and
casualty specialists and through a direct response channel. In recent years,
MetLife has increased its use of independent agents and property and casualty
specialists to sell these products.
MetLife Financial Services career agency system. The MetLife Financial
Services career agency system has approximately 1,500 agents that sell Auto &
Home insurance products. Sales of Auto & Home products by these agents have been
declining since the early 1990s, due principally to the reduction in the number
agents in the MetLife Financial Services career agency sales force. See
"-- Individual -- Marketing and Distribution."
Independent agencies. At December 31, 2004, Auto & Home maintained
contracts with more than 3,800 agencies and brokers.
Property and casualty specialists. Auto & Home has 544 specialists located
in 34 states. Auto & Home's strategy is to utilize property and casualty
specialists, who are MetLife employees, in geographic markets that are
underserved by its career agents.
Other distribution channels. The Company also utilizes a direct response
marketing channel which permits sales to be generated through sources such as
target mailings, career agent referrals and the Internet.
In 2004, Auto & Home's business was concentrated in the following states,
as measured by net premiums earned: New York $400 million or 13.6%,
Massachusetts $371 million or 12.6%, Illinois $209 million or 7.1%, Connecticut
$141 million or 4.8%, and Minnesota $134 million or 4.5%.
Auto & Home's claims department includes approximately 2,200 employees
located in Auto & Home's Warwick, Rhode Island home office, 12 field claim
offices, 6 in-house counsel offices and drive-in inspection and other sites
throughout the United States. These employees include claim adjusters,
appraisers, attorneys, managers, medical specialists, investigators, customer
service representatives, claim financial analysts and support staff. Claim
adjusters, representing the majority of employees, investigate, evaluate and
settle over 700,000 claims annually, principally by telephone.
International provides life insurance, accident and health insurance,
annuities and retirement & savings products to both individuals and groups. The
Company focuses on emerging markets primarily within the Latin America and
Asia/Pacific regions. The Company operates in international markets through
subsidiaries and joint ventures. See "Quantitative and Qualitative Disclosures
About Market Risk."
The Company operates in the Latin America region in the following
countries: Mexico, Chile, Brazil, Argentina and Uruguay. The operations in
Mexico and Chile represent approximately 93% of the total premiums and fees in
this region for the year ended December 31, 2004. The Mexican operation is the
leading life insurance company in both the individual and group businesses in
Mexico. The Chilean operation is the third largest annuity company in Chile,
based on market share. The Chilean operation also offers individual life
insurance and group insurance products.
The Company operates in the Asia/Pacific region in the following countries:
South Korea, Taiwan, Hong Kong, Indonesia, India and China. The operations in
South Korea and Taiwan represent approximately 95% of the total premiums and
fees in this region for the year ended December 31, 2004. The South Korean
operation offers individual life insurance, annuities, savings and retirement
and non-medical health products, as well as group life and retirement products.
The Taiwanese operation offers individual life, accident and health, and
personal travel insurance products, annuities, as well as group life and group
accident and health insurance products. During the first quarter of 2004, the
Company formed a joint venture operation and commenced operations in China.
MetLife's Reinsurance segment is primarily comprised of the life
reinsurance business of Reinsurance Group of America, Incorporated ("RGA"), a
publicly traded company (NYSE: RGA), and MetLife's ancillary life reinsurance
business. MetLife owns approximately 52% of RGA's outstanding common shares at
December 31, 2004. In 2003, RGA issued additional common shares in a public
offering. MetLife purchased approximately 25% of these newly issued shares. The
Company is contemplating selling some or all of its beneficially owned shares of
RGA's operations in North America are its largest and include operations of
its Canadian and U.S. subsidiaries. In addition to its North American
operations, RGA has subsidiary companies, branch offices, or representative
offices in Australia, Barbados, Hong Kong, India, Ireland, Japan, Mexico, South
Africa, South Korea, Spain, Taiwan and the United Kingdom.
In addition to its life reinsurance business, RGA provides reinsurance of
asset-intensive products and financial reinsurance. RGA and its predecessor, the
reinsurance division of General American Life Insurance Company ("General
American"), have been engaged in the business of life reinsurance since 1973. As
of December 31, 2004, RGA had approximately $14 billion in consolidated assets
and worldwide life reinsurance in-force of approximately $1,459 billion.
RGA'S PRODUCTS AND SERVICES
RGA's operational segments are segregated primarily by geographic region:
United States, Canada, Asia/Pacific, Europe and South Africa, and Corporate and
Other. The U.S. operations, which represented 66% of RGA's 2004 net premiums,
provide traditional life, asset-intensive and financial reinsurance to domestic
clients. Traditional life reinsurance involves RGA indemnifying another
insurance company for all or a portion of the insurance risk, primarily
mortality risk, it has written. Asset-intensive products primarily include the
reinsurance of corporate-owned life insurance ("COLI") and annuities. Financial
reinsurance involves assisting RGA's clients (other insurance companies) in
managing their regulatory capital or in achieving other financial goals. The
Canadian operations, which represented 8% of RGA's 2004 net premiums, primarily
provide insurers with traditional life reinsurance. The Asia/Pacific, Europe and
South Africa operations, which represented, collectively, 26% of RGA's 2004 net
premiums, provide primarily traditional life and critical illness reinsurance
and, to a lesser extent, financial reinsurance. Traditional life reinsurance
pays upon the death of the insured and critical illness coverage pays on the
earlier of death or diagnosis of a pre-defined illness.
CORPORATE & OTHER
Corporate & Other contains the excess capital not allocated to the business
segments, various start-up entities, including MetLife Bank, N.A. ("MetLife
Bank"), a national bank, and run-off entities, as well as interest expense
related to the majority of the Company's outstanding debt and expenses
associated with certain legal proceedings and income tax audit issues. Corporate
& Other also includes the elimination of all intersegment amounts, which
generally relate to intersegment loans, which bear interest rates commensurate
with related borrowings, as well as intersegment transactions. Additionally, the
Company's asset management business, including amounts reported as discontinued
operations, is included in the results of operations for Corporate & Other.
MetLife establishes, and carries as liabilities, actuarially determined
amounts that are calculated to meet its policy obligations when an annuitant
takes income, a policy matures or surrenders, an insured dies or becomes
disabled or upon the occurrence of other covered events. MetLife computes the
amounts for actuarial liabilities reported in its consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America ("GAAP").
The liability for future policy benefits for participating traditional life
insurance is the net level reserve using the policy's guaranteed mortality rates
and the dividend fund interest rate or nonforfeiture interest rate,
as applicable. MetLife amortizes deferred policy acquisition costs ("DAC") in
relation to the product's estimated gross margins.
In establishing actuarial liabilities for certain other insurance
contracts, MetLife distinguishes between short duration and long duration
contracts. Short duration contracts generally arise from the property and
casualty business. The actuarial liability for short duration contracts consists
of gross unearned premiums as of the valuation date and the discounted amount of
the future payments on pending and approved claims as of the valuation date.
Long duration contracts consist of (i) guaranteed renewable term life, (ii) non-
participating whole life, (iii) individual disability, (iv) group life, dental
and disability, and (v) long-term care contracts. MetLife determines actuarial
liabilities for long duration contracts using assumptions based on experience,
plus a margin for adverse deviation for these policies. Where they exist,
MetLife amortizes DAC, including value of business acquired ("VOBA"), in
relation to the associated gross margins or premium.
Liabilities for investment-type and universal life-type products primarily
consist of policyholders' account balances. Investment-type products include
individual annuity contracts in the accumulation phase and certain group pension
contracts that have limited or no mortality risk. Universal life-type products
consist of universal and variable life contracts and contain group pension
contracts. For universal life-type contracts with front-end loads, MetLife
defers the charge and amortizes the unearned revenue using the product's
estimated gross profits. MetLife amortizes DAC on investment-type and universal
life-type contracts in relation to estimated gross profits. Limited pay
contracts primarily consist of single premium immediate individual and group
pension annuities. Actuarial liabilities for limited pay contracts are equal to
the present value of future benefit payments and related expenses less the
present value of future net premiums plus premium deficiency reserves, if any.
For limited pay contracts, the Company also defers the excess of the gross
premium over the net premium and recognizes such excess into income in a
constant relationship with insurance in force for life insurance contracts and
in relation to anticipated future benefit payments for annuity contracts. The
Company amortizes DAC for limited pay contracts over the premium payment period.
The Company also establishes actuarial liabilities for future policy benefits
(associated with base policies and riders, unearned mortality charges and future
disability benefits), for other policyholder liabilities (associated with
unearned revenues and claims payable) and for unearned revenue (the unamortized
portion of front-end loads charged). The Company also establishes liabilities
for minimum death and income benefit guarantees relating to certain annuity
contracts and secondary and paid up guarantees relating to certain life
The Auto & Home segment establishes actuarial liabilities to account for
the estimated ultimate costs of losses and loss adjustment expenses for claims
that have been reported but not yet settled, and claims incurred but not
reported. It bases unpaid losses and loss adjustment expenses on:
- case estimates for losses reported on direct business, adjusted in the
aggregate for ultimate loss expectations;
- estimates of incurred but not reported losses based upon past experience;
- estimates of losses on insurance assumed primarily from involuntary
market mechanisms; and
- estimates of future expenses to be incurred in settlement of claims.
For the Auto & Home segment, MetLife deducts estimated amounts of salvage
and subrogation from unpaid losses and loss adjustment expenses. Implicit in all
these estimates are underlying assumptions about rates of inflation because
MetLife determines all estimates using expected amounts to be paid. MetLife
derives estimates for the development of reported claims and for incurred but
not reported claims principally from actuarial analyses of historical patterns
of claims and claims development for each line of business. Similarly, MetLife
derives estimates of unpaid loss adjustment expenses principally from actuarial
analyses of historical development patterns of the relationship of loss
adjustment expenses to losses for each line of business. MetLife anticipates
ultimate recoveries from salvage and subrogation principally on the basis of
historical recovery patterns. MetLife calculates and records a single best
estimate liability, in conformance with generally accepted actuarial standards,
for reported losses and for incurred but not reported losses. MetLife aggregates
these estimates to form the reserve liability recorded in the consolidated
Pursuant to state insurance laws, MetLife's insurance subsidiaries
establish statutory reserves, reported as liabilities, to meet their obligations
on their respective policies. These statutory reserves are established in
amounts sufficient to meet policy and contract obligations, when taken together
with expected future premiums and interest at assumed rates. Statutory reserves
generally differ from actuarial liabilities for future policy benefits
determined using GAAP.
The New York Insurance Law and regulations require certain MetLife entities
to submit to the New York Superintendent of Insurance or other state insurance
departments, with each annual report, an opinion and memorandum of a "qualified
actuary" that the statutory reserves and related actuarial amounts recorded in
support of specified policies and contracts, and the assets supporting such
statutory reserves and related actuarial amounts, make adequate provision for
their statutory liabilities with respect to these obligations. See
"-- Regulation -- Insurance Regulation -- Policy and contract reserve
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of its actuarial liabilities,
MetLife cannot precisely determine the amounts that it will ultimately pay with
respect to these actuarial liabilities, and the ultimate amounts may vary from
the estimated amounts, particularly when payments may not occur until well into
However, MetLife believes its actuarial liabilities for future benefits are
adequate to cover the ultimate benefits required to be paid to policyholders.
MetLife periodically reviews its estimates of actuarial liabilities for future
benefits and compares them with its actual experience. It revises estimates, to
the extent permitted or required under GAAP, if it determines that future
expected experience differs from assumptions used in the development of
The Company has experienced, and will likely in the future experience,
catastrophe losses and possibly acts of terrorism that may have an adverse
impact on its business, results of operations and financial condition.
Catastrophes can be caused by various events, including hurricanes, windstorms,
earthquakes, hail, tornadoes, explosions, severe winter weather (including snow,
freezing water, ice storms and blizzards) and fires. Due to their nature, the
Company cannot predict the incidence, timing and severity of catastrophes and
acts of terrorism, but the Company makes broad use of catastrophic and
non-catastrophic reinsurance to manage risk from these perils.
UNDERWRITING AND PRICING
INSTITUTIONAL AND INDIVIDUAL
The Company's underwriting for the Institutional and Individual segments
involves an evaluation of applications for life, disability, dental, retirement
& savings, and long-term care insurance products and services by a professional
staff of underwriters and actuaries, who determine the type and the amount of
risk that the Company is willing to accept. The Company employs detailed
underwriting policies, guidelines and procedures designed to assist the
underwriter to properly assess and quantify risks before issuing policies to
qualified applicants or groups.
Individual underwriting considers not only an applicant's medical history,
but also other factors such as financial profiles, foreign travel, vocations and
alcohol, drug and tobacco use. The Company's group underwriters generally
evaluate the risk characteristics of each prospective insured group, although
with certain voluntary products, employees may be underwritten on an individual
basis. Generally, the Company is not obligated to accept any risk or group of
risks from, or to issue a policy or group of policies to, any employer or
intermediary. Requests for coverage are reviewed on their merits and generally a
policy is not issued unless the particular risk or group has been examined and
approved for underwriting. Underwriting is generally done by the Company's
employees, although some policies are reviewed by intermediaries under strict
guidelines established by the Company.
In order to maintain high standards of underwriting quality and
consistency, the Company engages in a multilevel series of ongoing internal
underwriting audits, and is subject to external audits by its reinsurers, at
both its remote underwriting offices and its corporate underwriting office.
The Company has established senior level oversight of the underwriting
process that facilitates quality sales and serving the needs of its customers,
while supporting its financial strength and business objectives. The Company's
goal is to achieve the underwriting, mortality and morbidity levels reflected in
the assumptions in its product pricing. This is accomplished by determining and
establishing underwriting policies, guidelines, philosophies and strategies that
are competitive and suitable for the customer, the agent and the Company.
Pricing for the Institutional and Individual segments reflects the
Company's insurance underwriting standards. Product pricing of insurance
products is based on the expected payout of benefits calculated through the use
of assumptions for mortality, morbidity, expenses, persistency and investment
returns, as well as certain macroeconomic factors, such as inflation. Product
specifications are designed to mitigate the risks of greater than expected
mortality, and the Company periodically monitors mortality and morbidity
assumptions. Investment-oriented products are priced based on various factors,
which may include investment return, expenses, persistency, and optionality.
Unique to the Institutional segment's pricing is experience rating. MetLife
employs both prospective and retrospective experience rating. Prospective
experience rating involves the evaluation of past experience for the purpose of
determining future premium rates. Retrospective experience rating involves the
evaluation of past experience for the purpose of determining the actual cost of
providing insurance for the customer for the period of time in question.
MetLife continually reviews its underwriting and pricing guidelines so that
its policies remain competitive and supportive of its marketing strategies and
profitability goals. Decisions are based on established actuarial pricing and
risk selection principles to ensure that MetLife's underwriting and pricing
guidelines are appropriate.
AUTO & HOME
Auto & Home's underwriting function has six principal aspects:
- evaluating potential worksite marketing employer accounts and independent
- establishing guidelines for the binding of risks by agents with binding
- reviewing coverage bound by agents;
- on a case by case basis, underwriting potential insureds presented by
agents outside the scope of their binding authority;
- pursuing information necessary in certain cases to enable Auto & Home to
issue a policy within the Company's guidelines; and
- ensuring that renewal policies continue to be written at rates
commensurate with risk.
Subject to very few exceptions, agents in each of Auto & Home's
distribution channels, as well as in MetLife's Institutional segment, have
binding authority for risks which fall within Auto & Home's published
underwriting guidelines. Risks falling outside the underwriting guidelines may
be submitted for approval to the underwriting department; alternatively, agents
in such a situation may call the underwriting department to obtain authorization
to bind the risk themselves. In most states, Auto & Home generally has the right
within a specified period (usually the first 60 days) to cancel any policy.
Auto & Home establishes prices for its major lines of insurance based on
its proprietary database, rather than relying on rating bureaus. Auto & Home
determines prices in part from a number of variables specific to each risk. The
pricing of personal lines insurance products takes into account, among other
things, the expected frequency and severity of losses, the costs of providing
coverage (including the costs of acquiring policyholders and administering
policy benefits and other administrative and overhead costs), competitive
factors and profit considerations.
The major pricing variables for personal lines automobile insurance include
characteristics of the automobile itself, such as age, make and model,
characteristics of insureds, such as driving record and experience, and the
insured's personal financial management. Auto & Home's ability to set and change
rates is subject to regulatory oversight.
As a condition of MetLife's license to do business in each state, Auto &
Home, like all other automobile insurers, is required to write or share the cost
of private passenger automobile insurance for higher risk individuals who would
otherwise be unable to obtain such insurance. This "involuntary" market, also
called the "shared market," is governed by the applicable laws and regulations
of each state, and policies written in this market are generally written at
rates higher than standard rates.
Reinsurance is written on a facultative basis or an automatic treaty basis.
Facultative reinsurance is individually underwritten by the reinsurer for each
policy to be reinsured. Factors considered in underwriting facultative
reinsurance are medical history, impairments, employment, hobbies and financial
information. An automatic reinsurance treaty provides that risks will be ceded
on specified blocks of business where the underlying policies meet the ceding
company's underwriting criteria. In contrast to facultative reinsurance, the
reinsurer does not approve each individual risk. Automatic reinsurance treaties
generally provide that the reinsurer will be liable for a portion of the risk
associated with specified policies written by the ceding company. Factors
considered in underwriting automatic reinsurance are the product's underwriting,
pricing, distribution and optionality, as well as the ceding company's retention
and financial strength.
In addition to the activity of the Reinsurance Segment, MetLife cedes
premiums to other insurers under various agreements that cover individual risks,
group risks or defined blocks of business, on a coinsurance, yearly renewable
term, excess or catastrophe excess basis. These reinsurance agreements spread
the risk and minimize the effect of losses. The amount of each risk retained by
MetLife depends on its evaluation of the specific risk, subject, in certain
circumstances, to maximum limits based on the characteristics of coverages. The
Company also cedes first dollar mortality risk under certain contracts. It
obtains reinsurance when capital requirements and the economic terms of the
reinsurance make it appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer agrees to
reimburse MetLife for the ceded amount in the event the claim is paid. However,
MetLife remains liable to its policyholders with respect to ceded insurance if
any reinsurer fails to meet the obligations assumed by it. Since it bears the
risk of nonpayment by one or more of its reinsurers, MetLife cedes reinsurance
to well-capitalized, highly rated reinsurers.
MetLife currently reinsures up to 90% of the mortality risk for all new
individual life insurance policies that it writes through its various insurance
companies. This practice was initiated for different products starting at
various points in time between 1992 and 2000. MetLife evaluates its reinsurance
programs routinely and may increase or decrease its retention at any time. The
Company retains up to $25 million on single life policies and up to $30 million
on survivorship policies and reinsures in excess of the Company's retention
limits. The Company reinsures a portion of mortality risk on its universal life
MetLife reinsures its business through a diversified group of reinsurers.
Placement of reinsurance is done primarily on an automatic basis and also on a
facultative basis for risks with specific characteristics.
In addition to reinsuring mortality risk, MetLife reinsures other risks and
specific coverages. The Company routinely reinsures certain classes of risks in
order to limit its exposure to particular travel, vocation and lifestyle
hazards. MetLife's retention limits per life vary by franchise and according to
the characteristics of the particular risks. MetLife also reinsures certain
guarantees in connection with benefit features offered under some of its
individual variable annuities.
AUTO & HOME
Auto & Home purchases reinsurance to control the Company's exposure to
large losses (primarily catastrophe losses) and to protect statutory surplus.
Auto & Home cedes to reinsurers a portion of risks and pays premiums based upon
the risk and exposure of the policy subject to reinsurance.
To control the Company's exposure to large property and casualty losses,
Auto & Home utilizes property catastrophe, casualty, and property per risk
excess loss agreements.
Metropolitan Life is licensed to transact insurance business in, and is
subject to regulation and supervision by, all 50 states, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and Canada. Each of MetLife's
other insurance subsidiaries is licensed and regulated in all U.S. and
international jurisdictions where it conducts insurance business. The extent of
such regulation varies, but most jurisdictions have laws and regulations
governing the financial aspects of insurers, including standards of solvency,
reserves, reinsurance and capital adequacy, and the business conduct of
insurers. In addition, statutes and regulations usually require the licensing of
insurers and their agents, the approval of policy forms and certain other
related materials and, for certain lines of insurance, the approval of rates.
Such statutes and regulations also prescribe the permitted types and
concentration of investments.
The New York Insurance Law limits the sales commissions and certain other
marketing expenses that may be incurred in connection with the sale of life
insurance policies and annuity contracts. MetLife's insurance subsidiaries are
each required to file reports, generally including detailed annual financial
statements, with insurance regulatory authorities in each of the jurisdictions
in which they do business, and their operations and accounts are subject to
periodic examination by such authorities. These subsidiaries must also file, and
in many jurisdictions and in some lines of insurance obtain regulatory approval
for, rules, rates and forms relating to the insurance written in the
jurisdictions in which they operate.
The National Association of Insurance Commissioners ("NAIC") has
established a program of accrediting state insurance departments. NAIC
accreditation permits accredited states to conduct periodic examinations of
insurers domiciled in such states. NAIC-accredited states will not accept
reports of examination of insurers from unaccredited states, except under
limited circumstances. As a direct result, insurers domiciled in unaccredited
states may be subject to financial examination by accredited states in which
they are licensed, in addition to any examinations conducted by their
domiciliary states. The New York State Department of Insurance (the
"Department"), Metropolitan Life's principal insurance regulator, has not
received its accreditation as a result of the New York legislature's failure to
adopt certain model NAIC laws. The Company does not believe that this will have
a significant impact upon its ability to conduct its insurance businesses.
State and federal insurance and securities regulatory authorities and other
state law enforcement agencies and attorneys general from time to time make
inquiries regarding compliance by the Holding Company and its insurance
subsidiaries with insurance, securities and other laws and regulations regarding
the conduct of MetLife's insurance and securities businesses. MetLife cooperates
with such inquiries and takes corrective action when warranted. See "Legal
Holding Company regulation. The Holding Company and its insurance
subsidiaries are subject to regulation under the insurance holding company laws
of various jurisdictions. The insurance holding company laws and regulations
vary from jurisdiction to jurisdiction, but generally require a controlled
insurance company (insurers that are subsidiaries of insurance holding
companies) to register with state regulatory authorities and to file with those
authorities certain reports, including information concerning their capital
structure, ownership, financial condition, certain intercompany transactions and
general business operations.
State insurance statutes also typically place restrictions and limitations
on the amount of dividends or other distributions payable by insurance company
subsidiaries to their parent companies, as well as on
transactions between an insurer and its affiliates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- The Holding Company." The New York Insurance Law and the
regulations thereunder also restrict the aggregate amount of investments
Metropolitan Life may make in non-life insurance subsidiaries, and provide for
detailed periodic reporting on subsidiaries.
Guaranty associations and similar arrangements. Most of the jurisdictions
in which MetLife's insurance subsidiaries are admitted to transact business
require life and property and casualty insurers doing business within the
jurisdiction to participate in guaranty associations, which are organized to pay
certain contractual insurance benefits owed pursuant to insurance policies
issued by impaired, insolvent or failed insurers. These associations levy
assessments, up to prescribed limits, on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member
insurers in the lines of business in which the impaired, insolvent or failed
insurer is engaged. Some states permit member insurers to recover assessments
paid through full or partial premium tax offsets.
In the past five years, the aggregate assessments levied against MetLife's
insurance subsidiaries have not been material. The Company has established
liabilities for guaranty fund assessments that it considers adequate for
assessments with respect to insurers that are currently subject to insolvency
proceedings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Insolvency Assessments."
Statutory insurance examination. As part of their regulatory oversight
process, state insurance departments conduct periodic detailed examinations of
the books, records, accounts, and business practices of insurers domiciled in
their states. On November 1, 2000, the Department completed an examination of
Metropolitan Life for each of the five years in the period ended December 31,
1998 which included recommendations for certain changes in recordkeeping
processes, but did not result in a fine. For the three-year period ended
December 31, 2004, MetLife, Inc. has not received any material adverse findings
resulting from state insurance department examinations of its insurance
Regulatory authorities in a small number of states have had investigations
or inquiries relating to Metropolitan Life's, New England Life Insurance
Company's ("New England Life") or General American's sales of individual life
insurance policies or annuities. Over the past several years, these and a number
of investigations by other regulatory authorities were resolved for monetary
payments and certain other relief. The Company may continue to resolve
investigations in a similar manner.
Policy and contract reserve sufficiency analysis. Under the New York
Insurance Law, Metropolitan Life is required to conduct annually an analysis of
the sufficiency of all life and health insurance and annuity statutory reserves.
Additionally, other life insurance affiliates are subject to similar
requirements in their states of domicile. In each case, a qualified actuary must
submit an opinion which states that the statutory reserves, when considered in
light of the assets held with respect to such reserves, make good and sufficient
provision for the associated contractual obligations and related expenses of the
insurer. If such an opinion cannot be provided, the insurer must set up
additional reserves by moving funds from surplus. Since inception of this
requirement, Metropolitan Life and all other insurance subsidiaries required by
other jurisdictions to provide similar opinions have provided them without
Surplus and capital. The New York Insurance Law requires New York domestic
stock life insurers to maintain minimum capital. At December 31, 2004,
Metropolitan Life's capital was in excess of such required minimum. Since its
demutualization, Metropolitan Life has continued to offer participating
policies. Metropolitan Life is subject to statutory restrictions that limit to
10% the amount of statutory profits on participating policies written after the
demutualization (measured before dividends to policyholders) that can inure to
the benefit of stockholders. Since the demutualization, the impact of these
restrictions on net income has not been, and Metropolitan Life believes that in
the future it will not be, significant.
MetLife's U.S. insurance subsidiaries are subject to the supervision of the
regulators in each jurisdiction in which they are licensed to transact business.
Regulators have discretionary authority, in connection with the continued
licensing of these insurance subsidiaries, to limit or prohibit sales to
policyholders if, in their
judgment, the regulators determine that such insurer has not maintained the
minimum surplus or capital or that the further transaction of business will be
hazardous to policyholders. See "-- Risk-based capital."
Risk-based capital ("RBC"). The New York Insurance Law requires that New
York domestic life insurers report their RBC based on a formula calculated by
applying factors to various asset, premium and statutory reserve items. Similar
rules apply to each of the Company's domestic insurance subsidiaries. The
formula takes into account the risk characteristics of the insurer, including
asset risk, insurance risk, interest rate risk and business risk. The Department
uses the formula as an early warning regulatory tool to identify possible
inadequately capitalized insurers for purposes of initiating regulatory action,
and not as a means to rank insurers generally. The New York Insurance Law
imposes broad confidentiality requirements on those engaged in the insurance
business (including insurers, agents, brokers and others) and on the Department
as to the use and publication of RBC data.
The New York Insurance Law gives the New York Superintendent of Insurance
explicit regulatory authority to require various actions by, or take various
actions against, insurers whose total adjusted capital does not exceed certain
RBC levels. At December 31, 2004, Metropolitan Life's total adjusted capital was
in excess of each of those RBC levels.
Each of the U.S. insurance subsidiaries of the Holding Company is also
subject to certain RBC requirements. At December 31, 2004, the total adjusted
capital of each of these insurance subsidiaries also was in excess of each of
those RBC levels. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- The
Company -- Capital."
The NAIC adopted the Codification of Statutory Accounting Principles
("Codification") in 2001. Codification was intended to standardize regulatory
accounting and reporting to state insurance departments. However, statutory
accounting principles continue to be established by individual state laws and
permitted practices. The Department has adopted Codification with certain
modifications for the preparation of statutory financial statements of insurance
companies domiciled in New York. Modifications by the various state insurance
departments may impact the effect of Codification on the statutory capital and
surplus of Metropolitan Life and the Holding Company's other insurance
Regulation of investments. Each of the Holding Company's insurance
subsidiaries is subject to state laws and regulations that require
diversification of its investment portfolios and limit the amount of investments
in certain asset categories, such as below investment grade fixed income
securities, equity real estate, other equity investments, and derivatives.
Failure to comply with these laws and regulations would cause investments
exceeding regulatory limitations to be treated as non-admitted assets for
purposes of measuring surplus, and, in some instances, would require divestiture
of such non-qualifying investments. The Company believes that the investments
made by each of its insurance subsidiaries complied with such regulations at
December 31, 2004.
Federal initiatives. Although the federal government generally does not
directly regulate the insurance business, federal initiatives often have an
impact on the business in a variety of ways. From time to time, federal measures
are proposed which may significantly affect the insurance business, including
the repeal of the federal estate tax, tax benefits associated with COLI, and the
creation of tax advantaged or tax exempt savings accounts that would favor
short-term savings over long-term savings. In addition, a bill reforming
asbestos litigation may be voted on by the Senate in 2005. The Company cannot
predict whether these initiatives will be adopted as proposed, or what impact,
if any, such proposals may have on the Company's business, results of operations
or financial condition.
Legislative Developments. On May 28, 2003, President Bush signed into law
the Jobs and Growth Tax Relief Reconciliation Act of 2003, which includes a
major reduction in rates for long term capital gains and cash dividends on
equity securities. It is unclear what the effect of this tax rate reduction may
have on the demand for products which do not benefit from such measures.
On October 22, 2004, President Bush signed into law the American Jobs
Creation Act of 2004, which includes changes to requirements for non-qualified
deferred compensation. The Company believes that the changes to such
requirements will not have a material impact on its non-qualified deferred
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Application of Recent Accounting Pronouncements" for a
discussion of the Medicare Prescription Drug Improvement and Modernization Act
Management cannot predict what other proposals may be made, what
legislation may be introduced or enacted or the impact of any such legislation
on the Company's business, results of operations and financial condition.
BROKER/DEALER AND SECURITIES REGULATION
Some of MetLife, Inc.'s subsidiaries and certain policies and contracts
offered by them, are subject to various levels of regulation under the federal
securities laws administered by the Securities and Exchange Commission. Some of
MetLife, Inc.'s subsidiaries are investment advisers registered under the
Investment Advisers Act of 1940, as amended. In addition, some separate accounts
and a variety of mutual funds are registered under the Investment Company Act of
1940, as amended. Some annuity contracts and insurance policies issued by the
Company are funded by separate accounts, the interests in which are registered
under the Securities Act of 1933, as amended. Some of MetLife, Inc.'s
subsidiaries are registered as broker/dealers under the Securities Exchange Act
of 1934, as amended, and are members of the National Association of Securities
Dealers, Inc. ("NASD"). These broker/dealers may also be registered under
various state securities laws.
Some of MetLife, Inc.'s subsidiaries also have certain pooled investment
vehicles that are exempt from registration under the Securities Act and the
Investment Company Act, but may be subject to certain other provisions of such
Federal and state securities regulatory authorities from time to time make
inquiries regarding compliance by MetLife, Inc. and its subsidiaries with
securities and other laws and regulations regarding the conduct of their
securities businesses. MetLife cooperates with such inquiries and takes
corrective action when warranted.
These laws and regulations are primarily intended to protect investors in
the securities markets and generally grant supervisory agencies broad
administrative powers, including the power to limit or restrict the conduct of
business for failure to comply with such laws and regulations. The Company may
also be subject to similar laws and regulations in the states and foreign
countries in which it provides investment advisory services, offers the products
described above or conducts other securities-related activities.
As an owner and operator of real property, the Company is subject to
extensive federal, state and local environmental laws and regulations. Inherent
in such ownership and operation is also the risk that there may be potential
environmental liabilities and costs in connection with any required remediation
of such properties. In addition, the Company holds equity interests in companies
that could potentially be subject to environmental liabilities. The Company
routinely has environmental assessments performed with respect to real estate
being acquired for investment and real property to be acquired through
foreclosure. The Company cannot provide assurance that unexpected environmental
liabilities will not arise. However, based on information currently available to
management, management believes that any costs associated with compliance with
environmental laws and regulations or any remediation of such properties will
not have a material adverse effect on the Company's business, results of
operations or financial condition.
The Company provides products and services to certain employee benefit
plans that are subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or the Internal Revenue Code of 1986, as amended (the
"Code"). As such, its activities are subject to the restrictions imposed by
ERISA and the Code, including the requirement under ERISA that fiduciaries must
perform their duties solely in the interests of ERISA plan participants and
beneficiaries and the requirement under ERISA and the Code that fiduciaries may
not cause a covered plan to engage in prohibited transactions with persons who
have certain relationships with respect to such plans. The applicable provisions
of ERISA and the Code are subject to
enforcement by the Department of Labor, the Internal Revenue Service and the
Pension Benefit Guaranty Corporation.
In John Hancock Mutual Life Insurance Company v. Harris Trust and Savings
Bank (1993), the U.S. Supreme Court held that certain assets in excess of
amounts necessary to satisfy guaranteed obligations under a participating group
annuity general account contract are "plan assets." Therefore, these assets are
subject to certain fiduciary obligations under ERISA, which requires fiduciaries
to perform their duties solely in the interest of ERISA plan participants and
beneficiaries. On January 5, 2000, the Secretary of Labor issued final
regulations indicating, in cases where an insurer has issued a policy backed by
the insurer's general account to or for an employee benefit plan, the extent to
which assets of the insurer constitute plan assets for purposes of ERISA and the
Code. The regulations apply only with respect to a policy issued by an insurer
on or before December 31, 1998 ("Transition Policy"). No person will generally
be liable under ERISA or the Code for conduct occurring prior to July 5, 2001,
where the basis of a claim is that insurance company general account assets
constitute plan assets. An insurer issuing a new policy that is backed by its
general account and is issued to or for an employee benefit plan after December
31, 1998 will generally be subject to fiduciary obligations under ERISA, unless
the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so that assets
supporting a Transition Policy will not be considered plan assets for purposes
of ERISA and the Code. These requirements include detailed disclosures to be
made to the employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 day notice and receive
without penalty, at the policyholder's option, either (i) the unallocated
accumulated fund balance (which may be subject to market value adjustment) or
(ii) a book value payment of such amount in annual installments with interest.
The Company has taken and continues to take steps designed to ensure compliance
with these regulations.
FINANCIAL HOLDING COMPANY REGULATION
Regulatory agencies. In connection with its acquisition of a
federally-chartered commercial bank, the Holding Company became a bank holding
company and financial holding company on February 28, 2001. As such, the Holding
Company is subject to regulation under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and to inspection, examination, and supervision by the
Board of Governors of the Federal Reserve System (the "FRB"). In addition, the
Holding Company's banking subsidiary is subject to regulation and examination
primarily by the Office of the Comptroller of the Currency ("OCC") and
secondarily by the FRB and the Federal Deposit Insurance Corporation.
Financial Holding Company Activities. As a financial holding company,
MetLife, Inc.'s activities and investments are restricted by the BHC Act, as
amended by the Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), to those that are
"financial" in nature or "incidental" or "complementary" to such financial
activities. Activities that are financial in nature include securities
underwriting, dealing and market making, sponsoring mutual funds and investment
companies, insurance underwriting and agency, merchant banking and activities
that the FRB has determined to be closely related to banking. In addition, under
the insurance company investment portfolio provision of the GLB Act, financial
holding companies are authorized to make investments in other financial and
non-financial companies, through their insurance subsidiaries, that are in the
ordinary course of business and in accordance with state insurance law, provided
the financial holding company does not routinely manage or operate such
companies except as may be necessary to obtain a reasonable return on
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Capital. MetLife, Inc. and its insured depository
institution subsidiary, MetLife Bank, are subject to risk-based and leverage
capital guidelines issued by the federal banking regulatory agencies for banks
and financial holding companies. The federal banking regulatory agencies are
required by law to take specific prompt corrective actions with respect to
institutions that do not meet minimum capital standards. At December 31, 2004,
MetLife, Inc. and MetLife Bank were in compliance with the aforementioned
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Consumer Protection Laws. Numerous other federal and state
laws also affect the Holding Company's and
MetLife Bank's earnings and activities, including federal and state consumer
protection laws. The GLB Act included consumer privacy provisions that, among
customers. In addition, these provisions permit states to adopt more extensive
privacy protections through legislation or regulation.
Other Restrictions and Limitations on Bank Holding Companies and Financial
Holding Companies -- Change of Control. Because MetLife, Inc. is a "financial
holding company" and "bank holding company" under the federal banking laws, no
person may acquire control of MetLife, Inc. without the prior approval of the
FRB. A change of control is conclusively presumed upon acquisitions of 25% or
more of any class of voting securities and rebuttably presumed upon acquisitions
of 10% or more of any class of voting securities. Further, as a result of
MetLife, Inc.'s ownership of MetLife Bank, approval from the OCC would be
required in connection with a change of control (generally presumed upon the
acquisition of 10% or more of any class of voting securities) of MetLife, Inc.
The Company believes that competition with its business segments is based
on a number of factors, including service, product features, scale, price,
commission structure, financial strength, claims-paying ratings, credit ratings,
ebusiness capabilities and name recognition. It competes with a large number of
other insurers, as well as non-insurance financial services companies, such as
banks, broker/dealers and asset managers, for individual consumers, employer and
other group customers and agents and other distributors of insurance and
investment products. Some of these companies offer a broader array of products,
have more competitive pricing or, with respect to other insurers, have higher
claims paying ability ratings. Some may also have greater financial resources
with which to compete. National banks, which may sell annuity products of life
insurers in some circumstances, also have pre-existing customer bases for
financial services products.
In 1999, the GLB Act was adopted, implementing fundamental changes in the
regulation of the financial services industry in the United States. With the
passage of this Act, among other things, bank holding companies may acquire
insurers, and insurance holding companies may acquire banks. The ability of
banks to affiliate with insurers may materially adversely affect all of the
Company's product lines by substantially increasing the number, size and
financial strength of potential competitors.
The Company must attract and retain productive sales representatives to
sell its insurance, annuities and investment products. Strong competition exists
among insurers for sales representatives with demonstrated ability. The Company
competes with other insurers for sales representatives primarily on the basis of
its financial position, support services and compensation and product features.
See "-- Individual -- Marketing and Distribution." MetLife continues to
undertake several initiatives to grow the MetLife Financial Services career
agency force while continuing to enhance the efficiency and production of the
existing sales force. The Company cannot provide assurance that these
initiatives will succeed in attracting and retaining new agents. Sales of
individual insurance, annuities and investment products and the Company's
results of operations and financial position could be materially adversely
affected if it is unsuccessful in attracting and retaining agents.
Many of the Company's insurance products, particularly those offered by its
Institutional segment, are underwritten annually, and, accordingly, there is a
risk that group purchasers may be able to obtain more favorable terms from
competitors rather than renewing coverage with the Company. The effect of
competition may, as a result, adversely affect the persistency of these and
other products, as well as the Company's ability to sell products in the future.
The investment management and securities brokerage businesses have
relatively few barriers to entry and continually attract new entrants. Many of
the Company's competitors in these businesses offer a broader array of
investment products and services and are better known than it as sellers of
annuities and other investment products.
Congress periodically considers reforms to the nation's health care system.
While the Company offers non-medical health insurance products (such as group
dental insurance, long-term care and disability insurance), it generally does
not offer medical indemnity products or managed care products, and, accordingly,
it does not expect to be directly affected by such proposals to any significant
degree. However, the uncertain environment resulting from health care reform
could cause group health insurance providers to enter some of the markets in
which the Company does business, thereby increasing competition. Increasing
healthcare costs are causing consumers to seek alternative financial protection
products. As a result, the Company is entering the fixed benefit critical care
marketplace. Changes to the health care system may make this market more or less
attractive in the future.
Insurer financial strength ratings represent the opinions of rating
agencies regarding the financial ability of an insurance company to meet its
senior policyholder financial obligations. Credit ratings represent the opinions
of rating agencies regarding an issuer's ability to repay its indebtedness. The
Company's insurer financial strength ratings and credit ratings as of the date
of this filing are listed in the table below:
INSURER FINANCIAL STRENGTH RATINGS
A.M. BEST FITCH INVESTORS STANDARD &
COMPANY(1) RATINGS(2) SERVICE(3) POOR'S(4)
---------- ---------- ---------- ----------
First MetLife Investors Insurance Co. A+ (5) N/R-- N/R-- AA (8)
General American Life Insurance Co. A+ (5) AA (5) Aa2 (6) AA (8)
MetLife Investors Insurance Co. A+ (5) AA (5) Aa2 (6) AA (8)
MetLife Investors Insurance Co. of California A+ (5) N/R-- N/R-- AA (8)
MetLife Investors USA Insurance Co. A+ (5) AA (5) Aa3 (6) AA (8)
Metropolitan Casualty Insurance Co. A (5) N/R-- N/R-- N/R--
Metropolitan Direct Property and Casualty
Insurance Co. A (5) N/R-- N/R-- N/R--
Metropolitan General Insurance Co. A (5) N/R-- N/R-- N/R--
Metropolitan Group Property & Casualty Insurance
Co. A (5) N/R-- N/R-- N/R--
Metropolitan Life Insurance Co. A+ (5) AA (5) Aa2 (6) AA (8)
Metropolitan Life Insurance Co. (Short-term
rating) N/R-- N/R-- P-1 (5) A-1+ (5)
Metropolitan Lloyds Insurance Co. of Texas A (5) N/R-- N/R-- N/R--
Metropolitan Property and Casualty Insurance Co. A (5) N/R-- Aa3 (6) N/R--
Metropolitan Tower Life Insurance Co. A+ (5) N/R-- Aa3 (6) N/R--
New England Life Insurance Co. A+ (5) AA (5) Aa2 (6) AA (8)
Paragon Life Insurance Co. A+ (5) AA (5) N/R-- AA (8)
RGA Reinsurance Co. A+ (5) AA- (5) A1 (7) AA- (8)
RGA Life Reinsurance Co. of Canada N/R-- N/R-- N/R-- AA- (8)
Texas Life Insurance Co. A (5) N/R-- N/R-- N/R--
A.M. BEST FITCH INVESTORS STANDARD &
COMPANY(1) RATINGS(2) SERVICE(3) POOR'S(4)
---------- ---------- ---------- ----------
GenAmerica Capital I (Preferred Stock) N/R-- A- (5) A3 (6) BBB+ (8)
General American Life Insurance Co. (Surplus
Notes) a+ (8) N/R-- A1 (6) A+ (8)
MetLife Funding, Inc. (Commercial Paper) AMB-1+ (8) F1+ (5) P-1 (5) A-1+ (5)
MetLife, Inc. (Commercial Paper) AMB-1+ (8) F1 (5) P-1 (6) A-1 (8)
MetLife, Inc. (Senior Unsecured) a (8) A (5) A2 (6) A (8)
Metropolitan Life Insurance Co. (Surplus Notes) a+ (8) A+ (5) A1 (6) A+ (8)
Reinsurance Group of America, Inc. (Senior
Unsecured) a- (5) A- (5) Baa1 (7) A- (8)
RGA Capital Trust I (Preferred Stock) bbb+ (5) BBB+ (5) Baa2 (7) BBB (8)
(1) A.M. Best Company ("Best") insurer financial strength ratings range from
"A++ (superior)" to "F (in liquidation)." Ratings of "A+" and "A" are in the
"superior" and "excellent" categories, respectively.
Best's long-term credit ratings range from "aaa (exceptional)" to "d (in
default)." A "+" or "-" may be appended to ratings from "aa" to "ccc" to
indicate relative position within a category. Ratings of "a" and "bbb" are
in the "strong" and "adequate" categories.
Best's short-term credit ratings range from "AMB-1+ (strongest)" to "d (in
(2) Fitch Ratings ("Fitch") insurer financial strength ratings range from "AAA
(exceptionally strong)" to "D (distressed)." A "+" or "-" may be appended to
ratings from "AA" to "CCC" to indicate relative position within a category.
A rating of "AA" is in the "very strong" category.
Fitch long-term credit ratings range from "AAA (highest credit quality)," to
"D (default)." A "+" or "-" may be appended to ratings from "AA" to "CCC" to
indicate relative position within a category. Ratings of "A" and "BBB" are
in the "high" and "good" categories, respectively.
Fitch short-term credit ratings range from "F-1+ (exceptionally strong
credit quality)" to "D (in default)." A rating of "F1" is in the "highest
credit quality" category.
(3) Moody's Investors Service ("Moody's") long-term insurer financial strength
ratings range from "Aaa (exceptional)" to "C (extremely poor)." A numeric
modifier may be appended to ratings from "Aa" to "Caa" to indicate relative
position within a category, with 1 being the highest and 3 being the lowest.
A rating of "Aa" is in the "excellent" category.
Moody's short-term insurer financial strength ratings range from "P-1
(superior)" to "NP (not prime)."
Moody's long-term credit ratings range from "Aaa (exceptional)" to "C
(typically in default)." A numeric modifier may be appended to ratings from
"Aa" to "Caa" to indicate relative position within a category, with 1 being
the highest and 3 being the lowest. Ratings of "A" and "Baa" are in the
"upper-medium grade" and "medium-grade" categories, respectively.
Moody's short-term credit ratings range from "P-1 (superior)" to "NP (not
(4) Standard & Poor's ("S&P") long term insurer financial strength ratings range
from "AAA (extremely strong)" to "R (regulatory action)." A "+" or "-" may
be appended to ratings from "AA" to "CCC" to indicate relative position
within a category. A rating of "AA" is in the "very strong" category.
S&P short-term insurer financial strength ratings range from "A-1+
(extremely strong)" to "R (regulatory action)."
S&P long-term credit ratings range from "AAA (extremely strong)" to "D
(payment default)." A "+" or "-" may be appended to ratings from "AA" to
"CCC" to indicate relative position within a category. A rating of "A" is in
the "strong" category. A rating of "BBB" has adequate protection parameters
and is considered investment grade.
S&P short-term credit ratings range from "A-1+ (extremely strong)" to "D
(payment default)." A rating of "A-1" is in the "strong" category.
N/R indicates not rated.
RATING STABILITY INDICATORS
Rating agencies use an "outlook statement" of "positive," "negative" or
"developing" to indicate a medium- or long-term trend in credit fundamentals
which, if continued, may lead to a rating change. These factors may be internal
to the issuer, such as a changing profitability profile, or may be brought about
by changes in the industry's landscape through new competition, regulation or
technological transformation. A rating may have a "stable" outlook to indicate
that the rating is not expected to change.
CREDIT RATING ACTIVELY UNDER REVIEW
"CreditWatch" or "Under Review" highlights the potential direction of a
short- or long-term rating. It focuses on identifiable events and short-term
trends that cause ratings to be placed under heightened or special
surveillance by the analyst and the rating committee. These events may include
mergers, acquisitions, recapitalizations or anticipated operating developments.
Ratings may be placed on "CreditWatch" or "Under Review" when such an event or
deviations from an expected trend occurs and additional information is needed to
evaluate the current rating level. This status does not mean that a rating
change is inevitable and ratings may change without first being placed on a
watch list. Rating changes are based upon the facts and circumstances known to
the analysts and views held by them as to the direction and status of the
issuer's credit profile. It may incorporate public and non-public information
and is strictly the opinion of the agency issuing the rating through the
committee process. "Positive" means that a rating may be raised, "Negative"
means that a rating may be lowered and "Developing" means that a rating may be
raised or lowered with equal probability.
OUTLOOK AND CREDITWATCH NOTES:
(5) Outlook is "stable"
(6) Outlook is "negative"
(7) Outlook is "developing"
(8) The rating is on CreditWatch or "Under Review" for a possible downgrade.
The foregoing ratings reflect each rating agency's opinion of Metropolitan
Life and the Company's other insurance subsidiaries' financial characteristics
with respect to its ability to pay under insurance policies and contracts in
accordance with their terms, and are not evaluations directed toward the
protection of MetLife, Inc.'s securityholders.
A ratings downgrade (or the potential for such a downgrade) of Metropolitan
Life or any of the Company's other insurance subsidiaries could, among other
things, increase the number of policies surrendered and withdrawals by
policyholders of cash values from their policies, adversely affect relationships
with broker/dealers, banks, agents, wholesalers and other distributors of the
Company's products and services, negatively impact new sales, and adversely
affect its ability to compete and thereby have a material adverse effect on its
business, results of operations and financial condition.
At December 31, 2004, the Company employed approximately 54,000 employees.
The Company believes that its relations with its employees are satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding the executive officers of MetLife,
Inc. and Metropolitan Life:
ROBERT H. BENMOSCHE, age 60, has been Chairman of the Board and Chief
Executive Officer of MetLife since September 1999. He also served as President
of MetLife from September 1999 to June 2004. He has been Chairman of the Board
and Chief Executive Officer of Metropolitan Life Insurance Company since July
1998, President of Metropolitan Life Insurance Company from November 1997 to
June 2004, Chief Operating Officer from November 1997 to June 1998, and
Executive Vice President from September 1995 to October 1997. Previously, he was
Executive Vice President of PaineWebber Group Incorporated, a full service
securities and commodities firm, from 1989 to 1995.
DANIEL J. CAVANAGH, age 65, had been Executive Vice President of Operations
and Technology of MetLife, Inc. from March 1999 until his retirement from the
Company as of December 31, 2004. He was Senior Vice President in charge of
information systems from 1983 to 1991. He was appointed president of
Metropolitan Property and Casualty Insurance Company in 1991 and served as its
Chief Executive Officer from 1993 to March 1999.
C. ROBERT HENRIKSON, age 57, has been President and Chief Operating Officer
of MetLife, Inc. since June 2004. Previously, he was President of the U.S.
Insurance and Financial Services businesses of MetLife, Inc. from July 2002 to
June 2004. He served as President of Institutional Business of MetLife, Inc.
September 1999 to July 2002 and President of Institutional Business of
Metropolitan Life from May 1999 through June 2002. He was Senior Executive Vice
President, Institutional Business, of Metropolitan Life from December 1997 to
May 1999, Executive Vice President, Institutional Business, from January 1996 to
December 1997, and Senior Vice President, Pensions, from January 1991 to January
1995. He is a director of MetLife Bank, N.A.
LELAND C. LAUNER, JR., age 49, has been Executive Vice President and Chief
Investment Officer of MetLife, Inc. and Metropolitan Life since July 2003.
Previously, he was a Senior Vice President of Metropolitan Life for more than
five years. Mr. Launer is a director of Reinsurance Group of America,
Incorporated and MetLife Bank, N.A.
JAMES L. LIPSCOMB, age 58, has been Executive Vice President and General
Counsel of MetLife, Inc. and Metropolitan Life since July 2003. He was Senior
Vice President and Deputy General Counsel from July 2001 to July 2003. Mr.
Lipscomb was President and Chief Executive Officer of Conning Corporation, a
former subsidiary of Metropolitan Life, from March 2000 to July 2001, prior to
which he served in various senior management positions with Metropolitan Life
for more than five years.
CATHERINE A. REIN, age 62, has been Senior Executive Vice President and
Chief Administrative Officer of MetLife, Inc. since January 2005. Previously,
she was Senior Executive Vice President of MetLife, Inc. from September 1999 and
President and Chief Executive Officer of Metropolitan Property and Casualty
Insurance Company from March 1999 to January 2005. She has been Senior Executive
Vice President of Metropolitan Life since February 1998 and was Executive Vice
President from October 1989 to February 1998.
WILLIAM J. TOPPETA, age 56, has been President of International of MetLife,
Inc. since June 2001. He was President of Client Services and Chief
Administrative Officer of MetLife, Inc. from September 1999 to June 2001 and
President of Client Services and Chief Administrative Officer of Metropolitan
Life from May 1999 to June 2001. He was Senior Executive Vice President, Head of
Client Services, of Metropolitan Life from March 1999 to May 1999, Senior
Executive Vice President, Individual, from February 1998 to March 1999,
Executive Vice President, Individual Business, from July 1996 to February 1998,
Senior Vice President from October 1995 to July 1996 and its President and Chief
Executive Officer, Canadian Operations, from July 1993 to October 1995.
LISA M. WEBER, age 42, has been President, Individual Business since June
2004. Previously, she was Senior Executive Vice President and Chief
Administrative Officer of MetLife, Inc. and Metropolitan Life from June 2001 to
June 2004. She was Executive Vice President of MetLife, Inc. and Metropolitan
Life from December 1999 to June 2001 and was head of Human Resources of
Metropolitan Life from March 1998 to December 2003. She was Senior Vice
President of MetLife, Inc. from September 1999 to November 1999 and Senior Vice
President of Metropolitan Life from March 1998 to November 1999. Previously, she
was Senior Vice President of Human Resources of PaineWebber Group Incorporated,
where she was employed for ten years. Ms. Weber is a director of Reinsurance
Group of America, Incorporated.
WILLIAM J. WHEELER, age 43, has been Executive Vice President and Chief
Financial Officer of MetLife, Inc. and Metropolitan Life since December 2003,
prior to which he was a Senior Vice President of Metropolitan Life from 1997 to
December 2003. Previously, he was a Senior Vice President of Donaldson, Lufkin &
Jenrette for more than five years.
MetLife has a worldwide trademark portfolio that it considers important in
the marketing of its products and services, including, among others, the
trademark "MetLife". Furthermore, MetLife has the exclusive license to use the
Peanuts(R) characters in the area of financial services and health care benefit
services in the United States and some foreign countries under an advertising
and premium agreement with United Feature Syndicate until December 31, 2012. The
Company believes that its rights in its trademarks and its Peanuts(R) characters
license are well protected.
MetLife, Inc. files periodic reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). Such reports,
proxy statements and other information may be obtained by visiting the Public
Reference Room of the SEC at 450 Fifth Street, N.W., Washington D.C. 20549 or by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet
website (www.sec.gov) that contains reports, proxy statements, and other
information regarding issuers that file electronically with the SEC, including
MetLife makes available, free of charge, on its website (www.metlife.com)
through the Investor Relations page, its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to all those
reports, as soon as reasonably practicable after filing (furnishing) such
reports to the SEC. The information found on the website is not part of this or
any other report filed with or furnished to the SEC.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a large number of litigation matters. In some
of the matters, very large and/or indeterminate amounts, including punitive and
treble damages, are sought. Modern pleading practice in the United States
permits considerable variation in the assertion of monetary damages or other
relief. Jurisdictions may permit claimants not to specify the monetary damages
sought or may permit claimants to state only that the amount sought is
sufficient to invoke the jurisdiction of the trial court. In addition,
jurisdictions may permit plaintiffs to allege monetary damages in amounts well
exceeding reasonably possible verdicts in the jurisdiction for similar matters.
This variability in pleadings, together with the actual experience of the
Company in litigating or resolving through settlement numerous claims over an
extended period of time, demonstrate to management that the monetary relief
which may be specified in a lawsuit or claim bears little relevance to its
merits or disposition value. Thus, unless stated below, the specific monetary
relief sought is not noted.
Due to the vagaries of litigation, the outcome of a litigation matter and
the amount or range of potential loss at particular points in time may normally
be inherently impossible to ascertain with any degree of certainty. Inherent
uncertainties can include how fact finders will view individually and in their
totality documentary evidence, the credibility and effectiveness of witnesses'
testimony, and how trial and appellate courts will apply the law in the context
of the pleadings or evidence presented, whether by motion practice, or at trial
or on appeal. Disposition valuations are also subject to the uncertainty of how
opposing parties and their counsel will themselves view the relevant evidence
and applicable law.
On a quarterly and yearly basis, the Company reviews relevant information
with respect to liabilities for litigation and contingencies to be reflected in
the Company's consolidated financial statements. The review includes senior
legal and financial personnel. Unless stated below, estimates of possible
additional losses or ranges of loss for particular matters cannot in the
ordinary course be made with a reasonable degree of certainty. Liabilities are
established when it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. It is possible that some of the matters
could require the Company to pay damages or make other expenditures or establish
accruals in amounts that could not be estimated as of December 31, 2004.
Sales Practices Claims
Over the past several years, Metropolitan Life, New England Mutual Life
Insurance Company ("New England Mutual") and General American Life Insurance
Company ("General American") have faced numerous claims, including class action
lawsuits, alleging improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
In December 1999, a federal court approved a settlement resolving sales
practices claims on behalf of a class of owners of permanent life insurance
policies and annuity contracts or certificates issued pursuant to individual
sales in the United States by Metropolitan Life, Metropolitan Insurance and
Annuity Company or Metropolitan Tower Life Insurance Company between January 1,
1982 and December 31, 1997. The class includes owners of approximately six
million in-force or terminated insurance policies and approximately one million
in-force or terminated annuity contracts or certificates.
Similar sales practices class actions against New England Mutual, with
which Metropolitan Life merged in 1996, and General American, which was acquired
in 2000, have been settled. In October 2000, a federal court approved a
settlement resolving sales practices claims on behalf of a class of owners of
permanent life insurance policies issued by New England Mutual between January
1, 1983 through August 31, 1996. The class includes owners of approximately
600,000 in-force or terminated policies. A federal court has approved a
settlement resolving sales practices claims on behalf of a class of owners of
permanent life insurance policies issued by General American between January 1,
1982 through December 31, 1996. An appellate court has affirmed the order
approving the settlement. The class includes owners of approximately 250,000
in-force or terminated policies.
Certain class members have opted out of the class action settlements noted
above and have brought or continued non-class action sales practices lawsuits.
In addition, other sales practices lawsuits have been brought. As of December
31, 2004, there are approximately 328 sales practices lawsuits pending against
Metropolitan Life; approximately 49 sales practices lawsuits pending against New
England Mutual, New England Life Insurance Company, and New England Securities
Corporation (collectively, "New England"); and approximately 54 sales practices
lawsuits pending against General American. Metropolitan Life, New England and
General American continue to defend themselves vigorously against these
lawsuits. Some individual sales practices claims have been resolved through
settlement, won by dispositive motions, or, in a few instances, have gone to
trial. Most of the current cases seek substantial damages, including in some
cases punitive and treble damages and attorneys' fees. Additional litigation
relating to the Company's marketing and sales of individual life insurance may
be commenced in the future.
The Metropolitan Life class action settlement did not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
in Canada, and these actions remain pending.
The Company believes adequate provision has been made in its consolidated
financial statements for all probable and reasonably estimable losses for sales
practices claims against Metropolitan Life, New England and General American.
Regulatory authorities in a small number of states have had investigations
or inquiries relating to Metropolitan Life's, New England's, or General
American's sales of individual life insurance policies or annuities. Over the
past several years, these and a number of investigations by other regulatory
authorities were resolved for monetary payments and certain other relief. The
Company may continue to resolve investigations in a similar manner.
Metropolitan Life is also a defendant in thousands of lawsuits seeking
compensatory and punitive damages for personal injuries allegedly caused by
exposure to asbestos or asbestos-containing products. Metropolitan Life has
never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products nor has Metropolitan Life
issued liability or workers' compensation insurance to companies in the business
of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits principally have been based
upon allegations relating to certain research, publication and other activities
of one or more of Metropolitan Life's employees during the period from the
1920's through approximately the 1950's and have alleged that Metropolitan Life
learned or should have learned of certain health risks posed by asbestos and,
among other things, improperly publicized or failed to disclose those health
risks. Metropolitan Life believes that it should not have legal liability in
Legal theories asserted against Metropolitan Life have included negligence,
intentional tort claims and conspiracy claims concerning the health risks
associated with asbestos. Although Metropolitan Life believes it has meritorious
defenses to these claims, and has not suffered any adverse monetary judgments in
respect of these claims, due to the risks and expenses of litigation, almost all
past cases have been resolved by settlements. Metropolitan Life's defenses
(beyond denial of certain factual allegations) to plaintiffs' claims include
that: (i) Metropolitan Life owed no duty to the plaintiffs -- it had no special
relationship with the plaintiffs and did not manufacture, produce, distribute or
sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs
cannot demonstrate justifiable detrimental reliance; and (iii) plaintiffs cannot
demonstrate proximate causation. In defending asbestos cases, Metropolitan Life
selects various strategies depending upon the jurisdictions in which such cases
are brought and other factors which, in Metropolitan Life's judgment, best
protect Metropolitan Life's interests. Strategies include seeking to settle or
compromise claims, motions challenging the legal or factual basis for such
claims or defending on the merits at trial. In 2002, 2003 or 2004, trial courts
in California, Utah, Georgia, New York, Texas, and Ohio granted motions
dismissing claims against Metropolitan Life on some or all of the above grounds.
Other courts have denied motions brought by Metropolitan Life to dismiss cases
without the necessity of trial. There can be no assurance that Metropolitan Life
will receive favorable decisions on motions in the future. Metropolitan Life
intends to continue to exercise its best judgment regarding settlement or
defense of such cases, including when trials of these cases are appropriate.
Metropolitan Life continues to study its claims experience, review external
literature regarding asbestos claims experience in the United States and
consider numerous variables that can affect its asbestos liability exposure,
including bankruptcies of other companies involved in asbestos litigation and
legislative and judicial developments, to identify trends and to assess their
impact on the recorded asbestos liability.
Bankruptcies of other companies involved in asbestos litigation, as well as
advertising by plaintiffs' asbestos lawyers, may be resulting in an increase in
the cost of resolving claims and could result in an increase in the number of
trials and possible adverse verdicts Metropolitan Life may experience.
Plaintiffs are seeking additional funds from defendants, including Metropolitan
Life, in light of such bankruptcies by certain other defendants. In addition,
publicity regarding legislative reform efforts may result in an increase or
decrease in the number of claims.
The total number of asbestos personal injury claims pending against
Metropolitan Life as of the dates indicated, the number of new claims during the
years ended on those dates and the total settlement payments made to resolve
asbestos personal injury claims during those years are set forth in the
AT OR FOR THE YEARS ENDED
2004 2003 2002
-------- -------- --------
(DOLLARS IN MILLIONS)
Asbestos personal injury claims at year end
(approximate)...................................... 108,000 111,700 106,500
Number of new claims during the year (approximate)... 23,500 58,650 66,000
Settlement payments during the year(1)............... $85.5 $84.2 $95.1
(1) Settlement payments represent payments made by Metropolitan Life during the
year in connection with settlements made in that year and in prior years.
Amounts do not include Metropolitan Life's attorneys' fees and expenses and
do not reflect amounts received from insurance carriers.
The Company believes adequate provision has been made in its consolidated
financial statements for all probable and reasonably estimable losses for
asbestos-related claims. The ability of Metropolitan Life to estimate its
ultimate asbestos exposure is subject to considerable uncertainty due to
numerous factors. The availability of data is limited and it is difficult to
predict with any certainty numerous variables that can affect liability
estimates, including the number of future claims, the cost to resolve claims,
the disease mix and severity of disease, the jurisdiction of claims filed, tort
reform efforts and the impact of any possible future adverse verdicts and their
The number of asbestos cases that may be brought or the aggregate amount of
any liability that Metropolitan Life may ultimately incur is uncertain.
Accordingly, it is reasonably possible that the Company's total exposure to
asbestos claims may be greater than the liability recorded by the Company in its
consolidated financial statements and that future charges to income may be
necessary. While the potential future charges could be material in particular
quarterly or annual periods in which they are recorded, based on information
currently known by management, it does not believe any such charges are likely
to have a material adverse effect on the Company's consolidated financial
Metropolitan Life increased its recorded liability for asbestos-related
claims by $402 million from approximately $820 million to $1,225 million at
December 31, 2002. This total recorded asbestos-related liability (after the
self-insured retention) was within the coverage of the excess insurance policies
discussed below. Metropolitan Life regularly reevaluates its exposure from
asbestos litigation and has updated its liability analysis for asbestos-related
claims through December 31, 2004.
During 1998, Metropolitan Life paid $878 million in premiums for excess
insurance policies for asbestos-related claims. The excess insurance policies
for asbestos-related claims provide for recovery of losses up to $1,500 million,
which is in excess of a $400 million self-insured retention. The
asbestos-related policies are also subject to annual and per-claim sublimits.
Amounts are recoverable under the policies annually with respect to claims paid
during the prior calendar year. Although amounts paid by Metropolitan Life in
any given year that may be recoverable in the next calendar year under the
policies will be reflected as a reduction in the Company's operating cash flows
for the year in which they are paid, management believes that the payments will
not have a material adverse effect on the Company's liquidity.
Each asbestos-related policy contains an experience fund and a reference
fund that provides for payments to Metropolitan Life at the commutation date if
the reference fund is greater than zero at commutation or pro rata reductions
from time to time in the loss reimbursements to Metropolitan Life if the
cumulative return on the reference fund is less than the return specified in the
experience fund. The return in the reference fund is tied to performance of the
Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. A
claim was made under the excess insurance policies in 2003 and 2004 for the
amounts paid with respect to asbestos litigation in excess of the retention. As
the performance of the indices impacts the return in the reference fund, it is
possible that loss reimbursements to the Company and the recoverable with
respect to later periods may be less than the amount of the recorded losses.
Such foregone loss reimbursements may be
recovered upon commutation depending upon future performance of the reference
fund. If at some point in the future, the Company believes the liability for
probable and reasonably estimable losses for asbestos-related claims should be
increased, an expense would be recorded and the insurance recoverable would be
adjusted subject to the terms, conditions and limits of the excess insurance
policies. Portions of the change in the insurance recoverable would be recorded
as a deferred gain and amortized into income over the estimated remaining
settlement period of the insurance policies. The foregone loss reimbursements
were approximately $8.3 million with respect to 2002 claims, $15.5 million with
respect to 2003 claims and are estimated to be $10.2 million with respect to
2004 claims and estimated to be approximately $54 million in the aggregate
including future years.
Property and Casualty Actions
A purported class action has been filed against Metropolitan Property and
Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance
Company, in Florida alleging breach of contract and unfair trade practices with
respect to allowing the use of parts not made by the original manufacturer to
repair damaged automobiles. Discovery is ongoing and a motion for class
certification is pending. Two purported nationwide class actions have been filed
against Metropolitan Property and Casualty Insurance Company in Illinois. One
suit claims breach of contract and fraud due to the alleged underpayment of
medical claims arising from the use of a purportedly biased provider fee pricing
system. A motion for class certification has been filed and discovery is
ongoing. The second suit claims breach of contract and fraud arising from the
alleged use of preferred provider organizations to reduce medical provider fees
covered by the medical claims portion of the insurance policy. A motion to
dismiss has been filed.
A purported class action has been filed against Metropolitan Property and
Casualty Insurance Company in Montana. This suit alleges breach of contract and
bad faith for not aggregating medical payment and uninsured coverages provided
in connection with the several vehicles identified in insureds' motor vehicle
policies. A recent decision by the Montana Supreme Court in a suit involving
another insurer determined that aggregation is required. Metropolitan Property
and Casualty Insurance Company has posted adequate reserves to resolve the
claims underlying this matter. The amount to be paid will not be material to
Metropolitan Property and Casualty Insurance Company. Certain plaintiffs'
lawyers in another action have alleged that the use of certain automated
databases to provide total loss vehicle valuation methods was improper.
Metropolitan Property and Casualty Insurance Company, along with a number of
other insurers, has tentatively agreed in January 2004 to resolve this issue in
a class action format. The amount to be paid in resolution of this matter will
not be material to Metropolitan Property and Casualty Insurance Company.
Several lawsuits were brought in 2000 challenging the fairness of
Metropolitan Life's plan of reorganization, as amended (the "plan") and the
adequacy and accuracy of Metropolitan Life's disclosure to policyholders
regarding the plan. These actions named as defendants some or all of
Metropolitan Life, MetLife, Inc. (the "Holding Company"), the individual
directors, the New York Superintendent of Insurance (the "Superintendent") and
the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs &
Company and Credit Suisse First Boston. On February 21, 2003, a trial court
within the commercial part of the New York State court granted the defendants'
motions to dismiss two purported class actions. On April 27, 2004, the appellate
court modified the trial court's order by reinstating certain claims against
Metropolitan Life, the Holding Company and the individual directors. Plaintiffs
in these actions have filed a consolidated amended complaint. Defendants' motion
to dismiss part of the consolidated amended complaint, and plaintiffs' motion to
certify a litigation class are pending. Another purported class action filed in
New York State court in Kings County has been consolidated with this action. The
plaintiffs in the state court class actions seek compensatory relief and
punitive damages. Five persons have brought a proceeding under Article 78 of New
York's Civil Practice Law and Rules challenging the Opinion and Decision of the
Superintendent who approved the plan. In this proceeding, petitioners seek to
vacate the Superintendent's Opinion and Decision and enjoin him from granting
final approval of the plan. Respondents have moved to dismiss the proceeding. In
a purported class action against Metropolitan Life and the Holding Company
pending in the United States District Court for the Eastern District of New
York, plaintiffs served a second consolidated amended complaint on April 2,
2004. In this action, plaintiffs assert violations of the Securities Act of 1933
and the Securities Exchange Act of 1934 in connection with the plan, claiming
that the Policyholder Information Booklets failed to disclose certain material
facts. They seek rescission and compensatory damages. On June 22, 2004, the
court denied the defendants' motion to dismiss the claim of violation of the
Securities Exchange Act of 1934. The court had previously denied defendants'
motion to dismiss the claim for violation of the Securities Act of 1933. On
December 10, 2004, the court reaffirmed its earlier decision denying defendants'
motion for summary judgment as premature. Metropolitan Life, the Holding Company
and the individual defendants believe they have meritorious defenses to the
plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims
in these actions.
In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario,
Canada on behalf of a proposed class of certain former Canadian policyholders
against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance
Company of Canada. Plaintiffs' allegations concern the way that their policies
were treated in connection with the demutualization of Metropolitan Life; they
seek damages, declarations, and other non-pecuniary relief. The defendants
believe they have meritorious defenses to the plaintiffs' claims and will
contest vigorously all of plaintiffs' claims in this matter.
On April 30, 2004, a lawsuit was filed in New York state court in New York
County against the Holding Company and Metropolitan Life on behalf of a proposed
class comprised of the settlement class in the Metropolitan Life sales practices
class action settlement approved in December 1999 by the United States District
Court for the Western District of Pennsylvania. In July 2004, the plaintiffs
served an amended complaint. The amended complaint challenges the treatment of
the cost of the sales practices settlement in the demutualization of
Metropolitan Life and asserts claims of breach of fiduciary duty, common law
fraud, and unjust enrichment. Plaintiffs seek compensatory and punitive damages,
as well as attorneys' fees and costs. The Holding Company and Metropolitan Life
have moved to dismiss the amended complaint. In October 2003, the United States
District Court for the Western District of Pennsylvania dismissed plaintiffs'
similar complaint alleging that the demutualization breached the terms of the
1999 settlement agreement and unjustly enriched the Holding Company and
Metropolitan Life. The Holding Company and Metropolitan Life intend to contest
this matter vigorously.
Race-Conscious Underwriting Claims
Insurance departments in a number of states initiated inquiries in 2000
about possible race-conscious underwriting of life insurance. These inquiries
generally have been directed to all life insurers licensed in their respective
states, including Metropolitan Life and certain of its affiliates. The New York
Insurance Department concluded its examination of Metropolitan Life concerning
possible past race-conscious underwriting practices. On April 28, 2003, the
United States District Court for the Southern District of New York approved a
class action settlement of a consolidated action against Metropolitan Life
alleging racial discrimination in the marketing, sale, and administration of
life insurance policies. Metropolitan Life also entered into settlement
agreements to resolve the regulatory examination.
Twenty lawsuits involving approximately 140 plaintiffs were filed in
federal and state court in Alabama, Mississippi and Tennessee alleging federal
and/or state law claims of racial discrimination in connection with the sale,
formation, administration or servicing of life insurance policies. Metropolitan
Life resolved the claims of some of these plaintiffs through settlement, and
some additional plaintiffs have voluntarily dismissed their claims. Metropolitan
Life resolved claims of some additional persons who opted out of the settlement
class referenced in the preceding paragraph but who had not filed suit. The
actions filed in Alabama and Tennessee have been dismissed; one action filed in
Mississippi remains pending. In the pending action, Metropolitan Life is
contesting plaintiffs' claims vigorously.
The Company believes that adequate provision has been made to cover the
costs associated with the resolution of these matters.
A putative class action lawsuit is pending in the United States District
Court for the District of Columbia, in which plaintiffs allege that they were
denied certain ad hoc pension increases awarded to retirees under the
Metropolitan Life retirement plan. The ad hoc pension increases were awarded
only to retirees (i.e., individuals who were entitled to an immediate retirement
benefit upon their termination of employment) and not available to individuals
like these plaintiffs whose employment, or whose spouses' employment, had
terminated before they became eligible for an immediate retirement benefit. The
plaintiffs seek to represent a class consisting of former Metropolitan Life
employees, or their surviving spouses, who are receiving deferred vested annuity
payments under the retirement plan and who were allegedly eligible to receive
the ad hoc pension increases awarded in 1977, 1980, 1989, 1992, 1996 and 2001,
as well as increases awarded in earlier years. Metropolitan Life is vigorously
defending itself against these allegations.
As previously reported, the SEC is conducting a formal investigation of New
England Securities Corporation ("NES"), a subsidiary of New England Life
Insurance Company ("NELICO"), in response to NES informing the SEC that certain
systems and controls relating to one NES advisory program were not operating
effectively. NES is cooperating fully with the SEC.
Prior to filing the Company's June 30, 2003 Form 10-Q, MetLife announced a
$31 million charge, net of income taxes, resulting from certain improperly
deferred expenses at an affiliate, New England Financial. MetLife notified the
SEC about the nature of this charge prior to its announcement. The SEC is
pursuing a formal investigation of the matter and, in December 2004, NELICO
received a so-called "Wells Notice" in connection with the SEC investigation.
The Wells Notice provides notice that the SEC staff is considering recommending
that the SEC bring a civil action alleging violations of the U.S. securities
laws. Under the SEC's procedures, a recipient can respond to the SEC staff
before the staff makes a formal recommendation regarding whether any action
alleging violations of the U.S. securities laws should be considered. MetLife
continues to cooperate fully with the SEC in its investigation.
The American Dental Association and two individual providers have sued
MetLife, Mutual of Omaha and Cigna in a purported class action lawsuit brought
in a Florida federal district court. The plaintiffs purport to represent a
nationwide class of in-network providers who allege that their claims are being
wrongfully reduced by downcoding, bundling, and the improper use and programming
of software. The complaint alleges federal racketeering and various state law
theories of liability. MetLife is vigorously defending the case and a motion to
dismiss has been filed and argued.
On November 16, 2004, a New York state court granted plaintiffs' motion to
certify a litigation class of owners of certain participating life insurance
policies and a sub-class of New York owners of such policies in an action
asserting that Metropolitan Life breached their policies and violated New York's
General Business Law in the manner in which it allocated investment income
across lines of business during a period ending with the 2000 demutualization.
Metropolitan has filed a notice of appeal from the order granting this motion.
In August 2003, an appellate court affirmed the dismissal of fraud claims in
this action. Plaintiffs seek compensatory damages. Metropolitan Life is
vigorously defending the case.
Regulatory bodies have contacted the Company and have requested information
relating to market timing and late trading of mutual funds and variable
insurance products and, generally, the marketing of products. The Company
believes that many of these inquiries are similar to those made to many
financial services companies as part of industry-wide investigations by various
regulatory agencies. The SEC has commenced an investigation with respect to
market timing and late trading in a limited number of privately-placed variable
insurance contracts that were sold through General American. As previously
reported, in May 2004, General American received a so called "Wells Notice"
stating that the SEC staff is considering recommending that the SEC bring a
civil action alleging violations of the U.S. securities laws against General
American. Under the SEC procedures, General American can avail itself of the
opportunity to respond to the SEC staff before it makes a formal recommendation
regarding whether any action alleging violations of the U.S. securities laws
should be considered. General American has responded to the Wells Notice. The
Company is fully cooperating with regard to these information requests and
investigations. The Company at
the present time is not aware of any systemic problems with respect to such
matters that may have a material adverse effect on the Company's consolidated
In October 2004, the SEC informed MetLife that it anticipates issuing a
formal order of investigation related to certain sales by a former MetLife sales
representative to the Sheriff's Department of Fulton County, Georgia. The
Company is fully cooperating with respect to inquiries from the SEC.
The Company has received a number of subpoenas and other requests from the
Office of the Attorney General of the State of New York seeking, among other
things, information regarding and relating to compensation agreements between
insurance brokers and the Company, whether MetLife has provided or is aware of
the provision of "fictitious" or "inflated" quotes and information regarding
tying arrangements with respect to reinsurance. Based upon an internal review,
the Company advised the Attorney General for the State of New York that MetLife
was not aware of any instance in which MetLife had provided a "fictitious" or
"inflated" quote. MetLife also has received a subpoena, including a set of
interrogatories, from the Office of the Attorney General of the State of
Connecticut seeking information and documents concerning contingent commission
payments to brokers and MetLife's awareness of any "sham" bids for business.
MetLife also has received a Civil Investigative Demand from the Office of the
Attorney General for the State of Massachusetts seeking information and
documents concerning bids and quotes that the Company submitted to potential
customers in Massachusetts, the identity of agents, brokers, and producers to
whom the Company submitted such bids or quotes, and communications with a
certain broker. MetLife is continuing to conduct an internal review of its
commission payment practices. The Company continues to fully cooperate with
these inquiries and is responding to the subpoenas and other requests.
Approximately twelve broker related lawsuits have been received. Two class
action lawsuits were filed in the United States District Court for the Southern
District of New York on behalf of proposed classes of all persons who purchased
the securities of MetLife, Inc. between April 5, 2000 and October 19, 2004
against MetLife, Inc. and certain officers of MetLife, Inc. In the context of
contingent commissions, the complaints allege that defendants violated the
federal securities laws by issuing materially false and misleading statements
and failing to disclose material facts regarding MetLife, Inc.'s financial
performance throughout the class period that had the effect of artificially
inflating the market price of MetLife Inc.'s securities. Three class action
lawsuits were filed in the United States District Court for the Southern
District of New York on behalf of proposed classes of participants in and
beneficiaries of Metropolitan Life Insurance Company's Savings and Investment
Plan against MetLife, Inc., the MetLife, Inc. Employee Benefits Committee,
certain officers of Metropolitan Life Insurance Company, and members of MetLife,
Inc.'s board of directors. In the context of contingent commissions, the
complaints allege that defendants violated their fiduciary obligations under
ERISA by failing to disclose to plan participants who had the option of
allocating funds in the plan to the MetLife Company Stock Fund material facts
regarding MetLife, Inc.'s financial performance. The plaintiffs in these actions
seek compensatory and other relief. Two cases have been brought in California
state court against MetLife, Inc., other companies, and an insurance broker. One
of these cases alleges that the insurers and the broker violated Section 17200
of the California Business and Professions Code by engaging in unfair trade
practices concerning contingent commissions and fees paid to the broker; the
other case has been brought by the California Insurance Commissioner and alleges
that the defendants violated certain provisions of the California Insurance
Code. Additionally, two civil RICO or antitrust related class action lawsuits
have been brought against MetLife, Inc., and other companies in California
federal court with respect to issues concerning contingent commissions and fees
paid to one or more brokers. Three class action lawsuits have been brought in
Illinois federal court against MetLife, Inc. and other companies alleging that
insurers and brokers violated antitrust laws or engaged in civil RICO
violations. The Company intends to vigorously defend these cases.
In addition to those discussed above, regulators and others have made a
number of inquiries of the insurance industry regarding industry brokerage
practices and related matters and others may begin. It is reasonably possible
that MetLife will receive additional subpoenas, interrogatories, requests and
lawsuits. MetLife will fully cooperate with all regulatory inquiries and intends
to vigorously defend all lawsuits.
Metropolitan Life also has been named as a defendant in a number of
silicosis, welding and mixed dust cases in various states. The Company intends
to defend itself vigorously against these cases.
Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
consolidated financial statements, have arisen in the course of the Company's
business, including, but not limited to, in connection with its activities as an
insurer, employer, investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other federal and state authorities
regularly make inquiries and conduct investigations concerning the Company's
compliance with applicable insurance and other laws and regulations.
It is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, except as noted above in connection with specific matters. In
some of the matters referred to above, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. Although in light of these
considerations it is possible that an adverse outcome in certain cases could
have a material adverse effect upon the Company's consolidated financial
position, based on information currently known by the Company's management, in
its opinion, the outcomes of such pending investigations and legal proceedings
are not likely to have such an effect. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's consolidated net income or cash flows in particular quarterly or