REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Policy Owners of Metropolitan Tower Separate Account One and Board of Directors of Metropolitan Tower Life Insurance Company
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of Metropolitan Tower Separate Account One (the "Separate Account") of Metropolitan Tower Life Insurance Company (the "Company") comprising each of the individual Divisions listed in Note 2 as of December 31, 2023, the related statements of operations and changes in net assets for each of the three years in the period then ended, the financial highlights in Note 7 for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Divisions constituting the Separate Account of the Company as of December
31, 2023, and the results of their operations and changes in their net assets for each of the three years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on the Separate Account's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Separate Account in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Separate Account is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Separate Account's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of investments owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
Change in unrealized gains (losses) on investments
77,741
(196,588
)
11,560
Net increase (decrease) in net assets resulting from operations
89,561
(112,384
)
79,133
Policy Transactions:
Premium payments received from policy owners
7,477
8,149
8,870
Net transfers (including fixed account)
—
—
—
Policy charges
(16,970
)
(18,934
)
(17,644
)
Transfers for policy benefits and terminations
(21,399
)
(2,429
)
(15,206
)
Net increase (decrease) in net assets resulting from policy transactions
(30,892
)
(13,214
)
(23,980
)
Net increase (decrease) in net assets
58,669
(125,598
)
55,153
Net Assets:
Beginning of year
523,787
649,385
594,232
End of year
$
582,456
$
523,787
$
649,385
The accompanying notes are an integral part of these financial statements. 8
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Metropolitan Tower Separate Account One (the "Separate Account"), a separate account of Metropolitan Tower Life Insurance Company (the "Company"), was established by the Company's Board of Directors on October 12, 1982 to support operations of the Company with respect to certain variable life insurance policies (the "Policies"). The Company is a direct wholly-owned subsidiary of MetLife, Inc., a Delaware corporation. Effective after the close of the New York Stock Exchange on April 27, 2018, General American Life Insurance Company merged with and into the
Company and its Separate Accounts concurrently changing their state of domicile for the Company and its related Separate Account to Nebraska. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and is subject to the rules and regulations of the United States Securities and Exchange Commission, as well as the Nebraska Department of Insurance.
The Separate Account is divided into Divisions, each of which is treated as an individual accounting entity for financial reporting purposes. Each Division invests in shares of the corresponding portfolio (with the same name) of registered investment management companies (the "Trusts"), which are presented below:
Brighthouse Funds Trust I ("BHFTI")
Brighthouse Funds Trust II ("BHFTII")
The assets of each of the Divisions of the Separate Account are registered in the name of the Company. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from the Company's other assets and liabilities. The portion of the Separate Account's assets applicable to the Policies cannot be used for liabilities arising out of any other business conducted by the Company.
2. LIST OF DIVISIONS
Premium payments, less any applicable charges, applied to the Separate Account are invested in one or more Divisions in accordance with the selection made by the Policy owner. The following Divisions had net assets as of December 31, 2023:
BHFTI Brighthouse/Wellington Large Cap Research Division
BHFTII BlackRock Bond Income Division
BHFTII BlackRock Ultra-Short Term Bond Division
BHFTII Brighthouse/Wellington Balanced Division
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable for variable life separate accounts registered as unit investment trusts, which follow the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 946, Investment Companies.
Security Transactions
Security transactions are recorded on a trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the average cost of the investment sold. Income from dividends and realized gain distributions are recorded on the ex-distribution date.
9
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS — (Continued)
3. SIGNIFICANT ACCOUNTING POLICIES — (Concluded)
Security Valuation
A Division's investment in shares of a portfolio of the Trusts is valued at fair value based on the closing net asset value ("NAV"). All changes in fair value are recorded as changes in unrealized gains (losses) on investments in the statements of operations of the applicable Divisions. The Separate Account defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Each Division invests in shares of open-end mutual funds which calculate a daily NAV based on the fair value of the underlying securities in their portfolios. As a result, and as required by law, shares of open-end mutual funds are purchased and redeemed at their daily NAV as reported by the Trusts at the close of each business
day.
ASC Topic 820, Fair Value Measurement ("ASC 820") provides that the Separate Account is not required to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. Additionally, ASC 820 does not require certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. The Separate Account's investments in shares of a portfolio of the Trusts are using NAV as a practical expedient, therefore investments are not categorized within the ASC 820 fair value hierarchy.
Federal Income Taxes
The operations of the Separate Account form a part of the total operations of the Company and are not taxed separately. The Company is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the Policies. Accordingly, no charge is currently being made to the Separate Account for federal income taxes. The Company will periodically review the status
of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the Policies.
Premium Payments
The Company deducts a sales charge for certain Policies and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain Policies, the Company also deducts a federal income tax charge before amounts are allocated to the Separate Account. This federal income tax charge is imposed in connection with certain Policies to recover a portion of the federal income tax adjustment attributable to Policy acquisition expenses. Net premiums are reported as premium payments received from Policy owners on the statements of changes in net assets of the applicable Divisions and are credited as units.
Net Transfers
Assets transferred by the Policy owner into or out of Divisions within the Separate Account or into or out of the fixed account, which is part of the Company's general account, are recorded on a net basis as net transfers in the statements of changes in net assets of the applicable Divisions.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
10
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS — (Continued)
4. EXPENSES & POLICY CHARGES
The following annual Separate Account charge paid to the Company is an asset-based charge assessed through a daily reduction in unit values, which is recorded as an expense in the accompanying statements of operations of the applicable Divisions:
Mortality and Expense Risk — The mortality risk assumed by the Company is the risk that those insured may die sooner than anticipated and therefore, the Company will pay an aggregate amount of death benefits greater than anticipated. The expense risk assumed is the risk that expenses incurred in issuing and administering the Policies will exceed the amounts realized from the administrative charges assessed against the Policies.
The table below represents the effective annual rate for the charge for the year ended December 31, 2023:
Mortality and Expense Risk
0.50
%
The above referenced charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the designation of the charge or associated with a particular Policy.
Separate Account charges referred to in this disclosure are for current charges of the Policies. Policy charges are assessed on a monthly basis through the redemption of units. These charges generally include: cost of insurance ("COI") charges, administrative charges, a Policy fee, and charges for benefits provided by rider, if any. The COI charge is the primary charge under the Policy for the death benefit provided by the Company which may vary by Policy based on underwriting criteria. The administrative charge is $45 annually for each Policy. There is an additional $5 charge for every $1,000 of the Policy face amount in the first Policy year. These charges are paid to the Company and are recorded as Policy charges in the accompanying
statements of changes in net assets of the applicable Divisions for the years ended December 31, 2023, 2022 and 2021.
11
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS — (Continued)
5. STATEMENTS OF INVESTMENTS
As of December 31
For the year ended December 31
Shares
Cost ($)
Cost of Purchases ($)
Proceeds from Sales ($)
2023
2023
2023
2022
2021
2023
2022
2021
BHFTI Brighthouse/Wellington Large Cap Research Division
314,470
3,897,154
534,786
970,403
616,839
935,782
218,874
533,212
BHFTII BlackRock Bond Income Division
7,612
801,841
30,302
24,034
66,766
59,523
46,108
78,057
BHFTII BlackRock Ultra-Short Term Bond Division
3,686
369,764
26,151
4,096
3,769
34,516
29,229
39,616
BHFTII Brighthouse/Wellington Balanced Division
32,341
567,396
19,028
106,030
65,567
36,344
36,757
27,124
12
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS — (Continued)
BHFTI Brighthouse/Wellington Large Cap Research Division
BHFTII BlackRock Bond Income Division
2023
2022
2021
2023
2022
2021
Units beginning of year
13,373
13,968
15,231
7,478
7,883
8,315
Units issued and transferred from other funding options
1,067
217
468
366
328
583
Units redeemed and transferred to other funding options
(2,977
)
(812
)
(1,731
)
(845
)
(733
)
(1,015
)
Units end of year
11,463
13,373
13,968
6,999
7,478
7,883
BHFTII BlackRock Ultra-Short Term Bond Division
BHFTII Brighthouse/Wellington Balanced Division
2023
2022
2021
2023
2022
2021
Units beginning of year
11,935
12,666
13,771
4,512
4,615
4,791
Units issued and transferred from other funding options
1,171
768
552
99
418
167
Units redeemed and transferred to other funding options
(1,568
)
(1,499
)
(1,657
)
(342
)
(521
)
(343
)
Units end of year
11,538
11,935
12,666
4,269
4,512
4,615
13
METROPOLITAN TOWER SEPARATE ACCOUNT ONE OF METROPOLITAN TOWER LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS — (Concluded)
7. FINANCIAL HIGHLIGHTS
The following table is a summary of unit values and units outstanding for the Policies, net assets, net investment income ratios, expense ratios, excluding expenses for the underlying portfolio, and total return ratios for the five years ended December 31, 2023:
As of December 31
For the year ended December 31
Units
Unit Value ($)
Net Assets ($)
Investment1 Income Ratio (%)
Expense2 Ratio (%)
Total3 Return (%)
BHFTI Brighthouse/Wellington
2023
11,463
379.14
4,345,970
0.84
0.50
25.21
Large Cap Research
2022
13,373
302.80
4,049,268
0.73
0.50
(19.36
)
Division
2021
13,968
375.51
5,244,939
0.86
0.50
23.86
2020
15,231
303.17
4,617,587
1.13
0.50
21.76
2019
15,898
248.99
3,958,420
1.15
0.50
31.51
BHFTII BlackRock Bond
2023
6,999
100.35
702,301
3.09
0.50
5.31
Income Division
2022
7,478
95.29
712,545
2.89
0.50
(14.57
)
2021
7,883
111.54
879,257
2.69
0.50
(0.93
)
2020
8,315
112.59
936,189
3.63
0.50
8.05
2019
8,906
104.20
928,045
3.71
0.50
9.28
BHFTII BlackRock Ultra-Short
2023
11,538
33.41
385,511
1.72
0.50
4.53
Term Bond Division
2022
11,935
31.97
381,514
—
0.50
0.94
2021
12,666
31.67
401,137
0.34
0.50
(0.69
)
2020
13,771
31.89
439,159
1.92
0.50
(0.07
)
2019
14,419
31.91
460,142
1.80
0.50
1.62
BHFTII Brighthouse/Wellington
2023
4,269
136.43
582,456
2.19
0.50
17.52
Balanced Division
2022
4,512
116.10
523,787
1.74
0.50
(17.49
)
2021
4,615
140.71
649,385
1.84
0.50
13.46
2020
4,791
124.02
594,232
2.22
0.50
17.14
2019
4,956
105.88
524,759
2.18
0.50
22.38
1 These amounts represent the dividends, excluding distributions of capital gains, received by the Division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense risk charges, that are assessed against Policy owner accounts either through reductions in the unit values or the redemption of units. The investment income ratio is calculated for each period indicated or from the effective date through the end of the reporting period. The recognition of investment income by the Division is affected by the timing of the declaration of dividends by the underlying portfolio in which the Division invests.
2 These amounts represent annualized Policy expenses of each of the applicable Divisions, consisting primarily of mortality and expense risk charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to Policy owner accounts through the redemption of units and expenses of the underlying portfolio have been excluded.
3 These amounts represent the total return for the period indicated, including changes in the value of the underlying portfolio, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. The total return is calculated for each period indicated or from the effective date through the end of the reporting period.
We
have audited the consolidated financial statements of Metropolitan Tower Life Insurance Company and subsidiaries (a wholly-owned subsidiary
of MetLife, Inc.) (the "Company") which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related
consolidated statements of operations, comprehensive income (loss), stockholder’s equity, and cash flows for each of the three years
in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively referred to as the
“consolidated financial statements”).
In our opinion,
the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December31, 2023 in accordance with accounting principles generally accepted in the United States of America.
Basis
for Opinion
We
conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance
with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, the Company
has changed its method of accounting and presentation related to long-duration insurance contracts and certain related balances effective
January 1, 2023, due to the adoption of Accounting Standards Update No. 2018-12, Financial Services— Insurance (Topic 944): Targeted
Improvements to the Accounting for Long-Duration Contracts, as amended (“ASU 2018-12”), with a transition date of January1, 2021.
Additionally, as discussed in Note 1 to the consolidated financial statement,
the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
Our opinion is not modified with respect to this matter.
Responsibilities
of Management for the Consolidated Financial Statements
Management
is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In
preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the
date that the consolidated financial statements are available to be issued.
Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements
Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the consolidated financial statements.
In
performing an audit in accordance with GAAS, we:
•Exercise
professional judgment and maintain professional skepticism throughout the audit.
•Identify
and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and
perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements.
•Obtain
an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion
is expressed.
•Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well
as evaluate the overall presentation of the consolidated financial statements.
•Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s
ability to continue as a going concern for a reasonable period of time.
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control-related matters that we identified during the audit.
Net
change in payables for collateral under securities loaned and other transactions
(280)
(425)
576
Dividends
paid to MetLife, Inc.
(189)
—
—
Net
cash provided by (used in) financing activities
1,082
1,418
2,964
Change
in cash and cash equivalents
53
953
16
Cash
and cash equivalents, beginning of year
1,644
691
675
Cash
and cash equivalents, end of year
$
1,697
$
1,644
$
691
Supplemental
disclosures of cash flow information
Net
cash paid (received) for:
Interest
$
8
$
8
$
8
Income
tax
$
333
$
82
$
13
Non-cash
transactions:
Fixed
maturity securities available-for-sale disposed of in connection with a reinsurance transaction
$
2,457
$
—
$
—
Fixed
maturity securities available-for-sale received in connection with pension risk transfer transactions
$
1,636
$
1,258
$
423
Mortgage
loans disposed of in connection with a reinsurance transaction
$
86
$
—
$
—
Equity
securities received due to in-kind distributions from other limited partnership interests
$
2
$
2
$
15
Real
estate and real estate joint ventures acquired in satisfaction of debt
$
1
$
29
$
7
Real
estate and real estate joint ventures received from an affiliate
$
—
$
144
$
—
Real
estate and real estate joint ventures transferred to an affiliate
$
—
$
144
$
—
Fixed
maturity securities available-for-sale received from an affiliate
$
—
$
328
$
—
Fixed
maturity securities available-for-sale transferred to an affiliate
$
—
$
139
$
—
Fair
value option securities transferred to an affiliate
$
—
$
186
$
—
See
accompanying notes to the consolidated financial statements.
MTL
- 8
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Metropolitan
Tower Life Insurance Company (“MTL”) and its subsidiaries (collectively, the “Company”) is a wholly-owned subsidiary
of MetLife, Inc. The Company is domiciled in the state of Nebraska (“Nebraska”) and is licensed to transact insurance business
in, and is subject to regulation by all 50 states and the District of Columbia, Canada and Puerto Rico. The Company is currently actively
selling a broad range of annuity and investment products, including guaranteed investment contracts and other stable value products, pension
risk transfer products, including United Kingdom (“U.K.”) longevity reinsurance, and structured settlements, as well as certain
products to fund company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives. The Company
is not actively selling individual annuities, variable and universal life insurance, and traditional life insurance, including whole life.
Basis
of Presentation
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported on the consolidated financial
statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions
about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial
services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Adoption
of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
Effective
January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2018-12, Financial
Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as
amended by ASU 2019-09,
Financial Services—Insurance (Topic 944): Effective Date; ASU 2020-11, Financial Services—Insurance (Topic 944):
Effective Date and Early Application; and
ASU 2022-05,
Financial Services—Insurance (Topic 944): Transition for Sold Contracts
(“LDTI”), with a transition date of January 1, 2021 (the “Transition Date”). Adoption of LDTI impacted the Company’s
accounting and presentation related to long-duration insurance contracts and certain related balances for the years ended December 31,2022 and 2021. Amounts within these consolidated financial statements which were previously presented, have been revised to conform with
the current year accounting and presentation under LDTI. Disclosures as of the Transition Date are reflected in summary within “—
Recent Accounting Pronouncements — Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts,”
and in further detail (at the disaggregated level) within Notes 2, 3, 4 and 5.
Consolidation
The
accompanying consolidated financial statements include the accounts of MTL and its subsidiaries, as well as partnerships in which the
Company has a controlling financial interest. Intercompany accounts and transactions have been eliminated.
The
Company uses the equity method of accounting, unless the fair value option (“FVO”) is applied, for real estate joint ventures
and other limited partnership interests (“investee”) when it has more than a minor ownership interest or more than a
minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings in net
investment income on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when
the investee’s reporting period differs from the Company’s reporting period.
Since
the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
Separate
Accounts
Separate
accounts are established in conformity with insurance laws. Generally, the assets of the separate accounts cannot be used to settle the
liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the
extent the value of such assets exceeds the separate account liabilities. The Company reports separately, as separate account assets and
liabilities, investments held in separate accounts and corresponding policyholder liabilities of the same amount if all of the following
criteria are met:
MTL
- 9
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
•such
separate accounts are legally recognized;
•assets
supporting the contract liabilities are legally insulated from the Company’s general account liabilities;
•investment
objectives are directed by the contractholder; and
•all
investment performance, net of contract fees and assessments, is passed through to the contractholder.
The
Company reports separate account assets at their fair value, which is based on the estimated fair values of the underlying assets comprising
the individual separate account portfolios. Investment performance (including investment income, net investment gains (losses) and changes
in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the
same line on the statements of operations. Separate accounts credited with a contractual investment return are not reported as separate
account assets and liabilities and are combined on a line-by-line basis with the Company’s general account assets, liabilities,
revenues and expenses and the accounting for these investments is consistent with the methodologies described herein for similar financial
instruments held within the general account.
The
Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration
fees, investment management fees and surrender charges. Such fees are included in universal life and investment-type product policy fees
on the statements of operations.
Summary
of Significant Accounting Policies
The
following table presents the Company’s significant accounting policies with cross-references to the notes which provide additional
information on such policies.
Accounting
Policy
Note
Future
Policy Benefit Liabilities
2
Policyholder
Account Balances
3
Deferred Policy
Acquisition Costs and Value of Business Acquired
5
Reinsurance
6
Investments
7
Derivatives
8
Fair
Value
9
Income
Tax
13
Litigation
Contingencies
14
Future
Policy Benefit Liabilities
Traditional
Non-participating and Limited-payment Long-duration products
The
Company establishes future policy benefit liabilities (“FPBs”) for amounts payable under traditional non-participating and
limited-payment long-duration insurance and reinsurance policies which include, but are not limited to, annuities products which include
pension risk transfers, structured settlements and institutional income annuities. Generally, amounts are payable over an extended period
of time and the related liabilities are calculated as the present value of future expected benefits and claim settlement expenses to be
paid, reduced by the present value of future expected net premiums.
FPBs
are measured as cohorts (e.g., groups of long-duration contracts), with the exception of pension risk transfers and longevity reinsurance
solutions contracts, each of which is generally considered its own cohort. Contracts from different subsidiaries or branches, issue years,
benefit currencies and product types are not grouped together in the same cohort.
Such
liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. A
net premium ratio (“NPR”) approach is utilized, where net premiums (i.e., the portion of gross premiums required to fund expected
insurance benefits and claim settlement expenses) are accrued each period as FPBs. The NPR used to accrue the FPB in each period is determined
by using the historical and present value of
MTL
- 10
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
expected
future benefits and claim settlement expenses for the cohort divided by the historical and present value of expected future gross premiums
for the cohort.
Cash
flow assumptions are incorporated into the calculation of a cohort's NPR and FPB reserve. These assumptions are used to project the amount
and timing of expected benefits and claim settlement expenses to be paid and the expected amount of premiums to be collected for a cohort.
The principal inputs and assumptions used in the establishment of FPBs are actual premiums, actual benefits, in-force policies, and best
estimate cash flow assumptions to project future premium and benefit amounts. The Company’s primary best estimate cash flow assumptions
include expectations related to mortality, morbidity, termination, claim settlement expense, policy lapse, renewal, retirement, disability
incidence, disability terminations, inflation and other contingent events as appropriate to the respective product type and geographical
area. Generally, the NPR and FPB reserve are updated retrospectively on a quarterly basis for actual experience and at least once a year
for any changes in future cash flow assumptions, except for claim settlement expenses, for which the Company has elected to lock in assumptions
at the Transition Date or inception (for contracts sold after the Transition Date), as allowed by LDTI. The resulting remeasurement (gain)
loss is recorded through net income and reflects the impact of the change in the NPR based on experience at the end of the quarter applied
to the cumulative premiums received from the inception of the cohort (or from the Transition Date for contracts issued prior to the Transition
Date) to the beginning of the quarter. The total contractual profit pattern is recognized over the expected life of the cohort by retrospectively
updating the NPR. If net premiums exceed gross premiums (i.e., expected benefits exceed expected gross premiums), the FPB is increased,
and a corresponding adjustment is recognized immediately in net income.
The
change in FPB reflected in the statement of operations is calculated using a locked-in discount rate. For products issued prior to the
Transition Date, a cohort level locked-in discount rate was developed that reflected the interest accretion rates that were locked in
at inception of the underlying contracts (unless there was a historical premium deficiency event that resulted in updating the interest
accretion rate prior to the Transition Date), or the acquisition date for contracts acquired through an assumed in-force reinsurance transaction
or a business combination. For contracts issued subsequent to the Transition Date, the upper-medium grade discount rate used for interest
accretion is locked in for the cohort and represents the original upper-medium grade discount rate at the issue date of the underlying
contracts. The FPB for all cohorts is remeasured to a current upper-medium grade discount rate at each reporting date through other comprehensive
income (loss) (“OCI”).
The
Company generally interprets the upper-medium grade discount rate to be a rate comparable to that of a corporate single A rate that reflects
the duration characteristics of the liability. The upper-medium grade discount rate for the products that are included in the disaggregated
rollforwards in Note 2 which are issued in the U.S. is determined by using observable market data, including published single A base curves.
The last liquid point on the upper-medium grade discount curve grades to an ultimate forward rate, which is derived using assumptions
of economic growth, inflation, and a long-term upper-medium grade spread.
For
limited-payment long-duration contracts, the collection of premiums does not represent the completion of the earnings process, therefore,
any gross premiums received in excess of net premiums is deferred and amortized as a deferred profit liability (“DPL”). The
DPL is presented within FPBs and is amortized in proportion to either the present value of expected benefit payments or insurance in-force
of each cohort to ensure that profits are recognized over the life of the underlying policies in that cohort, regardless of when premiums
are received. This amortization of the DPL is recorded through net income within policyholder benefits and claims. Consistent with the
Company’s measurement of traditional long-duration products, management also recognizes a FPB reserve for limited-payment contracts
that is representative of the difference between the present value of expected future benefits and the present value of expected future
net premiums, subject to retrospective remeasurement through net income and OCI, as described above. The DPL is also subject to retrospective
remeasurement through net income, however, it is not remeasured for changes in discount rates.
When
a cohort’s present value of future net premiums exceeds the present value of future benefits, a “flooring” adjustment
is required. The flooring adjustment ensures that the liability for future policy benefits for each cohort is not less than zero, and
is reported in net income or OCI, depending on whether the flooring relates to the FPB discounted at the locked-in discount rate versus
the current upper-medium grade discount rate, respectively.
MTL
- 11
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Traditional
Participating Products
The
Company establishes FPBs for traditional participating contracts in the U.S., which include whole and term life participating contracts
using a net premium approach, similar to traditional non-participating contracts. However, for participating contracts, the discount rate
and actuarial assumptions are locked in at inception, include a provision for adverse deviation, and all changes in the associated FPBs
are reported within policyholder benefits and claims. For traditional participating contracts, the Company reviews its estimates of actuarial
liabilities for future benefits and compares them with current best estimate assumptions. The Company revises estimates, to increase FPBs,
if the Company determines that the liabilities previously established for future benefit payments less future expected net premiums in
the aggregate for this line of business prove inadequate.
Additional
Insurance Liabilities
Liabilities
for universal life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating the expected
value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the life
of the contract based on total expected assessments. The additional insurance liabilities are updated retrospectively on a quarterly basis
for actual experience and at least once a year for any changes in future cash flow assumptions. The assumptions used in estimating the
secondary and paid-up guarantee liabilities are investment income, mortality, lapse, and premium payment pattern and persistency. The
assumptions of investment performance and volatility for variable products are consistent with historical experience of appropriate underlying
equity indices, such as the S&P Global Ratings (“S&P”) 500 Index. The benefits used in calculating the liabilities
are based on the average benefits payable over a range of scenarios.
The
resulting adjustments are recorded as policyholder liability remeasurement (gains) losses in the statement of operations reflecting the
impact on the change in the ratio of benefits payable to total assessments over the life of the contract based on experience at the end
of the quarter applied to the cumulative assessments received as of the beginning of the quarter.
Premium
Deficiency Reserves
Premium
deficiency reserves may be established for short-duration contracts to provide for expected future losses and certain expenses that exceed
unearned premiums. These reserves are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred
for which claims have not been reported. The provisions for unreported claims are calculated using studies that measure the historical
length of time between the incurred date of a claim and its eventual reporting to the Company. For universal life-type and certain participating
contracts, a premium deficiency reserve may be established when existing contract liabilities, together with the present value of future
fees and/or premiums, are not sufficient to cover the present value of future benefits and settlement costs. Anticipated investment
income is also considered in the calculations of premium deficiency reserves for short-duration contracts, as well as universal life-type
and certain participating contracts.
Policyholder
Account Balances
Policyholder
account balances (“PABs”) represent the amount held by the Company on behalf of the policyholder at each reporting date. This
amount includes deposits received from the policyholder, interest credited to the policyholder’s account balance, net of charges
assessed against the account balance and any policyholder withdrawals. This balance also includes liabilities for structured settlement
and institutional income annuities, and certain other contracts, that do not contain significant insurance risk.
Market
Risk Benefits
As
defined by LDTI, market risk benefits (“MRBs”) are contracts or contract features that guarantee benefits, such as guaranteed
minimum benefits, in addition to an account balance, which expose insurance companies to other than nominal capital market risk (e.g.,
equity price, interest rate, and/or foreign currency exchange risk) and subsequently protect the contractholder from the same risk.
These contracts and contract features were generally recorded as embedded derivatives or additional insurance liabilities prior to the
Transition Date. Certain contracts may have multiple contract features or guarantees. In these cases, each feature is separately evaluated
to determine whether it meets the definition of an MRB at contract inception. If a contract includes multiple benefits that meet the definition
of an MRB, those benefits are aggregated and measured as a single compound MRB.
MTL
- 12
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
All
identified MRBs are required to be measured at estimated fair value, whether the contract or contract feature represents a direct, assumed
or ceded capital market risk. All MRBs in an asset position are aggregated and presented as an asset, and all MRBs in a liability position
are aggregated and presented as a liability. MRB assets of $12 million and $17 million are reported in other assets on the consolidated
balance sheets as of December 31, 2023 and 2022, respectively. Changes in the estimated fair value of MRBs are recognized in net income,
except for the portion of the fair value change attributable to the change in nonperformance risk of the Company which is recorded as
a separate component of OCI.
The
Company generally uses an attributed fee approach to value MRBs, where the attributed fee is determined at contract inception by estimating
the fair value of expected future benefits and the expected future fees. The attributed fee percentage is the portion of the expected
future fees due from contractholders deemed necessary at contract inception to fund all future expected benefits. This typically results
in a zero fair value for the MRB at inception. The estimated fair value of the expected future benefits is estimated using a stochastically-generated
set of risk-neutral scenarios. Once calculated, the attributed fee percentage is fixed and does not change over the life of the contract.
All fees due from contractholders in excess of the attributed fees are reported in universal life and investment-type product policy fees.
Other
Policy-Related Balances
Other
policy-related balances include policy and contract claims, premiums received in advance, unearned revenue (“UREV”) liabilities,
obligations assumed under structured settlement assignments, policyholder dividends due and unpaid and policyholder dividends left on
deposit.
The
Company assumed structured settlement claim obligations as an assignment company. These liabilities are measured at the present value
of the future periodic claims to be provided. The Company received a fee for assuming these claim obligations and, as the assignee of
the claim, is legally obligated to ensure periodic payments are made to the claimant. See Note 7 for additional information on obligations
assumed under structured settlement assignments.
The
liability for policy and contract claims generally relates to incurred but not reported (“IBNR”) death claims. In addition,
generally included in other policy-related balances are claims which have been reported but not yet settled.
The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates
for the development of IBNR claims principally from analyses of historical patterns of claims by business line. The methods used to determine
these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates
and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or
payments are made.
The
Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premiums received in advance.
These amounts are then recognized in premiums when due.
The
UREV liability relates to universal life and investment-type products and represents policy charges for services to be provided in future
periods. The charges are deferred as UREV and amortized on a basis consistent with the methodologies and assumptions used for amortizing
deferred policy acquisition costs (“DAC”) for the related contracts. Changes in the UREV liability for each period (representing
deferrals less amortization) are reported in universal life and investment-type product policy fees. The Company’s UREV liabilities
were $15 million and $29 million at December 31, 2023 and 2022, respectively.
Recognition
of Insurance Revenues and Deposits
Premiums
related to long-duration whole and term life products, individual disability, individual and group fixed annuities (including pension
risk transfers, certain structured settlements and certain income annuities) and participating products are recognized as revenues when
due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated lives of the insurance
policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit
is deferred as a DPL and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the present value
of expected future policy benefit payments.
Premiums
related to short-duration group term life and disability contracts are recognized on a pro rata basis over the applicable contract term.
Unearned premiums, representing the portion of premium written related to the unexpired coverage, are reflected as liabilities until earned.
MTL
- 13
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Deposits
related to universal life and investment-type products are credited to PABs. Revenues from such contracts consist of fees for mortality,
policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in
which services are provided. Amounts that are charged to earnings include interest credited and benefit claims incurred in excess of related
PABs.
All
revenues and expenses are presented net of reinsurance, as applicable.
Deferred
Policy Acquisition Costs and Value of Business Acquired
The
Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the
successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
•incremental
direct costs of contract acquisition, such as commissions;
•the
portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance
of new and renewal insurance business only with respect to actual policies acquired or renewed; and
•other
essential direct costs that would not have been incurred had a policy not been acquired or renewed.
All
other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product
development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
Value
of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess
of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition
date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy and contract
charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns, nonperformance
risk adjustment and other factors. Actual experience with the purchased business may vary from these projections. VOBA is subject to periodic
recoverability testing for traditional life and limited-payment contracts, as well as universal life type contracts.
DAC
and VOBA for most long-duration products are amortized on a constant-level basis that approximates straight-line amortization on an individual
contract basis. The DAC and VOBA related to limited-payment annuities are amortized over expected benefit payments, and for all other
long-duration products are generally amortized in proportion to policy count. For short-duration products, DAC and VOBA are amortized
in proportion to actual and expected future earned premiums.
DAC
and VOBA are aggregated on the financial statements for reporting purposes. See Note 5 for additional information on DAC and VOBA
amortization. Amortization of DAC and VOBA is included in other expenses.
Reinsurance
For
each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating
to insurance risk in accordance with applicable accounting standards. Cessions under reinsurance agreements do not discharge the Company’s
obligations as the primary insurer. The Company reviews all contractual features, including those that may limit the amount of insurance
risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For
reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between
the amounts paid (received), and the liabilities ceded (assumed) related to the underlying reinsured contracts is considered the net cost
of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is amortized on a basis consistent with the
methodologies and assumptions used for amortizing DAC related to the underlying reinsured contracts. Subsequent amounts paid (received)
on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums;
and ceded (assumed) premiums, reinsurance and other receivables (future policy benefits) are established.
For
prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are
recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums. Ceded (assumed) unearned premiums are reflected
as a component of premiums, reinsurance and other receivables (future policy benefits).
MTL
- 14
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Such
amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of insurance protection provided.
For retroactive reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received)
in excess of the related insurance liabilities ceded (assumed) are recognized immediately as a loss and are reported in the appropriate
line item within the statement of operations. Any gain on such retroactive agreement is deferred and is amortized as part of DAC, primarily
using the recovery method.
The
reinsurance recoverable for traditional non-participating and limited-payment contracts is generally measured using a net premium methodology
to accrue the projected net gain or loss on reinsurance in proportion to the gross premiums of the underlying reinsured cohorts; and
is updated retrospectively on a quarterly basis for actual experience and at least once a year for any changes in cash flow assumptions.
The locked-in discount rate used to measure changes in the reinsurance recoverable recorded in net income was established at the Transition
Date, or at the inception of the reinsurance coverage for new reinsurance agreements entered into subsequent to the Transition Date. The
reinsurance recoverable is remeasured to an upper-medium grade discount rate through OCI at each reporting date, similar to the underlying
reinsured contracts. The reinsurance recoverable for other long-duration contracts and associated contract features is measured using
assumptions and methods generally consistent with the underlying direct policies.
Amounts
currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts currently payable
are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net
on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations
to the Company under the terms of the reinsurance agreements, or when events or changes in circumstances indicate that its carrying amount
may not be recoverable, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances
are stated net of allowances for uncollectible reinsurance, consistent with credit loss guidance which requires recording an allowance
for credit loss (“ACL”).
The
funds withheld liability represents amounts withheld by the Company in accordance with the terms of the reinsurance agreements. The Company
withholds the funds rather than transferring the underlying investments and, as a result, records funds withheld liability within other
liabilities. The Company recognizes interest on funds withheld, included in other expenses, at rates defined by the terms of the agreement
which may be contractually specified or directly related to the investment portfolio.
Premiums,
fees, policyholder liability remeasurement (gains) losses and policyholder benefits and claims include amounts assumed under reinsurance
agreements and are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other expenses.
If
the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from
insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities
and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the
underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other
expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit
asset or liability through other revenues or other expenses, as appropriate.
Investments
Net
Investment Income
Net
investment income includes primarily interest income, including amortization of premium and accretion of discount, prepayment fees, dividend
income, rental income and equity method income and is net of related investment expenses. Net investment income also includes; (i)
realized gains (losses) on investments sold or disposed and (ii) unrealized gains (losses) recognized in earnings, representing changes
in estimated fair value, primarily for FVO securities.
Net
Investment Gains (Losses)
Net
investment gains (losses) include primarily (i) realized gains (losses) from sales and disposals of investments, which are determined
by specific identification, (ii) intent-to-sell impairment losses on fixed maturity securities available-for-sale (“AFS”)
and impairment losses on all other asset classes, and to a lesser extent, (iii) recognized gains
MTL
- 15
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
(losses).
Recognized gains (losses) are primarily comprised of the change in the ACL and unrealized gains (losses) for certain investments for which
changes in estimated fair value are recognized in earnings. Changes in the ACL includes both (i) provisions for credit loss on fixed maturity
securities AFS, mortgage loans and leveraged and direct financing leases and (ii) subsequent changes in the ACL. Unrealized gains (losses),
representing changes in estimated fair value recognized in earnings, primarily relate to equity securities.
Accrued
Investment Income
Accrued
investment income is presented separately on the consolidated balance sheet and excluded from the carrying value of the related investments,
primarily fixed maturity securities and mortgage loans.
Fixed
Maturity Securities
The
majority of the Company’s fixed maturity securities are classified as AFS and are reported at their estimated fair value. Changes
in the estimated fair value of these securities not recognized in earnings representing unrecognized unrealized investment gains (losses)
are recorded as a separate component of OCI, net of policy-related amounts and deferred income taxes. All security transactions are recorded
on a trade date basis. Sales of securities are determined on a specific identification basis.
Interest
income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to
amortization of premium and accretion of discount, and is based on the estimated economic life of the securities, which for mortgage-backed
and asset-backed securities considers the estimated timing and amount of prepayments of the underlying loans. See Note 7 “—
Fixed Maturity Securities AFS — Methodology for Amortization of Premium and Accretion of Discount on Structured Products.”
The amortization of premium and accretion of discount also take into consideration call and maturity dates. Generally, the accrual of
income is ceased and accrued investment income that is considered uncollectible is recognized as a charge within net investment gains
(losses) when securities are impaired.
The
Company periodically evaluates these securities for impairment. The assessment of whether impairments have occurred is based on management’s
case-by-case evaluation of the underlying reasons for the decline in estimated fair value as described in Note 7 “— Fixed
Maturity Securities AFS — Evaluation of Fixed Maturity Securities AFS for Credit Loss.”
For securities in an unrealized loss position, a credit loss is recognized in earnings within net investment gains (losses) when it is
anticipated that the amortized cost, excluding accrued investment income, will not be recovered. When either: (i) the Company
has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security
before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s
amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security
and the present value of projected future cash flows expected to be collected is recognized in earnings as a credit loss by establishing
an ACL with a corresponding charge recorded in net investment gains (losses). However, the ACL is limited by the amount that the fair
value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is
less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit
factors (“noncredit loss”) is recorded in OCI as an unrecognized loss.
For
purchased credit deteriorated fixed maturity securities AFS and financing receivables, an ACL is established at acquisition, which is
added to the purchase price to establish the initial amortized cost of the investment and is not recognized in earnings.
Mortgage
Loans
The
Company disaggregates its mortgage loan investments into three portfolio segments: commercial, agricultural and residential. Also
included in commercial mortgage loans are revolving line of credit loans collateralized by commercial properties. The accounting policies
that are applicable to all portfolio segments are presented below and the accounting policies related to each of the portfolio segments
are included in Note 7.
The
Company recognizes an ACL in earnings within net investment gains (losses) at time of purchase based on expected lifetime credit loss
on financing receivables carried at amortized cost, including, but not limited to, mortgage
MTL
- 16
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
loans,
in an amount that represents the portion of the amortized cost basis of such financing receivables that the Company does not expect to
collect, resulting in financing receivables being presented at the net amount expected to be collected.
The
Company ceases to accrue interest when the collection of interest is not considered probable, which is based on a current evaluation of
the status of the borrower, including the number of days past due. When a loan is placed on non-accrual status, uncollected past due accrued
interest income that is considered uncollectible is charged-off against net investment income. Generally, the accrual of interest income
resumes after all delinquent amounts are paid and management believes all future principal and interest payments will be collected. The
Company records cash receipts on non-accruing loans in accordance with the loan agreement. The Company records charge-offs of mortgage
loan balances not considered collectible upon the realization of a credit loss, for commercial and agricultural mortgage loans typically
through foreclosure or after a decision is made to sell a loan, and for residential mortgage loans, typically after considering the individual
consumer’s financial status. The charge-off is recorded in net investment gains (losses), net of amounts recognized in ACL. Cash
recoveries on principal amounts previously charged-off are generally reported in net investment gains (losses).
Mortgage
loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net
of ACL. Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method
giving effect to amortization of premium and deferred expenses and accretion of discount and deferred fees.
Policy
Loans
Policy
loans are stated at unpaid principal balances. Interest income is recognized as earned using the contractual interest rate. Generally,
accrued interest is capitalized on the policy’s anniversary date. Valuation allowances are not established for policy loans, as
they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal and accrued interest
are deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy.
Real
Estate
Real
estate is stated at cost less accumulated depreciation. Depreciation is recognized on a straight-line basis, without any provision for
salvage value, over the estimated useful life of the asset (typically up to 55 years). Rental income is recognized on a straight-line
basis over the term of the respective leases. The Company periodically reviews its real estate for impairment and tests for recoverability
whenever events or changes in circumstances indicate the carrying value may not be recoverable. Properties whose carrying values are greater
than their estimated undiscounted cash flows are written down to their estimated fair value, which is generally computed using the present
value of expected future cash flows discounted at a rate commensurate with the underlying risks.
Real
estate for which the Company commits to a plan to sell within one year and actively markets in its current condition for a reasonable
price in comparison to its estimated fair value is classified as held-for-sale and is not depreciated. Real estate held-for-sale is stated
at the lower of depreciated cost or estimated fair value less expected disposition costs.
Real
Estate Joint Ventures and Other Limited Partnership Interests
The
Company uses the equity method of accounting or the FVO for an investee when it has more than a minor ownership interest or more than
a minor influence over the investee’s operations but does not hold a controlling financial interest, including when the Company
is not deemed the primary beneficiary of a variable interest entity (“VIE”). Under the equity method, the Company recognizes
its share of the investee’s earnings within net investment income. Contributions paid by the Company increase carrying value and
distributions received by the Company reduce carrying value. The Company generally recognizes its share of the investee’s earnings
on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s
reporting period differs from the Company’s reporting period.
The
Company accounts for its interest in real estate joint ventures and other limited partnership interests in which it has virtually no influence
over the investee’s operations at estimated fair value. Unrealized gains (losses), representing changes in estimated fair value
of these investments, are recognized in earnings within net investment gains (losses). Due
MTL
- 17
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
to
the nature and structure of these investments, they do not meet the characteristics of an equity security in accordance with applicable
accounting guidance.
The
Company consolidates real estate joint ventures and other limited partnership interests of which it holds a controlling financial interest,
or it is deemed the primary beneficiary of a VIE.
The
Company routinely evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the
carrying amount is not recoverable and exceeds its estimated fair value. When it is determined an equity method investment has had a loss
in value that is other than temporary, an impairment is recognized. Such an impairment is charged to net investment gains (losses).
Short-term
Investments
Short-term
investments include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three
months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments
included within short-term investments are stated at amortized cost less ACL, which approximates estimated fair value.
Annuities
Funding Structured Settlement Claims
Annuities
funding structured settlement claims represent annuities funding claims assumed by the Company in its capacity as a structured settlements
assignment company. The annuities are stated at their contract value, which represents the present value of the future periodic claim
payments to be provided. The net investment income recognized reflects the amortization of discount of the annuity at its implied effective
interest rate.
Other
Invested Assets
Other
invested assets consist principally of the following:
•Company
owned life insurance policies are carried at cash surrender value.
•Freestanding
derivatives with positive estimated fair values which are described in “— Derivatives” below.
•Affiliated
loans are stated at unpaid principal balance and adjusted for any unamortized premium or discount. Interest income is recognized using
an effective yield method giving effect to amortization of premium and accretion of discount.
•Investments
in Federal Home Loan Bank of New York (“FHLBNY”) common stock are carried at redemption value and are considered restricted
investments until redeemed. Dividends are recognized in net investment income when declared.
•Equity
securities are reported at their estimated fair value, with changes in estimated fair value included in net investment gains (losses).
Sales of securities are determined on a specific identification basis. Dividends are recognized in net investment income when declared.
Securities
Lending Transactions
The
Company accounts for securities lending transactions as financing arrangements and the associated liability is recorded at the amount
of cash received. The securities loaned or sold under these agreements are included in invested assets. Income and expenses associated
with securities lending transactions are recognized as investment income and investment expense, respectively, within net investment income.
The
Company enters into securities lending transactions, whereby securities are loaned to unaffiliated financial institutions. The Company
obtains collateral at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the
securities loaned, and maintains it at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such
transactions may be sold or re-pledged by the transferee. The Company is liable to return to the counterparties the cash collateral received.
Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, unless
the counterparty is in default, and is not reflected on the Company’s consolidated financial statements. The Company monitors the
ratio of the collateral held to the estimated fair value of the securities loaned on a daily basis and additional collateral is obtained
as necessary throughout the duration of the loan.
MTL
- 18
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Derivatives
Freestanding
Derivatives
Freestanding
derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other
liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed
with the same counterparty under the same master netting agreement.
Accruals
on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled
to settle within one year are included with the derivative’s carrying value in other invested assets or other liabilities.
If
a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the
estimated fair value of the derivative are reported in net derivative gains (losses) except for economic hedges of FVO securities, which
are reported in net investment income.
Hedge
Accounting
To
qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective
and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement
presentation of changes in estimated fair value of the hedging derivatives are as follows:
•Fair
value hedge
- a hedge of the estimated fair value of a recognized asset or liability - in the same line item as the earnings effect of the hedged
item. The carrying value of the hedged recognized asset or liability is adjusted for changes in its estimated fair value due to the hedged
risk.
•Cash
flow hedge
- a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability
- in OCI and reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows
of the hedged item.
The
changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement
of operations within interest income or interest expense to match the location of the hedged item.
In
its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged
item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness.
A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged
item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship.
Assessments of hedge effectiveness are also subject to interpretation and estimation and different interpretations or estimates may have
a material effect on the amount reported in net income.
The
Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective
in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated,
or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative
is de-designated as a hedging instrument.
When
hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated
fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with
changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or
liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative
adjustment to its carrying value is amortized into income over the remaining life of the hedged item. The changes in estimated fair value
of derivatives related to discontinued cash flow hedges remain in OCI unless it is probable that the hedged forecasted transaction will
not occur.
MTL
- 19
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
When
hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date
or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes
in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded
in OCI pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable of occurring are recognized
immediately in net investment gains (losses).
In
all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet,
with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded
Derivatives
The
Company is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative
to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as
a freestanding derivative if:
•the
contract or contract feature does not meet the definition of a MRB;
•the
combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
•the
terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
•a
separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Such
embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair
value are reported in net derivative gains (losses). If the Company is unable to properly identify and measure an embedded derivative
for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated
fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company
may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in
the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that
requires bifurcation.
Fair
Value
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
In most cases, the exit price and the transaction (or entry) price will be the same at initial recognition.
Subsequent
to initial recognition, fair values are based on unadjusted quoted prices for identical assets or liabilities in active markets that are
readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices
in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If these
inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiring
significant management judgment are used to determine the estimated fair value of assets and liabilities. These unobservable inputs can
be based on management’s judgment, assumptions or estimation and may not be observable in market activity. Unobservable inputs are
based on management’s assumptions about the inputs market participants would use in pricing the assets.
MTL
- 20
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Income
Tax
MTL
and its includable subsidiaries join with MetLife, Inc. and its includable subsidiaries in filing a consolidated U.S. life insurance
and non-life insurance federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. Current
taxes (and the benefits of tax attributes such as losses) are allocated to MTL and its includable subsidiaries under the consolidated
tax return regulations and a tax sharing agreement. Under the consolidated tax return regulations, MetLife, Inc. has elected the “percentage
method” (and 100% under such method) of reimbursing companies for tax attributes, e.g., net operating losses. As a result, 100%
of tax attributes are reimbursed by MetLife, Inc. to the extent that consolidated federal income tax of the consolidated federal tax return
group is reduced in a year by tax attributes. On an annual basis, each of the profitable subsidiaries pays to MetLife, Inc. the federal
income tax which it would have paid based upon that year’s taxable income. If MTL or its includable subsidiaries have current or
prior deductions and credits (including but not limited to losses) which reduce the consolidated tax liability of the consolidated federal
tax return group, the deductions and credits are characterized as realized (or realizable) by MTL and its includable subsidiaries when
those tax attributes are realized (or realizable) by the consolidated federal tax return group, even if MTL or its includable subsidiaries
would not have realized the attributes on a stand-alone basis under a “wait and see” method.
The
Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred
tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities
are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences
are expected to reverse.
The
realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods
under the tax law in the applicable tax jurisdiction. Valuation allowances are established against deferred tax assets when management
determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant
judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances. When
making such determination the Company considers many factors, including:
•the
nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
•the
jurisdiction in which the deferred tax asset was generated;
•the
length of time that carryforward can be utilized in the various taxing jurisdictions;
•future
taxable income exclusive of reversing temporary differences and carryforwards;
•future
reversals of existing taxable temporary differences;
•taxable
income in prior carryback years; and
•tax
planning strategies, including the intent and ability to hold certain AFS debt securities until they recover in value.
The
Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred tax
assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally,
the effect of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense
(benefit) in the period of change.
The
Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded on the financial statements. A tax position is measured at the largest amount
of benefit that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that
do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The
Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.
MTL
- 21
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Litigation
Contingencies
The
Company is involved in a number of litigation matters and regulatory investigations. Given the inherent unpredictability of these matters,
it is difficult to estimate the impact on the Company’s annual consolidated net income or cash flows. Liabilities are established
when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Legal costs are recognized as
incurred. On an annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations
and litigation-related contingencies to be reflected on the Company’s consolidated financial statements.
Other
Accounting Policies
Cash
and Cash Equivalents
The
Company considers highly liquid securities and other investments purchased with an original or remaining maturity of three months or less
at the date of purchase to be cash equivalents. Securities included within cash equivalents are stated at estimated fair value, while
other investments included within cash equivalents are stated at amortized cost, which approximates estimated fair value.
Property
and Equipment
Property
and equipment, which is included in other assets, is stated at cost less accumulated depreciation. Depreciation is determined using the
straight-line method over the estimated useful lives of the assets, generally ranging from four to 40 years. The cost basis was $11 million
and $10 million at December 31, 2023 and 2022, respectively. Accumulated depreciation was $8 million and $7 million at December 31,2023 and 2022, respectively. Related depreciation expense was $1 million, $1 million and $3 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
Other
Revenues
Other
revenues include fees on reinsurance financing agreements and fees associated with certain stable value products. Such fees are recognized
in the period in which services are performed.
Policyholder
Dividends
Policyholder
dividends are approved annually by MTL’s board of Directors. The aggregate amount of policyholder dividends is related to actual
interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the appropriate level
of statutory surplus to be retained by MTL.
Foreign
Currency
Gains
and losses from foreign currency transactions, including the effect of re-measurement of monetary assets and liabilities to U.S. dollars
are reported as part of net investment gains (losses) in the period in which they occur.
Recent
Accounting Pronouncements
Changes
to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of ASUs to the FASB Accounting Standards
Codification. The Company considers the applicability and impact of all ASUs. The following tables provide a description of ASUs recently
issued by the FASB and the impact of their adoption on the Company’s consolidated financial statements.
Adoption
of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
The
Company adopted LDTI effective January 1, 2023 with a Transition Date of January 1, 2021. The standard required a full retrospective transition
approach for MRBs, and allowed for a transition method election for FPBs and DAC, as well as other balances that have historically been
amortized in a manner consistent with DAC. The Company has elected the modified retrospective transition approach for all FPBs, DAC, and
related balances on all long-duration contracts, subject to the transition provisions. Additionally, an amendment in LDTI allowed entities
to make an accounting policy election to exclude certain sold or disposed contracts or legal entities from application of the transition
guidance. The Company did not make such an election.
MTL
- 22
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Under
the modified retrospective approach, the Company was required to establish LDTI-compliant FPBs, DAC and related balances for the Company’s
Transition Date opening balance sheet by utilizing the Company’s December 31, 2020 balances with certain adjustments as described
below.
MTL
- 23
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The
following table presents a summary of the Transition Date impacts associated with the implementation of LDTI to the consolidated balance
sheet:
Premiums,
Reinsurance and Other Receivables
Deferred
Policy Acquisition Costs and Value of Business Acquired
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The
Transition Date impacts associated with the implementation of LDTI were applied as follows:
Future
Policy Benefits (See Note 2)
Traditional
Non-participating Long-duration products
•Loss
recognition balances related to unrealized investment gains associated with certain long-duration products previously recorded in adjustment
to opening accumulated OCI (“AOCI”) were removed;
•Contracts
in-force as of the Transition Date were grouped into cohorts; a revised NPR was calculated for each cohort using the existing Transition
Date balance, best estimate cash flow assumptions without a provision for adverse deviation, and the historical discount rates used for
the contracts within the cohort prior to the adoption of LDTI (the “locked-in” discount rate). For any cohorts where the net
premiums exceeded gross premiums (NPR exceeded 100%), the FPB was increased for the excess of net premiums over gross premiums, with a
corresponding adjustment recorded to opening retained earnings as of the Transition Date;
•The
difference between the FPB balance calculated at the current upper-medium grade discount rate and the FPB balance calculated at the locked-in
discount rate was recorded as an adjustment to opening AOCI as of the Transition Date; and
•Corresponding
adjustments were made to ceded reinsurance balances.
Limited-payment
Long-duration products
Limited-payment
long-duration products transition to LDTI follows a similar approach to traditional non-participating products, except that these product
cohorts may have a DPL which is adjusted at the Transition Date. If an increase to FPB depleted the DPL, the remaining adjustment was
recorded to opening retained earnings as of the Transition Date.
Additional
insurance liabilities
•There
were no transition adjustments to the additional insurance liabilities or the corresponding ceded reinsurance balances.
Market
Risk Benefits
The
full retrospective transition approach for MRBs required assessing products to determine whether contract or contract features expose
the Company to other than nominal capital market risk. The population of MRBs identified was then reviewed to determine the historical
measurement model prior to adoption of LDTI. If the MRB was a bifurcated embedded derivative prior to the adoption of LDTI, the existing
measurement approach was retained, except that the fair value of the MRB at inception was recalculated to isolate the contract issue date
nonperformance risk of the Company.
If,
prior to the adoption of LDTI, the MRB was accounted for under a different model, the at-inception attributed fee ratio was calculated
for every identified MRB, and using the at inception attributed fee ratio, the fair value of the MRB at the contract issue date was calculated
to isolate the contract issue date nonperformance risk of the Company.
At
the Transition Date, the impacts to the financial statements of the full retrospective approach for MRBs include the following:
•The
amounts previously recorded for these contracts within embedded derivatives were reclassified to MRB liabilities;
•The
difference between the fair value of the MRBs and the previously recorded carrying value at the Transition Date, excluding the cumulative
effect of changes in nonperformance risk of the Company, was recorded as an adjustment to the opening balance of retained earnings;
and
•The
cumulative effect of changes in nonperformance risk between the contract issue date and the Transition Date was recorded as an AOCI as
of the Transition Date.
MTL
- 25
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
DAC
and other balances to be amortized in a manner consistent with DAC (VOBA) (See Note 5 for information on DAC and VOBA)
The
opening balances of these accounts were adjusted for removal of the related amounts in AOCI, as these balances are no longer amortized
using expected future gross premiums, margins, profits or earned premiums.
Other
balance sheet reclassifications and adjustments at LDTI adoption (See Notes 2 and 3)
Individual
income annuities reclassification
Prior
to the Transition Date, the Company classified all structured settlement and institutional income annuity products within FPBs. While
the pre-LDTI GAAP reserving model was the same for these products, upon transition to LDTI, the reserving model for a subset of these
products changed, requiring the Company to reclassify $2.7 billion of FPBs to PABs at the Transition Date.
Other
reclassifications and adjustments
Other
minor reclassifications and adjustments were made to conform to LDTI presentation requirements.
The
following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s
previously reported consolidated balance sheet:
Deferred
policy acquisition costs and value of business acquired
$
568
$
76
$
644
Deferred
income tax asset
$
595
$
(356)
$
239
Other
assets
$
156
$
17
$
173
Total
assets
$
58,982
$
(748)
$
58,234
Liabilities
Future
policy benefits
$
27,756
$
(6,502)
$
21,254
Policyholder
account balances
$
12,280
$
4,279
$
16,559
Other
policy-related balances
$
5,891
$
(2)
$
5,889
Other
liabilities
$
4,057
$
134
$
4,191
Total
liabilities
$
57,881
$
(2,091)
$
55,790
Equity
Retained
earnings
$
1,832
$
41
$
1,873
Accumulated
other comprehensive income (loss)
$
(2,826)
$
1,302
$
(1,524)
Total
equity
$
1,101
$
1,343
$
2,444
Total
liabilities and equity
$
58,982
$
(748)
$
58,234
MTL
- 26
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The
following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s
previously reported consolidated statements of operations:
Interest
credited to policyholder account balances
$
274
$
109
$
383
$
222
$
91
$
313
Other
expenses
$
410
$
(84)
$
326
$
152
$
(119)
$
33
Total
expenses
$
8,359
$
(904)
$
7,455
$
4,056
$
(902)
$
3,154
Income
(loss) before provision for income tax
$
731
$
34
$
765
$
768
$
26
$
794
Provision
for income tax expense (benefit)
$
162
$
7
$
169
$
157
$
7
$
164
Net
income (loss)
$
569
$
27
$
596
$
611
$
19
$
630
The
following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s
previously reported consolidated statements of comprehensive income:
Other
comprehensive income (loss), before income tax
$
(4,686)
$
1,779
$
(2,907)
$
(500)
$
386
$
(114)
Income
tax (expense) benefit related to items of other comprehensive income (loss)
$
984
$
(373)
$
611
$
105
$
(81)
$
24
Other
comprehensive income (loss), net of income tax
$
(3,702)
$
1,406
$
(2,296)
$
(395)
$
305
$
(90)
Comprehensive
income (loss)
$
(3,133)
$
1,433
$
(1,700)
$
216
$
324
$
540
MTL
- 27
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The
following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s
previously reported consolidated statements of equity:
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The
following table presents the effects of the retrospective application of the adoption of the new LDTI accounting guidance to the Company’s
previously reported consolidated statements of cash flows:
Interest
credited to policyholder account balances
$
369
$
87
$
456
$
332
$
91
$
423
Universal
life and investment-type product policy fees
$
(360)
$
(1)
$
(361)
$
(368)
$
—
$
(368)
Change
in premiums, reinsurance and other receivables
$
409
$
37
$
446
$
(153)
$
(130)
$
(283)
Change
in other assets
$
32
$
(21)
$
11
$
(10)
$
(21)
$
(31)
Change
in deferred policy acquisition costs and value of business acquired, net
$
10
$
(61)
$
(51)
$
45
$
(97)
$
(52)
Change
in income tax
$
81
$
7
$
88
$
146
$
(52)
$
94
Change
in insurance-related liabilities and policy-related balances
$
3,215
$
(761)
$
2,454
$
4,067
$
(713)
$
3,354
Change
in other liabilities
$
(202)
$
(15)
$
(217)
$
135
$
148
$
283
Net
cash provided by (used in) operating activities
$
3,782
$
(695)
$
3,087
$
4,356
$
(737)
$
3,619
Cash
flows from financing activities
Policyholder
account balances - deposits
$
6,850
$
867
$
7,717
$
4,546
$
857
$
5,403
Policyholder
account balances - withdrawals
$
(5,702)
$
(172)
$
(5,874)
$
(2,895)
$
(120)
$
(3,015)
Net
cash provided by (used in) financing activities
$
723
$
695
$
1,418
$
2,227
$
737
$
2,964
MTL
- 29
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Other
Adopted Accounting Pronouncements
The
table below describes the impacts of the other ASUs adopted by the Company.
Standard
Description
Effective
Date and Method of Adoption
Impact
on Financial Statements
ASU 2022-02,
Financial
Instruments—Credit Losses
(Topic
326): Troubled Debt Restructurings and Vintage Disclosures
The amendments
in the new ASU eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected
credit loss guidance while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower
is experiencing financial difficulty. In addition, the amendments require that a public business entity disclose current-period gross
write-offs by year of origination for financing receivables and net investment in leases.
The new guidance
has reduced the complexity involved with evaluating and accounting for certain loan modifications. The adoption of the guidance did not
have a material impact on the Company’s consolidated financial statements, other than expanded disclosures in Note 7.
ASU 2020-04,
Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting;
as clarified and amended by ASU 2021-01,
Reference Rate Reform (Topic 848): Scope; as
amended by ASU 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
The guidance
provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference
rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications
made and hedging relationships entered into or evaluated after December 31, 2022, with certain exceptions. ASU 2021-01 amends the scope
of the recent reference rate reform guidance. New optional expedients allow derivative instruments impacted by changes in the interest
rate used for margining, discounting, or contract price alignment to qualify for certain optional relief. The amendments in ASU 2022-06
extend the sunset date of the reference rate reform optional expedients and exceptions to December 31, 2024.
The guidance
has reduced the operational and financial impacts of contract modifications that replace a reference rate, such as London Interbank Offered
Rate, affected by reference rate reform.
Contract modifications
to replace reference rates affected by the reform occurred during 2021, 2022 and 2023. The adoption of the guidance did not have a material
impact on the Company’s consolidated financial statements.
MTL
- 30
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Future
Adoption of Accounting Pronouncements
ASUs
not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s
consolidated financial statements or disclosures. ASUs issued but not yet adopted as of December 31, 2023 that are currently
being assessed and may or may not have a material impact on the Company’s consolidated financial statements or disclosures are summarized
in the table below.
Standard
Description
Effective
Date and Method of Adoption
Impact
on Financial Statements
ASU 2023-09,
Income
Taxes (Topic 740): Improvements to Income Tax Disclosures
Among other things,
the amendments in this update require that public business entities, on an annual basis: (i) disclose specific categories in the rate
reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments
in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount
of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and (ii) the amount of income
taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is
equal to or greater than 5 percent of total income taxes paid (net of refunds received).
Effective for
annual periods beginning January 1, 2025, to be applied prospectively with an option for retrospective application (with early adoption
permitted).
The Company is
evaluating the impact of the guidance on its consolidated financial statements.
ASU 2022-03,
Fair
Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual
Sale Restrictions
The
amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit
of account of the equity security and, therefore, is not considered in measuring fair value. In addition, the amendments clarify that
an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require entities
that hold equity securities subject to contractual sale restrictions to make disclosures about the fair value of such equity securities,
the nature and remaining duration of the restriction(s) and the circumstances that could cause a lapse in the restriction(s).
January1, 2024, to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed
on the date of adoption (with early adoption permitted).
The Company does
not expect the adoption of the guidance to have a material impact on its consolidated financial statements.
2.
Future Policy Benefits
The
Company establishes liabilities for amounts payable under insurance policies. These liabilities are comprised of traditional and limited-payment
contracts and associated deferred profit liabilities, additional insurance liabilities, participating life and short-duration contracts.
MTL
- 31
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
2.
Future Policy Benefits (continued)
The
LDTI transition adjustments related to traditional and limited-payment contracts, DPLs, and additional insurance liabilities, as well
as the associated ceded recoverables, as described in Note 1, were as follows at the Transition Date:
(1)Annuities
includes pension risk transfers, certain structured settlements and certain institutional income annuities.
(2)LDTI
requires separate disaggregated rollforwards of the additional insurance liabilities balance and the traditional and limited-payment FPBs.
Therefore, the additional insurance liabilities and DPL amounts that are recorded in the FPB financial statement line item are removed
to derive the opening balance of traditional and limited-payment contracts at the Transition Date.
(1)This
balance represents liabilities for various smaller product lines across the Company.
Rollforward
- Traditional and Limited-Payment Contracts
The
following information about the direct and assumed liability for future policy benefits includes a disaggregated rollforward of expected
future net premiums and expected future benefits. The products grouped within this rollforward were selected based upon common characteristics
and valuations using similar inputs, judgments, assumptions and methodologies. The adjusted balance in the disaggregated rollforward reflects
the remeasurement (gains) losses. All amounts presented in the rollforward and accompanying financial information do not include a reduction
for amounts ceded to reinsurers, except with respect to ending net liability for future policy benefits balances where applicable. See
Note 6 for further information regarding the impact of reinsurance on the consolidated balance sheets and the consolidated statements
of operations.
MTL
- 33
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
2.
Future Policy Benefits (continued)
The
Company’s annuity products
include pension risk transfers, certain structured settlements and certain institutional income annuities, which are mainly single premium
spread-based products. Information regarding these products was as follows:
Weighted-average
current discount rate at balance sheet date
5.0
%
5.4
%
2.6
%
__________________
(1) For
the years ended December 31, 2023 and 2022, the net effect of changes in cash flow assumptions was largely offset by the corresponding
impact in DPL associated with the Company’s annuity products of $73 million and $15 million, respectively. For the year
ended December 31, 2021, the net effect of changes in cash flow assumptions was substantially offset by the corresponding impact in DPL
associated with the Company’s annuity products of $17 million.
(2) For
the years ended December 31, 2023 and 2021, the net effect of actual variances from expected experience was partially offset by the corresponding
impact in DPL associated with the Company’s annuity products of ($11) million and $6 million, respectively. For the year
ended December 31, 2022, the net effect of actual variances from expected experience was more than offset by the corresponding impact
in DPL associated with the Company’s annuity products of $13 million.
MTL
- 34
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
2.
Future Policy Benefits (continued)
Significant
Methodologies and Assumptions
The
principal inputs used in the establishment of the FPB for the Company’s annuity products include actual premiums, actual benefits,
in-force data, locked-in claim-related expense, the locked-in interest accretion rate, the current upper-medium grade discount rate at
the balance sheet date and best estimate mortality assumptions.
For the year ended December 31, 2023, the net effect of changes in cash flow assumptions was primarily driven by updates in biometric
assumptions related to mortality.
For
the year ended December 31, 2023, the net effect of actual variances from expected experience was primarily driven by model refinements.
When
single premium annuity contracts are issued, the FPB reserve is required to be measured at an upper-medium grade discount rate. Due to
differences between the upper-medium grade discount rate and pricing assumptions used to determine the contractual premium, the initial
FPB reserve at issue for a particular cohort may be greater than the contractual premium received, and the difference must be recognized
as an immediate loss at issue. On these cohorts, future experience that differs from expected experience and changes in cash flow assumptions
result in the recognition of remeasurement gains and losses with net remeasurement gains limited to the amount of the original loss at
issue, after which any favorable experience is deferred and recorded within the DPL. For the year ended December 31, 2021, the Company
incurred a loss at issue of $55 million.
Rollforward
- Additional Insurance Liabilities
The
Company establishes additional insurance liabilities for annuitization, death or other insurance benefits for universal life contract
features where the Company guarantees to the contractholder either a secondary guarantee or a guaranteed paid-up benefit. The policy can
remain in force, even if the base policy account value is zero, as long as contractual secondary guarantee requirements have been met.
The
following information about the direct liability for additional insurance liabilities includes a disaggregated rollforward. The products
grouped within the rollforward were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions
and methodologies. The adjusted balance in the disaggregated rollforward reflects the remeasurement (gains) losses. All amounts presented
in the rollforward and accompanying financial information do not include a reduction for amounts ceded to reinsurers. See Note 6
for further information regarding the impact of reinsurance on the consolidated balance sheets and the consolidated statements of operations.
MTL
- 35
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
2.
Future Policy Benefits (continued)
The
Company’s universal life products provide a contract feature where the Company guarantees to the contractholder a secondary guarantee
or a guaranteed paid-up benefit. Information regarding these additional insurance liabilities was as follows:
Effect
of actual variances from expected experience
(17)
7
6
Adjusted balance
510
517
489
Assessments
accrual
14
15
14
Interest
accrual
34
33
32
Excess
benefits paid
(37)
(50)
(42)
Balance,
at December 31, before AOCI adjustment
521
515
493
Add:
AOCI adjustment
—
—
1
Balance,
at December 31
521
515
494
Less:
Reinsurance recoverables
521
404
420
Balance, at December
31, net of reinsurance
$
—
$
111
$
74
Weighted-average
duration of the liability
10
years
10
years
11
years
Weighted-average
interest accretion rate
6.8
%
6.9
%
6.8
%
Significant
Methodologies and Assumptions
Liabilities
for ULSG and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is
projected to be zero and recognizing those benefits ratably over the life of the contract based on total expected assessments.
The
guaranteed benefits are estimated over a range of scenarios. The significant assumptions used in estimating the ULSG and paid-up guarantee
liabilities are investment income, mortality, lapses, and premium payment pattern and persistency. In addition, projected earned rate
and crediting rates are used to project the account values and excess death benefits and assessments. The discount rate is equal to the
crediting rate for each annual cohort and is locked-in at inception.
The
Company’s gross premiums or assessments and interest expense recognized in the consolidated statements of operations for long-duration
contracts, excluding participating life contracts, were as follows:
Notes
to the Consolidated Financial Statements — (continued)
2.
Future Policy Benefits (continued)
(1)Gross
premiums are related to traditional and limited-payment contracts and are included in premiums. Assessments are related to additional
insurance liabilities and are included in universal life and investment-type product policy fees and net investment income.
(2)Interest
expense is included in policyholder benefits and claims.
Participating
Business
Participating
business represented 34% and 33% of the Company’s life insurance in-force at December 31, 2023 and 2022, respectively. Participating
policies represented 66%, 95% and 92% of gross traditional life insurance premiums for the years ended December 31, 2023, 2022
and 2021, respectively.
Liabilities
for Unpaid Claims and Claim Expenses
Rollforward
of Claims and Claim Adjustment Expenses
Information
regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
Balance
at December 31 (included in future policy benefits and other policy-related balances),
$
224
$
284
$
222
__________________
(1)For
the years ended December 31, 2023, 2022 and 2021, claims and claim adjustment expenses associated with prior years increased due to events
incurred in prior years but reported in the current year.
3.
Policyholder Account Balances
The
Company establishes liabilities for PABs, which are generally equal to the account value, and which includes accrued interest credited,
but excludes the impact of any applicable charge that may be incurred upon surrender.
MTL
- 37
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
The
LDTI transition adjustments related to PABs, as described in Note 1, were as follows at the Transition Date:
Life
(1)
Capital
Markets Investment Products and Stable Value GICs (2)
(1)Life
includes retained asset accounts, universal life products and the fixed account of variable life insurance products.
(2)Capital
Markets Investment Products and Stable Value guaranteed interest contracts (“GICs”) includes investment-type products, mainly
funding agreements.
(3)Annuities
and Risk Solutions includes certain structured settlements and institutional income annuities, and benefit funding solutions that include
postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.
The
Company’s PABs on the consolidated balance sheets were as follows at:
Capital
Markets Investment Products and Stable Value GICs
5,585
5,215
Life
4,931
5,172
Other
824
867
Total
$
18,400
$
16,559
MTL
- 38
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
Annuities
and Risk Solutions
The
Company’s annuities and risk solutions PABs include certain structured settlements and institutional income annuities, and benefit
funding solutions that include postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified
benefit programs for executives. Information regarding this liability was as follows:
Net amount at
risk, excluding offsets from ceded reinsurance:
In
the event of death (1)
$
7,250
$
6,698
$
5,907
__________________
(1)For
benefits that are payable in the event of death, the net amount at risk is generally defined as the current death benefit in excess of
the current account balance at the balance sheet date. It
represents the amount of the claim that the Company would incur if death claims were filed on all contracts at the balance sheet date.
MTL
- 39
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
The
Company’s annuities and risk solutions account values by range of guaranteed minimum credit rates (“GMCR”) and the related
range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
Range
of GMCR
At
GMCR
Greater
than 0% but less than 0.50% above GMCR
Equal
to or greater than 0.50% but less than 1.50% above GMCR
Products
with either a fixed rate or no guaranteed minimum crediting rate
N/A
N/A
N/A
N/A
3,500
Total
$
785
$
—
$
137
$
—
$
4,422
Capital
Markets Investment Products and Stable Value GICs
The
Company’s capital markets investment products and stable value GICs in PABs are investment-type products, mainly funding agreements.
In
addition, the Company has entered into funding agreements with FHLBNY. The PAB balances for FHLBNY funding agreements were $1.6 billion
and $1.4 billion at December 31, 2023 and 2022, respectively. These advances are collateralized by residential mortgage-backed securities
(“RMBS”) with an estimated fair value of $1.9 billion at both December 31, 2023 and 2022. The Company is permitted
to withdraw any portion of the collateral in the custody of FHLBNY as long as there is no event of default and the remaining qualified
collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, FHLBNY’s recovery
on the collateral is limited to the amount of the Company’s liability to FHLBNY.
MTL
- 40
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
Information
regarding the capital markets investment products and stable value GICs in PABs was as follows:
Effect of foreign
currency translation and other, net
57
(5)
7
Balance
at December 31,
$
5,585
$
5,215
$
4,026
Weighted-average
annual crediting rate
3.5
%
1.9
%
0.9
%
Cash
surrender value at period end
$
542
$
421
$
318
The
Company’s capital markets investment products and stable value GICs account values by range of GMCR and the related range of differences
between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
Range
of GMCR
At
GMCR
Greater
than 0% but less than 0.50% above GMCR
Equal
to or greater than 0.50% but less than 1.50% above GMCR
Products
with either a fixed rate or no guaranteed minimum crediting rate
N/A
N/A
N/A
N/A
3,426
Total
$
—
$
—
$
600
$
—
$
4,026
MTL
- 41
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
Life
The
Company’s life PABs include retained asset accounts, universal life products and the fixed account of variable life insurance products.
Information regarding this liability was as follows:
Net amount at
risk, excluding offsets from ceded reinsurance:
In
the event of death (1), (2)
$
18,888
$
20,029
$
21,122
__________________
(1)For
benefits that are payable in the event of death, the net amount at risk is generally defined as the current death benefit in excess of
the current account balance at the balance sheet date. It represents the amount of the claim that the Company would incur if death claims
were filed on all contracts at the balance sheet date.
(2)Taking
into consideration reinsurance, the net amount at risk at December 31, 2023, 2022 and 2021 as presented in the above table, would be reduced
by 98%, 74%, and 74%, respectively.
MTL
- 42
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
3.
Policyholder Account Balances (continued)
The
Company’s life products account values by range of GMCR and the related range of differences between rates being credited to policyholders
and the respective guaranteed minimums were as follows at:
Range
of GMCR
At
GMCR
Greater
than 0% but less than 0.50% above GMCR
Equal
to or greater than 0.50% but less than 1.50% above GMCR
Products
with either a fixed rate or no guaranteed minimum crediting rate
N/A
N/A
N/A
N/A
—
Total
$
4,830
$
84
$
427
$
6
$
5,347
4.
Separate Accounts
Separate
account assets consist of investment accounts established and maintained by the Company. The investment objectives of these assets are
directed by the contractholder. An equivalent amount is reported as separate account liabilities. These accounts are reported separately
from the general account assets and liabilities.
Separate
account assets and liabilities include two categories of account types: pass-through separate accounts totaling $6.1 billion
and $5.4 billion at December 31, 2023 and 2022, respectively, for which the contractholder assumes all investment risk, and separate
accounts for which the Company contractually guarantees either a minimum return or account value to the contractholder which totaled $484 million
and $365 million at December 31, 2023 and 2022, respectively. The latter category consisted primarily of company- and bank-owned
life insurance. The average interest rate credited on these contracts was 6.1% and 6.9% at December 31, 2023 and 2022, respectively.
MTL
- 43
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
4.
Separate Accounts (continued)
Separate
Account Liabilities
The
Company’s separate account liabilities on the consolidated balance sheets were as follows at:
The
following information about the separate account liabilities includes disaggregated rollforwards. The products grouped within these rollforwards
were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies.
MTL
- 44
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
4.
Separate
Accounts (continued)
The
separate account liabilities are primarily comprised of stable value and risk solutions contracts and variable universal life contracts.
The
balances of and changes in separate account liabilities were as follows:
(1) Cash
surrender value represents the amount of the contractholders’ account balances distributable at the balance sheet date less policy
loans and certain surrender charges.
MTL
- 45
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
4.
Separate
Accounts (continued)
Separate
Account Assets
The
Company’s aggregate fair value of assets, by major investment asset category, supporting separate account liabilities was as follows
at:
(1)Includes
DAC balances primarily related to participating life and annuities products.
(2)Includes
activity for total DAC ceded at the date of inception related to a reinsurance agreement. See Note 6 for further information on the
transaction.
Significant
Methodologies and Assumptions
The
Company amortizes DAC and VOBA related to long-duration contracts over the estimated lives of the contracts in proportion to benefits
in-force for annuities and policy count for all other products. The amortization amount is calculated using the same cohorts as the corresponding
liabilities on a quarterly basis, using an amortization rate that includes current period reporting experience and end of period persistency
and longevity assumptions that are consistent with those used to measure the corresponding liabilities.
The
Company amortizes DAC for short-duration contracts, which is primarily comprised of commissions and certain underwriting expenses, in
proportion to actual and future earned premium over the applicable contract term.
6.
Reinsurance
The
Company enters into reinsurance agreements as a purchaser of reinsurance for certain insurance products and also as a provider of reinsurance
for some insurance products issued by affiliated and unaffiliated companies. The Company participates in reinsurance activities in order
to limit losses and minimize exposure to significant risks and provide additional capacity for future growth.
MTL
- 47
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
6.
Reinsurance (continued)
Accounting
for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying
business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared
to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the
financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment
process discussed in “ – Fixed Maturity Securities AFS – Evaluation of Fixed Maturity Securities AFS for Credit Loss”
in Note 7.
For
its individual life insurance products, the Company has historically reinsured the mortality risk, primarily on an excess of retention
or quota share basis. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific
coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics.
The Company also reinsures portions of certain level premium term and universal life policies with secondary death benefit guarantees
to a nonaffiliate. In 2023, the Company reinsured an in-force block of universal life, variable universal life, universal life with secondary
guarantees and fixed annuities to a third party on a 100% quota share basis.
The
Company has reinsured certain of its annuity and supplementary contract business to an affiliate. The Company also reinsures certain group
annuity contracts issued in connection with pension risk transfers to an affiliate.
The
Company assumes portions of certain whole life policies issued by an affiliate and a nonaffiliate. In addition, the Company also assumes
longevity risks for certain pension products issued by unaffiliated providers located in the U.K.
The
Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure
to larger risks. Excess of retention reinsurance agreements provide for a portion of a risk to remain with the direct writing company
and quota share reinsurance agreements provide for the direct writing company to transfer a fixed percentage of all risks of a class of
policies.
The
Company reinsures its remaining business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends
in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial
strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer
is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these
analyses. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at both December 31,2023 and 2022, were not significant. The Company also secured collateral from its counterparties to mitigate counterparty default risk
related to its longevity reinsurance agreements.
The
Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts and funds withheld
accounts. The Company had $1.9 billion and $1.4 billion of unsecured unaffiliated reinsurance recoverable balances at December 31, 2023
and 2022, respectively.
At
December 31, 2023, the Company had $5.7 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $5.4 billion, or 95%,
were with the Company’s five largest unaffiliated ceded reinsurers, including $1.5 billion of net unaffiliated ceded reinsurance
recoverables which were unsecured. At December 31, 2022, the Company had $2.7 billion of net unaffiliated ceded reinsurance recoverables.
Of this total, $2.4 billion, or 89%, were with the Company’s five largest unaffiliated ceded reinsurers, including $1.2 billion
of net unaffiliated ceded reinsurance recoverables which were unsecured.
MTL
- 48
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
6.
Reinsurance (continued)
The
amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects
of reinsurance was as follows:
Net
policyholder liability remeasurement (gains) losses
$
17
$
73
$
(21)
Interest
credited to policyholder account balances
Direct
interest credited to policyholder account balances
$
645
$
479
$
410
Reinsurance
assumed
—
—
—
Reinsurance
ceded
(111)
(96)
(97)
Net
interest credited to policyholder account balances
$
534
$
383
$
313
Other
expenses
Direct
other expenses
$
184
$
199
$
108
Reinsurance
assumed
78
78
77
Reinsurance
ceded
(190)
49
(152)
Net
other expenses
$
72
$
326
$
33
MTL
- 49
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
6.
Reinsurance (continued)
The
amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance
was as follows at:
Deferred
policy acquisition costs and value of business acquired
306
466
(40)
732
207
466
(29)
644
Total
assets
$
355
$
833
$
8,960
$
10,148
$
273
$
734
$
6,139
$
7,146
Liabilities
Future
policy benefits
$
23,039
$
3,501
$
—
$
26,540
$
17,978
$
3,276
$
—
$
21,254
Other
policy-related balances
5,559
364
(23)
5,900
5,661
237
(9)
5,889
Other
liabilities
305
53
4,673
5,031
237
50
3,904
4,191
Total
liabilities
$
28,903
$
3,918
$
4,650
$
37,471
$
23,876
$
3,563
$
3,895
$
31,334
Reinsurance
agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the
deposit method of accounting. Included in the above table are deposit assets on reinsurance of $1.3 billion and $979 million
at December 31, 2023 and 2022, respectively. There were no deposit liabilities on reinsurance at both December 31, 2023 and 2022.
In
November 2023, the Company completed a risk transfer transaction with a subsidiary of Global Atlantic Financial Group, a retirement and
life insurance company, to reinsure an in-force block of universal life, variable universal life, universal life with secondary guarantees,
and fixed annuities. The Company entered into a reinsurance agreement on a coinsurance basis for the general account products and on a
modified coinsurance basis for the separate account products. The Company recorded reinsurance recoverables and deposit receivables of
$2.9 billion at December 31, 2023 reported in premiums, reinsurance and other receivables. At inception of the agreement, in addition
to recording the amount recoverable, the Company i) transferred to the reinsurer $2.3 billion of assets primarily consisting of fixed
maturity securities AFS and mortgage loans supporting the general account liabilities reduced by a $479 million pre-tax ceding commission,
ii) retained $408 million separate account assets under the modified coinsurance arrangement and iii) recorded the net cost of reinsurance
of $529 million within other liabilities, related to universal life, variable universal life and universal life with secondary guarantees
reinsured. The net cost of reinsurance will be amortized on a basis consistent with the methodologies and assumptions used for amortizing
DAC related to the underlying reinsured contracts in policyholder benefits and claims.
As
part of this transaction, an affiliate entered into investment advisory and other agreements with a subsidiary of Global Atlantic Financial
Group to serve as the investment manager for certain of the transferred general account assets. With certain exceptions, the agreements
contemplate a term of five years.
MTL
- 50
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
6.
Reinsurance (continued)
Related
Party Reinsurance Transactions
The
Company has reinsurance agreements with certain of MetLife, Inc.’s subsidiaries, including Metropolitan Life Insurance Company,
Missouri Reinsurance Inc., MetLife Reinsurance Company of Hamilton, Ltd., and MetLife Insurance K.K., all of which are related parties.
Information
regarding the significant effects of affiliated reinsurance included on the consolidated statements of operations was as follows:
Deferred
policy acquisition costs and value of business acquired
113
—
114
—
Total
assets
$
139
$
3,268
$
142
$
3,538
Liabilities
Future
policy benefits
$
823
$
—
$
755
$
—
Other
policy-related balances
8
—
8
—
Other
liabilities
10
3,101
7
3,225
Total
liabilities
$
841
$
3,101
$
770
$
3,225
Effective
April 1, 2021, the Company, entered into an agreement to cede certain group annuity contracts issued in connection with a qualifying pension
risk transfer on a modified coinsurance basis to Missouri Reinsurance Inc., an affiliate. The significant reinsurance effects to the Company
were primarily in premiums, reinsurance and other receivables of $2.3 billion and $2.5 billion and other liabilities of $3.0 billion
and $3.2 billion at December 31, 2023 and 2022, respectively. Also, the Company recorded premiums of ($30) million, $0 and $3.2 billion,
policyholder benefits and claims of ($130) million, $47 million and $3.1 billion, policyholder liability remeasurement (gains) losses
of ($40) million, ($48) million and $10 million, and other expenses of $144 million, ($80) million and $89 million for the years
ended December 31, 2023, 2022 and 2021, respectively.
The
Company has secured certain reinsurance recoverable balances with collateral, including funds withheld accounts. The Company had $906
million and $1.0 billion of unsecured affiliated reinsurance recoverable balances at December 31, 2023 and 2022, respectively.
Affiliated
reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded
using the deposit method of accounting. Included in the above table are deposit assets on affiliated reinsurance of $849 million
and $978 million at December 31, 2023 and 2022, respectively. There were no deposit liabilities on affiliated reinsurance at both December31, 2023 and 2022.
7.
Investments
See
Note 9 for information about the fair value hierarchy for investments and the related valuation methodologies.
Investment
Risks and Uncertainties
Investments
are exposed to the following primary sources of risk: credit, interest rate, liquidity, market valuation, currency and real estate
risk. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair
values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of ACL and impairments,
the recognition of income on certain investments and the potential consolidation of variable interest entities (“VIEs”).
The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the
amounts presented within the consolidated financial statements.
The
determination of ACL and impairments is highly subjective and is based upon quarterly evaluations and assessments of known and inherent
risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information
becomes available.
The
recognition of income on certain investments (e.g. structured securities, including mortgage-backed securities, asset-backed securities
and collateralized loan obligations (“ABS & CLO”), certain structured investment transactions and FVO
MTL
- 52
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
securities)
is dependent upon certain factors such as prepayments and defaults, and changes in such factors could result in changes in amounts to
be earned.
Fixed
Maturity Securities AFS
Fixed
Maturity Securities AFS by Sector
The
following table presents fixed maturity securities AFS by sector. U.S. corporate and foreign corporate sectors include redeemable preferred
stock. RMBS includes agency, prime, prime investor, non-qualified residential mortgage, alternative, reperforming and sub-prime mortgage-backed
securities. ABS & CLO includes securities collateralized by consumer loans, corporate loans and broadly syndicated bank loans. Municipals
includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political
subdivisions. Commercial mortgage-backed securities (“CMBS”) primarily includes securities collateralized by multiple commercial
mortgage loans. RMBS, ABS & CLO and CMBS are, collectively, “Structured Products.”
Methodology
for Amortization of Premium and Accretion of Discount on Structured Products
Amortization
of premium and accretion of discount on Structured Products considers the estimated timing and amount of prepayments of the underlying
loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the
originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for Structured Products are
estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For credit-sensitive
and certain prepayment-sensitive Structured Products, the effective yield is recalculated on a prospective basis. For all other Structured
Products, the effective yield is recalculated on a retrospective basis.
MTL
- 53
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Maturities
of Fixed Maturity Securities AFS
The
amortized cost, net of ACL, and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at
December 31, 2023:
Due
in One Year or Less
Due
After One Year Through Five Years
Due
After Five Years Through Ten Years
Due
After Ten Years
Structured
Products
Total
Fixed Maturity Securities AFS
(In
millions)
Amortized
cost, net of ACL
$
574
$
2,691
$
3,834
$
13,487
$
9,081
$
29,667
Estimated
fair value
$
570
$
2,627
$
3,475
$
11,792
$
8,498
$
26,962
Actual
maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not
due at a single maturity date have been presented in the year of final contractual maturity. Structured Products are shown separately,
as they are not due at a single maturity.
Continuous
Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
The
following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position
without an ACL by sector and aggregated by length of time that the securities have been in a continuous unrealized loss position.
Total
number of securities in an unrealized loss position
360
3,915
3,751
1,330
MTL
- 54
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Evaluation
of Fixed Maturity Securities AFS for Credit Loss
Evaluation
and Measurement Methodologies
Management
considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated
fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security
are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the credit
loss evaluation process include, but are not limited to:(i) the extent to which the estimated fair value has been below amortized
cost, (ii) adverse conditions specifically related to a security, an industry sector or sub-sector, or an economically depressed geographic
area, adverse change in the financial condition of the issuer of the security, changes in technology, discontinuance of a segment of the
business that may affect future earnings, and changes in the quality of credit enhancement, (iii) payment structure of the security and
likelihood of the issuer being able to make payments, (iv) failure of the issuer to make scheduled interest and principal payments, (v)
whether the issuer, or series of issuers or an industry has suffered a catastrophic loss or has exhausted natural resources, (vi) whether
the Company has the intent to sell or will more likely than not be required to sell, including transfers in connection with reinsurance
transactions, a particular security before the decline in estimated fair value below amortized cost recovers, (vii) with respect to Structured
Products, changes in forecasted cash flows after considering the changes in the financial condition of the underlying loan obligors and
quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms
of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security, (viii)
changes in the rating of the security by a rating agency, and (ix) other subjective factors, including concentrations and information
obtained from regulators.
The
methodology and significant inputs used to determine the amount of credit loss are as follows:
•The
Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows. The
discount rate is generally the effective interest rate of the security at the time of purchase for fixed-rate securities and the spot
rate at the date of evaluation of credit loss for floating-rate securities.
•When
determining collectability and the period over which value is expected to recover, the Company applies considerations utilized in its
overall credit loss evaluation process which incorporates information regarding the specific security, fundamentals of the industry and
geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated
using assumptions derived from management’s single best estimate, the most likely outcome in a range of possible outcomes, after
giving consideration to a variety of variables that include, but are not limited to: payment terms of the security; the likelihood
that the issuer can service the interest and principal payments; the quality and amount of any credit enhancements; the security’s
position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; any private
and public sector programs to restructure foreign government securities and municipals; and changes to the rating of the security
or the issuer by rating agencies.
•Additional
considerations are made when assessing the features that apply to certain Structured Products including, but not limited to: the quality
of underlying collateral, historical performance of the underlying loan obligors, historical rent and vacancy levels, changes in the financial
condition of the underlying loan obligors, expected prepayment speeds, current and forecasted loss severity, consideration of the payment
terms of the underlying loans or assets backing a particular security, changes in the quality of credit enhancement and the payment priority
within the tranche structure of the security.
With
respect to securities that have attributes of debt and equity (“perpetual hybrid securities”), consideration is given in the
credit loss analysis as to whether there has been any deterioration in the credit of the issuer and the likelihood of recovery in value
of the securities that are in a severe unrealized loss position. Consideration is also given as to whether any perpetual hybrid securities
with an unrealized loss, regardless of credit rating, have deferred any dividend payments.
In
periods subsequent to the recognition of an initial ACL on a security, the Company reassesses credit loss quarterly. Subsequent increases
or decreases in the expected cash flow from the security result in corresponding decreases or increases in the ACL which are recognized
in earnings and reported within net investment gains (losses); however, the previously recorded ACL is not reduced to an amount below
zero. Full or partial write-offs are deducted
MTL
- 55
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
from
the ACL in the period the security, or a portion thereof, is considered uncollectible. Recoveries of amounts previously written off are
recorded to the ACL in the period received. When the Company has the intent to sell the security or it is more likely than not that the
Company will be required to sell the security before recovery of its amortized cost, any ACL is written off and the amortized cost is
written down to estimated fair value through a charge within net investment gains (losses), which becomes the new amortized cost of the
security.
Evaluation
of Fixed Maturity Securities AFS in an Unrealized Loss Position
Gross
unrealized losses on securities without an ACL decreased $1.0 billion for the year ended December 31, 2023 to $3.1 billion primarily
due to interest rate volatility, narrowing credit spreads, impairments in connection with a reinsurance transaction and, to a lesser extent,
the strengthening of foreign currencies on certain non-functional currency denominated fixed maturity securities.
As
shown above, most of the gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position
for 12 months or greater at December 31, 2023 relate to investment grade securities. These unrealized losses are principally due to widening
credit spreads since purchase and, with respect to fixed-rate securities, rising interest rates since purchase.
As
of December 31, 2023, $74 million of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized
loss position for 12 months or greater on below investment grade securities were concentrated in the consumer, utility and transportation
sectors within corporate securities and in ABS & CLO securities. These unrealized losses are the result of significantly wider credit
spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty and, with respect to fixed-rate
securities, rising interest rates since purchase.
At
December 31, 2023, the Company did not intend to sell its securities in an unrealized loss position without an ACL, and it was not more
likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized
cost. Therefore, the Company concluded that these securities had not incurred a credit loss and should not have an ACL at December 31,2023.
Future
provisions for credit loss will depend primarily on economic fundamentals, issuer performance (including changes in the present value
of future cash flows expected to be collected), changes in credit ratings and collateral valuation.
The
amount of net (discounts) premiums and deferred (fees) expenses, included within total amortized cost was ($11) million and $7 million
at December 31, 2023 and 2022, respectively. The accrued interest income excluded from total amortized cost for commercial, agricultural
and residential mortgage loans at December 31, 2023 was $20 million, $36 million and $16 million, respectively. The accrued
interest income excluded from total amortized cost for commercial, agricultural and residential mortgage loans at December 31, 2022 was
$18 million, $29 million and $11 million, respectively.
MTL
- 56
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Purchases
of mortgage loans from unaffiliated parties, consisting primarily of residential mortgage loans, were $392 million, $860 million,
and $408 million for the years ended December 31, 2023, 2022 and 2021, respectively.
During
the year ended December 31, 2023, the Company disposed of commercial mortgage loans with an amortized cost of $113 million in connection
with a reinsurance transaction. The disposition resulted in a loss of ($27) million for the year ended December 31, 2023.
The
Company acquires mortgage loans from its affiliated mortgage origination company. The affiliate originates and acquires mortgage loans
and the Company simultaneously purchases participation interests under a master participation agreement. The aggregate amount of mortgage
loan and mortgage secured loan participation interests purchased by the Company from such affiliate for the years ended December 31, 2023,
2022 and 2021 was $661 million, $1.6 billion and $2.1 billion, respectively. In connection with mortgage loan and mortgage secured
loan participations, the affiliate collected principal and interest payments on the Company’s behalf and the affiliate remitted
such payments to the Company in the amount of $947 million, $499 million and $388 million for the years ended December 31, 2023,
2022 and 2021, respectively.
During
the years ended December 31, 2023 and 2022, the Company contributed commercial mortgage loans with an amortized cost of $1 million
and $29 million, respectively, to joint ventures in anticipation of subsequent foreclosure or deed-in-lieu of foreclosure transactions.
During the years ended December 31, 2023 and 2022, the joint ventures completed foreclosure or deed-in-lieu of foreclosure transactions
on loans with an amortized cost of $2 million and $28 million, respectively. During the year ended December 31, 2023, no gains
or losses were recognized on foreclosures or deed-in-lieu of foreclosures within joint ventures as the estimated fair value of the real
estate collateralizing the foreclosures or deed-in-lieu of foreclosures approximated amortized cost. The real estate collateralizing the
2022 foreclosures or deed-in-lieu of foreclosures had an estimated fair value in excess of amortized cost. Therefore, during the year
ended December 31, 2022, the Company recognized its pro rata share of $3 million within net investment gains (losses) upon consummation
of the foreclosures or deed-in-lieu of foreclosures. See “— Real Estate and Real Estate Joint Ventures” for the carrying
value of wholly-owned real estate acquired through foreclosure.
Rollforward
of Allowance for Credit Loss for Mortgage Loans by Portfolio Segment
The
rollforward of ACL for mortgage loans, by portfolio segment, is as follows:
The
Company records an allowance for expected lifetime credit loss in earnings within net investment gains (losses) in an amount that represents
the portion of the amortized cost basis of mortgage loans that the Company does not expect to collect, resulting in mortgage loans being
presented at the net amount expected to be collected. In determining the Company’s ACL, management applies significant judgment
to estimate expected lifetime credit loss, including: (i) pooling mortgage loans that share similar risk characteristics, (ii) considering
expected lifetime credit loss over the contractual term of its mortgage loans adjusted for expected prepayments and any extensions, and
(iii) considering past events and current and forecasted economic conditions. Each of the Company’s commercial, agricultural and
residential mortgage loan portfolio segments are evaluated separately. The ACL is calculated for each mortgage loan portfolio segment
based on inputs unique to each loan portfolio segment. On a quarterly basis, mortgage loans within a portfolio segment that share similar
risk characteristics, such as internal risk ratings or consumer credit scores, are pooled for calculation of ACL. On an ongoing basis,
mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), such as collateral dependent
mortgage loans (i.e., when the borrower is experiencing financial
MTL
- 57
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
difficulty,
including when foreclosure is reasonably possible or probable), are evaluated individually for credit loss. The ACL for loans evaluated
individually are established using the same methodologies for all three portfolio segments. For example, the ACL for a collateral dependent
loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less
selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans, which are
evaluated individually for credit loss, is recorded as a change in the ACL which is recorded on a quarterly basis as a charge or credit
to earnings in net investment gains (losses).
Commercial
and Agricultural Mortgage Loan Portfolio Segments
Within
each loan portfolio segment, commercial and agricultural loans are pooled by internal risk rating. Estimated lifetime loss rates, which
vary by internal risk rating, are applied to the amortized cost of each loan, excluding accrued investment income, on a quarterly basis
to develop the ACL. Internal risk ratings are based on an assessment of the loan’s credit quality, which can change over time. The
estimated lifetime loss rates are based on several loan portfolio segment-specific factors, including (i) the Company’s experience
with defaults and loss severity, (ii) expected default and loss severity over the forecast period, (iii) current and forecasted economic
conditions including growth, inflation, interest rates and unemployment levels, (iv) loan specific characteristics including loan-to-value
(“LTV”) ratios, and (v) internal risk ratings. These evaluations are revised as conditions change and new information becomes
available. The Company uses its several decades of historical default and loss severity experience which capture multiple economic cycles.
The Company uses a forecast of economic assumptions for a two-year period for most of its commercial and agricultural mortgage loans,
while a one-year period is used for loans originated in certain markets. After the applicable forecast period, the Company reverts to
its historical loss experience using a straight-line basis over two years. For evaluations of commercial mortgage loans, in addition to
historical experience, management considers factors that include the impact of a rapid change to the economy, which may not be reflected
in the loan portfolio, recent loss and recovery trend experience as compared to historical loss and recovery experience, and loan specific
characteristics including debt service coverage ratios (“DSCR”). In estimating expected lifetime credit loss over the term
of its commercial mortgage loans, the Company adjusts for expected prepayment and extension experience during the forecast period using
historical prepayment and extension experience considering the expected position in the economic cycle and the loan profile (i.e., floating
rate, shorter-term fixed rate and longer-term fixed rate) and after the forecast period using long-term historical prepayment experience.
For evaluations of agricultural mortgage loans, in addition to historical experience, management considers factors that include increased
stress in certain sectors, which may be evidenced by higher delinquency rates, or a change in the number of higher risk loans. In estimating
expected lifetime credit loss over the term of its agricultural mortgage loans, the Company’s experience is much less sensitive
to the position in the economic cycle and by loan profile; accordingly, historical prepayment experience is used, while extension
terms are not prevalent with the Company’s agricultural mortgage loans.
Commercial
mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, an analysis of the property financial statements
and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV
ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified
as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. Agricultural mortgage loans are
reviewed on an ongoing basis, which review includes, but is not limited to, property inspections, market analysis, estimated valuations
of the underlying collateral, LTV ratios and borrower creditworthiness, as well as reviews on a geographic and property-type basis. The
monitoring process for agricultural mortgage loans also focuses on higher risk loans.
For
commercial mortgage loans, the primary credit quality indicator is the DSCR, which compares a property’s net operating income to
amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing
a credit loss. The Company also reviews the LTV ratio of its commercial mortgage loan portfolio. LTV ratios compare the unpaid principal
balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher the LTV ratio, the higher the risk
of experiencing a credit loss. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio
is routinely updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
MTL
- 58
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
For
agricultural mortgage loans, the Company’s primary credit quality indicator is the LTV ratio. The values utilized in calculating
this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.
After
commercial and agricultural mortgage loans are approved, the Company makes commitments to lend and, typically, borrowers draw down on
some or all of the commitments. The timing of mortgage loan funding is based on the commitment expiration dates. A liability for credit
loss for unfunded commercial and agricultural mortgage loan commitments that is not unconditionally cancellable is recognized in earnings
and is reported within net investment gains (losses). The liability is based on estimated lifetime loss rates as described above and the
amount of the outstanding commitments, which for lines of credit, considers estimated utilization rates. When the commitment is funded
or expires, the liability is adjusted accordingly.
Residential
Mortgage Loan Portfolio Segment
The
Company’s residential mortgage loan portfolio is comprised primarily of purchased closed end, amortizing residential mortgage loans,
including both performing loans purchased within 12 months of origination and reperforming loans purchased after they have been performing
for at least 12 months post-modification. Residential mortgage loans are pooled by loan type (i.e., new origination and reperforming)
and pooled by similar risk profiles (including consumer credit score and LTV ratios). Estimated lifetime loss rates, which vary by loan
type and risk profile, are applied to the amortized cost of each loan excluding accrued investment income on a quarterly basis to develop
the ACL. The estimated lifetime loss rates are based on several factors, including (i) industry historical experience and expected results
over the forecast period for defaults, (ii) loss severity, (iii) prepayment rates, (iv) current and forecasted economic conditions including
growth, inflation, interest rates and unemployment levels, and (v) loan pool specific characteristics including consumer credit scores,
LTV ratios, payment history and home prices. These evaluations are revised as conditions change and new information becomes available.
The Company uses industry historical experience which captures multiple economic cycles as the Company has purchased most of its residential
mortgage loans in the last five years. The Company uses a forecast of economic assumptions for a two-year period for most of its residential
mortgage loans. After the applicable forecast period, the Company reverts to industry historical loss experience using a straight-line
basis over one year.
For
residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The
Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in nonaccrual
status which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Modifications
to Borrowers Experiencing Financial Difficulty
The
Company may modify mortgage loans to borrowers. Each mortgage loan modification is evaluated to determine whether the borrower was experiencing
financial difficulties. Disclosed below are those modifications, in materially impacted segments, where the borrower was determined to
be experiencing financial difficulties and the mortgage loans were modified by any of the following means: principal forgiveness,
interest rate reduction, other-than-insignificant payment delay or term extension. The amount, timing and extent of modifications granted
are considered in determining any ACL recorded. Mortgage loans are summarized as follows at:
For the year ended December 31, 2023, the Company did not have a significant amount of mortgage loans that were modified to borrowers
experiencing financial difficulty that are not considered current.
MTL
- 59
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Credit
Quality of Mortgage Loans by Portfolio Segment
The
amortized cost of commercial mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2023:
Credit
Quality Indicator
2023
2022
2021
2020
2019
Prior
Revolving Loans
Total
%
of Total
(Dollars in millions)
LTV
ratios:
Less
than 65%
$
211
$
526
$
619
$
147
$
278
$
480
$
—
$
2,261
51.9
%
65%
to 75%
22
542
524
135
40
146
—
1,409
32.4
76%
to 80%
—
63
34
36
104
46
—
283
6.5
Greater
than 80%
—
70
107
54
30
141
—
402
9.2
Total
$
233
$
1,201
$
1,284
$
372
$
452
$
813
$
—
$
4,355
100.0
%
DSCR:
>
1.20x
$
108
$
1,057
$
1,175
$
349
$
322
$
736
$
—
$
3,747
86.1
%
1.00x
- 1.20x
50
53
107
—
80
60
—
350
8.0
<1.00x
75
91
2
23
50
17
—
258
5.9
Total
$
233
$
1,201
$
1,284
$
372
$
452
$
813
$
—
$
4,355
100.0
%
The
amortized cost of agricultural mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2023:
Credit
Quality Indicator
2023
2022
2021
2020
2019
Prior
Revolving Loans
Total
%
of Total
(Dollars in millions)
LTV
ratios:
Less
than 65%
$
330
$
701
$
1,175
$
714
$
186
$
317
$
102
$
3,525
94.5
%
65%
to 75%
2
9
101
34
—
53
3
202
5.4
Greater
than 80%
—
—
—
—
—
2
—
2
0.1
Total
$
332
$
710
$
1,276
$
748
$
186
$
372
$
105
$
3,729
100
%
The
amortized cost of residential mortgage loans by credit quality indicator and vintage year was as follows at December 31, 2023:
Credit
Quality Indicator
2023
2022
2021
2020
2019
Prior
Revolving Loans
Total
%
of Total
(Dollars
in millions)
Performance
indicators:
Performing
$
317
$
549
$
501
$
95
$
263
$
12
$
—
$
1,737
99.0
%
Nonperforming
(1)
2
10
1
—
5
—
—
18
1.0
Total
$
319
$
559
$
502
$
95
$
268
$
12
$
—
$
1,755
100.0
%
__________________
(1)Includes
residential mortgage loans in process of foreclosure of $5 million and $2 million at December 31, 2023 and 2022, respectively.
LTV
ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. The amortized cost of
commercial and agricultural mortgage loans with an LTV ratio in excess of 100% was $45 million, or 1%, of total commercial and agricultural
mortgage loans at December 31, 2023.
Past
Due and Nonaccrual Mortgage Loans
The
Company has a high quality, well performing mortgage loan portfolio, with greater than 99% of all mortgage loans classified as performing
at December 31, 2023. The Company defines delinquency consistent with industry practice,
MTL
- 60
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
when
mortgage loans are past due more than two or more months, as applicable, by portfolio segment. The past due and nonaccrual mortgage loans
at amortized cost, prior to ACL, by portfolio segment, were as follows:
The
Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating
leases, operating income and equity in earnings from equity method real estate joint ventures. Real estate investments, by income type,
as well as income earned, were as follows at and for the periods indicated:
The
Company, as lessor, leases investment real estate through a variety of operating lease arrangements, which typically include tenant reimbursement
for property operating costs and options to renew or extend the lease. The Company has elected a practical expedient of not separating
non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs
have the same timing and pattern of transfer as the related lease component because they are incurred over the same period of time as
the operating lease. Therefore, the combined component is accounted for as a single operating lease. Leased real estate investments
and income earned, by property type, were as follows at and for the periods indicated:
Future
contractual receipts under operating leases at December 31, 2023 were $3 million in 2024, $2 million in 2025, $2 million
in 2026, $0 in both 2027 and 2028, and in total were $7 million.
Other
Invested Assets
Other
invested assets is comprised primarily of freestanding derivatives with positive estimated fair values (see Note 8), corporate owned
life insurance and affiliated loans ( see “— Related Party Investment Transactions”).
MTL
- 61
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Cash
Equivalents
Cash
equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time
of purchase, was $1,159 million
and $644 million,
principally at estimated fair value, at December 31, 2023 and 2022, respectively.
Concentrations
of Credit Risk
Investments
in any counterparty that were greater than 10% of the Company’s stockholder’s equity, other than the U.S. government and its
agencies, at estimated fair value, were in fixed income securities of the following foreign government and its agencies and in corporate
fixed income securities:
(1)These
securities were included within fixed maturity securities AFS, short-term investments and cash equivalents at
December 31, 2023
and within fixed maturity securities AFS and short-term investments at December 31, 2022.
(2)The
liability for cash collateral is included within payables for collateral under securities loaned and other transactions.
MTL
- 62
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Contractual
Maturities
Contractual
maturities of these transactions accounted for as secured borrowings were as follows:
Cash
collateral liability by loaned security type:
U.S.
government and agency
$
177
$
181
$
806
$
—
$
1,164
$
224
$
672
$
258
$
—
$
1,154
Agency
RMBS
—
88
175
—
263
—
63
191
—
254
Total
$
177
$
269
$
981
$
—
$
1,427
$
224
$
735
$
449
$
—
$
1,408
______________
(1)The
related security could be returned to the Company on the next business day, which would require the Company to immediately return the
cash collateral.
If
the Company is required to return significant amounts of cash collateral on short notice and is forced to sell investments to meet the
return obligation, it may have difficulty selling such collateral that is invested in a timely manner, be forced to sell investments in
a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or
both.
The
reinvestment portfolio consists principally of high quality, liquid, publicly-traded fixed maturity securities AFS, short term investments,
cash equivalents, or cash. If the securities, or the reinvestment portfolio become less liquid, liquidity resources within the general
account are available to meet any potential cash demands when securities are put back by the counterparty.
Invested
Assets on Deposit and Pledged as Collateral
Invested
assets on deposit and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans,
which are presented at carrying value and were as follows at:
Total
invested assets on deposit and pledged as collateral
$
3,262
$
3,133
______________
(1)The
Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 3)
and derivative transactions (see Note 8).
See
“— Securities Lending Transactions” for information regarding securities supporting securities lending transactions.
In addition, the Company’s investment in FHLBNY common stock, included within other invested assets, which is considered restricted
until redeemed by the issuer, was $78 million and $70 million, at redemption value, at December 31, 2023 and 2022, respectively,
(see Note 1).
The
Company held equity method investments of $1.9 billion at December 31, 2023, comprised primarily of other limited partnership interests
(private equity funds and hedge funds) and real estate joint ventures (including real estate funds).
MTL
- 63
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
The
Company’s maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments
plus $695 million of unfunded commitments at December 31, 2023.
As
described
in Note 1,
the Company generally recognizes its share of earnings in its equity method investments within net investment income using a three-month
lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period
differs from the Company’s reporting period. Aggregate net investment income from these equity method investments exceeded 10% of
the Company’s consolidated pre-tax income (loss) for two of the three most recent annual periods: 2022 and 2021.
The
following aggregated summarized financial data reflects the latest available financial information and does not represent the Company’s
proportionate share of the assets, liabilities, or earnings of such entities.
Aggregate
total assets of these entities totaled $558.3 billion and $504.5 billion at December 31, 2023 and 2022, respectively. Aggregate total
liabilities of these entities totaled $61.2 billion and $66.8 billion at December 31, 2023 and 2022, respectively. Aggregate net income
(loss) of these entities totaled $13.5 billion, $5.4 billion and $87.8 billion for the years ended December 31, 2023, 2022 and 2021, respectively.
Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income,
including recurring investment income (loss) and realized and unrealized investment gains (losses).
Variable
Interest Entities
The
Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant
activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator
of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and
obligations associated with each party’s relationship with or involvement in the entity. There were no VIEs for which the Company
has concluded that it is the primary beneficiary and which are consolidated at December 31, 2023 and 2022.
Unconsolidated
VIEs
The
carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the
primary beneficiary and which have not been consolidated were as follows at:
(1)The
maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained
interests. The maximum exposure to loss relating to OLPI, REJV, and Mortgage loan joint ventures is equal to the carrying amounts plus
any unfunded commitments.
(2)For
variable interests in Structured Products included within fixed maturity securities AFS, the Company’s involvement is limited to
that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
As
described in Note 14, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these
commitments, the Company did not provide financial or other support to investees designated as VIEs for each of the years ended December31, 2023, 2022 and 2021.
MTL
- 64
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Net Investment Income
The
composition of net investment income by asset type was as follows:
Years
Ended December 31,
Asset
Type
2023
2022
2021
(In
millions)
Fixed maturity
securities AFS
$
1,237
$
986
$
797
Equity securities
—
—
1
Mortgage loans
439
340
210
Policy loans
87
83
82
Real estate and
REJV
(15)
19
14
OLPI
26
71
333
Cash,
cash equivalents and short-term investments
127
19
—
FVO securities
—
(19)
44
Annuities
funding structured settlement claims
332
323
330
Other
58
57
(28)
Subtotal
investment income
2,291
1,879
1,783
Less: Investment
expenses
172
95
36
Net
investment income
$
2,119
$
1,784
$
1,747
Net
Investment Income (“NII”) Information
Net
realized and unrealized gains (losses) recognized in NII:
Net
unrealized gains (losses) from changes in estimated fair value (primarily FVO securities)
—
(17)
53
Net
realized and unrealized gains (losses) recognized in NII
$
—
$
(17)
$
53
Changes in estimated
fair value subsequent to purchase of FVO securities still held at the end of the respective periods and recognized in NII:
$
—
$
—
$
44
Equity method
investments NII (primarily REJV)
$
10
$
85
$
342
MTL
- 65
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
7.
Investments (continued)
Net
Investment Gains (Losses)
Net
Investment Gains (Losses) by Asset Type and Transaction Type
The
composition of net investment gains (losses) by asset type and transaction type was as follows:
Years
Ended December 31,
Asset
Type
2023
2022
2021
(In
millions)
Fixed maturity
securities AFS (1)
$
(486)
$
(165)
$
60
Equity
securities
(3)
—
2
Mortgage loans
(1)
(55)
(18)
(5)
Real estate and
REJV
1
211
1
OLPI
2
6
—
Other
gains (losses)
(1)
4
3
Total
net investment gains (losses)
$
(542)
$
38
$
61
Transaction
Type
Realized
gains (losses) on investments sold or disposed
$
(130)
$
47
$
69
Impairment
(losses) (1)
(361)
—
—
Recognized
gains (losses):
Change
in allowance for credit loss recognized in earnings
(48)
(9)
(14)
Unrealized
net gains (losses) recognized in earnings
(3)
—
6
Net
investment gains (losses)
$
(542)
$
38
$
61
Net
Investment Gains (Losses) (“NIGL”) Information
Net
realized investment gains (losses) from sales and disposals of investments:
Recognized
in NIGL
$
(129)
$
47
$
69
Recognized
in NII
—
—
—
Net
realized investment gains (losses) from sales and disposals of investments
$
(129)
$
47
$
69
(1)Includes
a net loss of $378 million during the year ended December 31, 2023 for investments disposed of in connection with a reinsurance transaction.
The net loss was comprised of ($359) million of impairments and $8 million of realized gains on disposal for fixed maturity securities
AFS, and ($27) million of adjustments to mortgage loans, reflected as impairments calculated at lower of amortized cost or estimated fair
value. See Note 6 for further information on this reinsurance transaction.
Fixed
Maturity Securities AFS - Composition of Net Investment Gains (Losses)
The
composition of net investment gains (losses) for these securities is as follows:
(1)Represents
an investment in affiliated senior unsecured notes which have maturity dates from July 2028 to December 2031 and bear interest, payable
semi-annually, at rates per annum ranging from 1.75% to 1.85%, respectively.
As
a structured settlements assignment company, the Company purchased annuities from an affiliate to fund the periodic structured settlement
claim payment obligations it assumed. Each annuity purchased is contractually designated to the assumed claim obligation it funds. The
aggregate contract values of annuities funding structured settlement claims are recorded as an asset for which the Company has also recorded
an unpaid claim obligation of equal amount. Such aggregated contract values were $5.3 billion at December 31, 2023 and 2022. The
related net investment income and corresponding policyholder benefits and claims recognized were $332 million,
$323 million
and $330 million for the years ended December 31, 2023,
2022 and 2021,
respectively.
The
Company receives investment administrative services from affiliates. The related investment administrative service charges were $71 million,
$55 million and $30 million for the years ended December 31, 2023, 2022 and 2021, respectively.
See
“— Variable Interest Entities” for information on investments in affiliated real estate joint ventures.
See
“— Mortgage Loans — Mortgage Loans by Portfolio Segment” for discussion of mortgage loan participation
agreements with affiliates.
8.
Derivatives
Accounting
for Derivatives
See
Note 1 for a description of the Company’s accounting policies for derivatives and Note 9 for information about the fair
value hierarchy for derivatives.
Derivative
Strategies
The
Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate,
credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.
MTL
- 67
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
Derivatives
are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial
indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s
OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral
contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards,
futures and option contracts. To a lesser extent, the Company uses credit default swaps to synthetically replicate investment risks and
returns which are not readily available in the cash markets.
Interest
Rate Derivatives
The
Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps,
caps, floors, swaptions and futures.
Interest
rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure
arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another
party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference
to an agreed notional amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.
The
Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified
level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to
protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company
locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes
interest rate caps and floors in nonqualifying hedging relationships.
In
exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts,
the value of which is determined by the different classes of interest rate securities, to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements.
The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded
interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the
duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring,
and to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance. The
Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.
Swaptions
are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption
is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact
of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and
receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included
in interest rate options.
Synthetic
GICs are contracts that simulate the performance of traditional GICs through the use of financial instruments. The contractholder owns
the underlying assets, and the Company provides a guarantee (or “wrap”) on the participant funds for an annual risk charge.
The Company’s maximum exposure to loss on synthetic GICs is the notional amount, in the event the values of all of the underlying
assets were reduced to zero. The Company’s risk is substantially lower due to contractual provisions that limit the portfolio to
high quality assets, which are pre-approved and monitored for compliance, as well as the collection of risk charges. In addition, the
crediting rates reset periodically to amortize market value gains and losses over a period equal to the duration of the wrapped portfolio,
subject to a 0% floor. While plan participants may transact at book value, contractholder withdrawals may only occur immediately at market
value, or at book value paid over a period of time per contract provisions. Synthetic GICs are not designated as hedging instruments.
Foreign
Currency Exchange Rate Derivatives
The
Company uses foreign currency exchange rate derivatives, including foreign currency swaps and foreign currency forwards to reduce the
risk from fluctuations in foreign currency exchange rates associated with its assets denominated in foreign currencies.
MTL
- 68
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
In
a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between
one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount.
The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes
foreign currency swaps in fair value, cash flow and nonqualifying hedging relationships.
In
a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency
at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified
future date. The Company utilizes foreign currency forwards in nonqualifying hedging relationships.
Credit
Derivatives
The
Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit
default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit
event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities
of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty
equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to
pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention
for sovereign obligors. In each case, payout on a credit default swap is triggered only after the relevant third party, Credit Derivatives
Determinations Committee determines that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging
relationships.
The
Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire
or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such
as U.S. government and agency, or other fixed maturity securities AFS. These credit default swaps are not designated as hedging instruments.
Equity
Derivatives
The
Company uses equity index options primarily to hedge against adverse changes in equity indices. The Company enters into contracts to sell
the underlying equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials
in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked
to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices
within a pre-determined range through the purchase and sale of options. The Company utilizes equity index options in nonqualifying hedging
relationships.
MTL
- 69
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
Primary
Risks Managed by Derivatives
The
following table presents the primary underlying risk exposure, gross notional amount and estimated fair value of the Company’s derivatives,
excluding embedded derivatives, held at:
Derivatives Not
Designated or Not Qualifying as Hedging Instruments:
Interest rate
swaps
Interest rate
125
2
—
125
4
—
Interest
rate caps
Interest
rate
1,125
17
—
1,625
47
—
Interest
rate floors
Interest rate
1,400
2
—
1,900
12
—
Interest
rate futures
Interest
rate
100
—
—
100
—
—
Interest
rate options
Interest
rate
308
4
—
371
5
—
Synthetic
GICs
Interest
rate
42,920
—
—
33,271
—
—
Foreign currency
swaps
Foreign currency
exchange rate
582
47
4
569
74
—
Foreign
currency forwards
Foreign
currency exchange rate
247
—
5
245
1
3
Credit
default swaps - purchased
Credit
18
—
—
32
1
—
Credit default
swaps - written
Credit
193
4
—
193
2
—
Total
non-designated or nonqualifying derivatives
47,018
76
9
38,431
146
3
Total
$
51,877
$
335
$
117
$
42,765
$
623
$
55
Based
on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a
hedging relationship at both December 31, 2023 and 2022. The Company’s use of derivatives includes (i) derivatives that economically
hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the
lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; and (ii) written
credit default swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not
involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value
changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
MTL
- 70
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
The
Effects of Derivatives on the Consolidated Statements of Operations and Comprehensive Income (Loss)
The
following table presents the consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow,
nonqualifying hedging relationships and embedded derivatives:
Amount
of gains (losses) reclassified from AOCI into income
—
—
—
—
—
Foreign
currency exchange rate derivatives: (1)
Amount
of gains (losses) deferred in AOCI
N/A
N/A
N/A
N/A
176
Amount
of gains (losses) reclassified from AOCI into income
—
7
—
—
(7)
Foreign
currency transaction gains (losses) on hedged items
—
(15)
—
—
—
Subtotal
—
(8)
—
—
168
Gain
(Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest
rate derivatives (1)
—
N/A
(14)
N/A
N/A
Foreign
currency exchange rate derivatives (1)
—
N/A
23
N/A
N/A
Credit
derivatives — purchased (1)
—
N/A
—
N/A
N/A
Credit
derivatives — written (1)
—
N/A
1
N/A
N/A
Equity
derivatives (1)
(54)
N/A
3
N/A
N/A
Foreign
currency transaction gains (losses) on hedged items
—
N/A
(6)
N/A
N/A
Subtotal
(54)
N/A
7
N/A
N/A
Earned
income on derivatives
22
—
28
—
—
Synthetic
GICs
N/A
N/A
—
N/A
N/A
Embedded
derivatives
N/A
N/A
45
N/A
N/A
Total
$
(32)
$
(8)
$
80
$
—
$
168
__________________
(1)Excludes
earned income on derivatives.
Fair
Value Hedges
The
Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging:
(i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; and (ii) foreign currency
swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities.
MTL
- 73
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
The
following table presents the balance sheet classification, carrying amount and cumulative fair value hedging adjustments for items designated
and qualifying as hedged items in fair value hedges:
Balance
Sheet Line Item
Carrying
Amount of the Hedged Assets (Liabilities)
Cumulative
Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(1)Includes
$1 million and $0 of hedging adjustments on discontinued hedging relationships at December 31, 2023 and 2022, respectively.
The
Company has elected to record changes in estimated fair value of excluded components in earnings. All components of each derivative’s
gain or loss were included in the assessment of hedge effectiveness.
Cash
Flow Hedges
The
Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i)
interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities and (ii) foreign currency swaps
to hedge the foreign currency cash flow exposure of foreign currency denominated assets.
In
certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of
occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date,
the Company reclassified amounts from AOCI into income. These amounts were $4 million, $8 million and $0 for the years ended
December 31, 2023, 2022 and 2021, respectively.
There
were no hedged forecasted transactions, other than the receipt or payment of variable interest payments, at both December 31, 2023 and
2022.
At
December 31, 2023 and 2022, the balance in AOCI associated cash flow hedges was $132 million and $401 million, respectively.
All
components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At
December 31, 2023, the Company expected to reclassify $27 million of deferred net gains (losses) on derivatives in AOCI, to
earnings within the next 12 months.
Credit
Derivatives
In
connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a
premium to insure credit risk. Such credit derivatives are included within the effects of derivatives on the consolidated statements of
operations and comprehensive income (loss) table. If a credit event occurs, as defined by the contract, the contract may be cash settled
or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par
quantities of the referenced credit obligation. The Company can terminate these contracts at any time through cash settlement with the
counterparty at an amount equal to the then current estimated fair value of the credit default swaps.
MTL
- 74
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
The
following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written
credit default swaps at:
Rating
Agency Designation of Referenced Credit Obligations (1)
Estimated Fair Value of
Credit Default Swaps
Maximum Amount
of Future Payments under Credit Default Swaps
Weighted Average Years
to Maturity (2)
Estimated Fair Value of
Credit Default Swaps
Maximum Amount
of Future Payments under Credit Default Swaps
Weighted Average Years
to Maturity (2)
(Dollars
in millions)
Baa
Credit
default swaps referencing indices
$
4
$
193
5.0
$
2
$
193
5.0
______________
(1)The
rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”),
S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2)The
weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
Credit
Risk on Freestanding Derivatives
The
Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current
credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting
date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such
agreements.
The
Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties in jurisdictions
in which it understands that close-out netting should be enforceable and establishing and monitoring exposure limits. The Company’s
OTC-bilateral derivative transactions are governed by International Swaps and Derivatives Association, Inc. (“ISDA”) Master
Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of
early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early
termination, close-out netting permits the Company (subject to financial regulations such as the Orderly Liquidation Authority under Title
II of Dodd-Frank) to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions
and to apply collateral to the obligations without application of the automatic stay, upon the counterparty’s bankruptcy. All of
the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting
of collateral in connection with its OTC-bilateral derivatives as required by applicable law. Additionally, the Company is required to
pledge initial margin for certain new OTC-bilateral derivative transactions to third party custodians.
The
Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected
through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin),
and the Company has minimal exposure to credit-related losses in the event of nonperformance by brokers and central clearinghouses to
such derivatives.
See
Note 9 for a description of the impact of credit risk on the valuation of derivatives.
MTL
- 75
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
The
estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting
agreements and collateral were as follows at:
Derivatives
Subject to a Master Netting Arrangement or a Similar Arrangement
Assets
Liabilities
Assets
Liabilities
(In
millions)
Gross
estimated fair value of derivatives:
OTC-bilateral
(1)
$
349
$
117
$
639
$
55
OTC-cleared
(1)
4
—
2
—
Total
gross estimated fair value of derivatives presented on the consolidated balance sheets (1)
353
117
641
55
Gross
amounts not offset on the consolidated balance sheets:
Gross
estimated fair value of derivatives: (2)
OTC-bilateral
(74)
(74)
(32)
(32)
OTC-cleared
—
—
—
—
Cash
collateral: (3), (4)
OTC-bilateral
(215)
—
(514)
—
OTC-cleared
(4)
—
(2)
—
Securities
collateral: (5)
OTC-bilateral
(31)
(42)
(71)
(15)
OTC-cleared
—
—
—
—
Net
amount after application of master netting agreements and collateral
$
29
$
1
$
22
$
8
______________
(1)At
both December 31, 2023 and 2022, derivative assets included income (expense) accruals reported in accrued investment income or in other
liabilities of $18 million.
(2)Estimated
fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
(3)Cash
collateral received by the Company for OTC-bilateral and OTC-cleared derivatives, where the central clearinghouse treats variation margin
as collateral, is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation
to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.
(4)The
receivable for the return of cash collateral provided by the Company is inclusive of initial margin on OTC-cleared derivatives and is
included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above
is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 2023 and 2022, the
Company received excess cash collateral of $1 million and $3 million, respectively. At both December 31, 2023 and 2022, the
Company provided excess cash collateral of $2 million, which is not included in the table above due to the foregoing limitation.
(5)Securities
collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain
constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2023, none of the collateral
had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance
sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of
securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting
agreements and cash collateral. At December 31, 2023 and 2022, the Company received excess securities collateral with an estimated fair
value of $1 million and $2 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above
due to the foregoing limitation. At December 31, 2023 and 2022, the Company provided excess securities collateral with
MTL
- 76
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
8.
Derivatives (continued)
an
estimated fair value of $36 million and $23 million, respectively, for its OTC-bilateral derivatives, and $6 million and $7 million,
respectively, for its OTC-cleared derivatives.
The
Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position,
after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches
a minimum transfer amount. All of the Company’s netting agreements for derivatives contain provisions that require both MTL and
the counterparty to maintain a specific investment grade financial strength or credit rating from each of Moody’s and S&P. If
a party’s financial strength or credit rating were to fall below that specific investment grade financial strength or credit rating,
that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand
immediate settlement and payment based on such party’s reasonable valuation of the derivatives.
The
following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position
after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral
pledged.
Derivatives
Subject to Financial Strength-Contingent Provisions
(In
millions)
Estimated
fair value of derivatives in a net liability position (1)
$
43
$
23
Estimated
fair value of collateral provided:
Fixed
maturity securities AFS
$
53
$
16
______________
(1)After
taking into consideration the existence of netting agreements.
Embedded Derivatives
The
Company is a party to certain reinsurance agreements that contain embedded derivatives that are required to be separated from their host
contracts and accounted for as freestanding derivatives.
The
following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been
separated from their host contracts at:
December
31,
Balance Sheet
Location
2023
2022
(In millions)
Embedded
derivatives within liability host contracts:
Funds
withheld on ceded reinsurance
Other
liabilities
$
(112)
$
(124)
9.
Fair Value
When
developing estimated fair values, the Company considers three broad valuation approaches: (i) the market approach, (ii) the
income approach, and (iii) the cost approach. The Company determines the most appropriate valuation approach to use, given what is
being measured and the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and
liabilities measured at estimated fair value into a three-level hierarchy, based on the significant input with the lowest level in its
valuation. The input levels are as follows:
Level 1
Unadjusted
quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume
for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities AFS.
MTL
- 77
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
Level 2
Quoted
prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted prices
for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant
inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term
of the assets or liabilities.
Level 3
Unobservable
inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of the assets
or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants
would use in pricing the asset or liability.
Financial
markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity.
The Company’s ability to sell securities, as well as the price ultimately realized for these securities, depends upon the demand
and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities.
Considerable
judgment is often required in interpreting the market data used to develop estimates of fair value, and the use of different assumptions
or valuation methodologies may have a material effect on the estimated fair value amounts.
MTL
- 78
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
Recurring
Fair Value Measurements
The
assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy,
including those items for which the Company has elected the FVO, are presented below at:
Embedded
derivatives within liability host contracts (3)
—
—
(124)
(124)
Total
liabilities
$
—
$
55
$
(124)
$
(69)
______________
(1)Derivative
assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other
liabilities on the consolidated balance sheets.
(2)Investment
performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is
reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account
assets.
(3)Embedded
derivatives within liability host contracts are presented within other liabilities on the consolidated balance sheets.
MTL
- 80
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
The
following describes the valuation methodologies used to measure assets and liabilities at fair value.
Investments
Securities,
Short-term Investments and Other Investments
When
available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly
obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not
involve management’s judgment.
When
quoted prices in active markets are not available, the determination of estimated fair value of securities is based on market standard
valuation methodologies, giving priority to observable inputs. The significant inputs to the market standard valuation methodologies for
certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived
principally from, or corroborated by, observable market data. When observable inputs are not available, the market standard valuation
methodologies rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived
principally from, or corroborated by, observable market data. These unobservable inputs can be based, in large part, on management’s
judgment or estimation and cannot be supported by reference to market activity. Unobservable inputs are based on management’s assumptions
about the inputs market participants would use in pricing such investments.
The
estimated fair value of short-term investments and other investments is determined on a basis consistent with the methodologies described
herein.
The
valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair
value hierarchy are presented below. The primary valuation approaches are the market approach, which considers recent prices from market
transactions involving identical or similar assets or liabilities, and the income approach, which converts expected future amounts (e.g.,
cash flows) to a single current, discounted amount. The valuation of most instruments listed below is determined using independent pricing
sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable
inputs.
Instrument
Level 2 Observable
Inputs
Level 3 Unobservable
Inputs
Fixed
maturity securities AFS
U.S.
corporate and Foreign corporate securities
Valuation
Approaches: Principally the market and income approaches.
Valuation
Approaches: Principally the market approach.
Key
Inputs:
Key
Inputs:
•
quoted
prices in markets that are not active
•
illiquidity
premium
•
benchmark
yields; spreads off benchmark yields; new issuances; issuer ratings
•
delta
spread adjustments to reflect specific credit-related issues
•
trades
of identical or comparable securities; duration
•
credit
spreads
•
privately-placed
securities are valued using the additional key inputs:
•
quoted
prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity
than securities classified in Level 2
•
market
yield curve; call provisions
•
observable
prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer
•
independent
non-binding broker quotations
•
delta
spread adjustments to reflect specific credit-related issues
U.S.
government and agency securities, Foreign government securities, and Municipals
Valuation
Approaches: Principally the market approach.
Valuation
Approaches: Principally the market approach.
Key
Inputs:
Key
Inputs:
•
quoted
prices in markets that are not active
•
independent
non-binding broker quotations
•
benchmark
U.S. Treasury yield or other yields
•
quoted
prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity
than securities classified in Level 2
•
the
spread off the U.S. Treasury yield curve for the identical security
•
issuer ratings
and issuer spreads; broker-dealer quotations
•
credit
spreads
•
comparable
securities that are actively traded
MTL
- 81
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
Instrument
Level 2
Observable
Inputs
Level 3
Unobservable
Inputs
Structured
Products
Valuation
Approaches: Principally the market and income approaches.
Valuation
Approaches: Principally the market and income approaches.
Key
Inputs:
Key
Inputs:
•
quoted
prices in markets that are not active
•
credit
spreads
•
spreads
for actively traded securities; spreads off benchmark yields
•
quoted
prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity
than securities classified in Level 2
•
expected
prepayment speeds and volumes
•
current
and forecasted loss severity; ratings; geographic region
•
independent
non-binding broker quotations
•
weighted
average coupon and weighted average maturity
•
credit
ratings
•
average
delinquency rates; DSCR
•
credit
ratings
•
issuance-specific
information, including, but not limited to:
•
collateral
type; structure of the security; vintage of the loans
•
payment
terms of the underlying assets
•
payment
priority within the tranche; deal performance
Short-term
investments and Other investments
•
Certain
short-term investments and certain other investments are of a similar nature and class to the fixed maturity securities AFS described
above; while certain other investments are similar to equity securities. The valuation approaches and observable inputs used in their
valuation are also similar to those described above. Other investments contain equity securities valued using quoted prices in markets
that are not considered active.
•
Certain
short-term investments and certain other investments are of a similar nature and class to the fixed maturity securities AFS described
above, while certain other investments are similar to equity securities. The valuation approaches and unobservable inputs used in their
valuation are also similar to those described above. Other investments contain equity securities that use key unobservable inputs such
as credit ratings; issuance structures, in addition to those described above for fixed maturities AFS.
Separate
account assets (1)
Mutual
funds and hedge funds without readily determinable fair values as prices are not published publicly
Key
Input:
•
N/A
•
quoted
prices or reported net asset value provided by the fund managers
______________
(1)Estimated
fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities,
equity securities, derivatives, hedge funds, short-term investments and cash and cash equivalents. The estimated fair value of fixed maturity
securities, equity securities, derivatives, short-term investments and cash and cash equivalents is determined on a basis consistent with
the assets described under “— Securities, Short-term Investments and Other Investments” and “— Derivatives
— Freestanding Derivatives.”
Derivatives
The
estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through
the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market
values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with
what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates,
foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes
in estimates and assumptions used in the pricing models.
The
significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market
or can be derived principally from, or corroborated by, observable market data. With respect to certain OTC-bilateral and OTC-cleared
derivatives, management may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot
be derived principally from, or corroborated by, observable market data. These unobservable inputs may involve significant management
judgment or estimation. Unobservable inputs are based on management’s assumptions about the inputs market participants would use
in pricing such derivatives.
Most
inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when
they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs,
may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
MTL
- 82
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
The
credit risk of both the counterparty and the Company is considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared
derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of
netting agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves
which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for
those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant
derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments
are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels, is in
part, due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties.
An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Freestanding
Derivatives
Level
2 Valuation Approaches and Key Inputs:
This
level includes all types of derivatives utilized by the Company.
Freestanding
derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques,
whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
Instrument
Interest
Rate
Foreign
Currency Exchange Rate
Credit
Inputs
common to Level 2 by instrument type
•
swap
yield curves
•
swap
yield curves
•
swap
yield curves
•
basis
curves
•
basis
curves
•
credit
curves
•
interest
rate volatility (1)
•
currency
spot rates
•
recovery
rates
•
cross
currency basis curves
______________
(1)Option-based
only.
Embedded
Derivatives
Embedded
derivatives are primarily included within funds withheld on ceded reinsurance. Embedded derivatives are recorded at estimated fair value
with changes in estimated fair value reported in net income.
The
estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance is determined based on the
change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the funds withheld liability.
The estimated fair value of the underlying assets is determined as described in “— Investments — Securities, Short-term
Investments and Other Investments.” The estimated fair value of these embedded derivatives is included, along with their funds withheld
hosts, in other liabilities on the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses).
Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in
the estimated fair value of these embedded derivatives that could materially affect net income.
Embedded
Derivatives Within Liability Host Contracts
Level
3 Valuation Approaches and Key Inputs:
Embedded
derivatives within funds withheld on ceded reinsurance
These
embedded derivatives are principally valued using the income approach. The valuations are based on present value techniques, which utilize
significant inputs that may include the swap yield curves and the fair value of assets within the reference portfolio. These embedded
derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot
be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include the fair value
of certain assets within the reference portfolio which are not observable in the market and cannot be derived principally from, or corroborated
by, observable market data.
MTL
- 83
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
Transfers
between Levels
Overall,
transfers between levels occur when there are changes in the observability of inputs and market activity.
Transfers
into or out of Level 3:
Assets
and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs
when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when
there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3
when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant
increase in market activity, a specific event, or one or more significant input(s) becoming observable.
Assets
and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The
following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement,
and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured
at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
Impact
of Increase in Input on Estimated Fair Value (2)
Valuation
Techniques
Significant Unobservable Inputs
Range
Weighted Average (1)
Range
Weighted Average (1)
Fixed maturity
securities AFS (3)
U.S. corporate and
foreign corporate
•
Matrix pricing
•
Offered
quotes (4)
20
-
119
92
—
-
106
84
Increase
•
Market pricing
•
Quoted prices
(4)
40
-
109
89
25
-
101
81
Increase
RMBS
•
Market
pricing
•
Quoted
prices (4)
52
-
102
94
55
-
100
93
Increase
(5)
ABS
& CLO
•
Market pricing
•
Quoted prices
(4)
78
-
100
93
79
-
101
89
Increase
(5)
______________
(1)The
weighted average for fixed maturity securities AFS and derivatives is determined based on the estimated fair value of the securities and
derivatives.
(2)The
impact of a decrease in input would have resulted in the opposite impact on estimated fair value.
(3)Significant
increases (decreases) in expected default rates in isolation would have resulted in substantially lower (higher) valuations.
(4)Range
and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars
of par.
(5)Changes
in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption
used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
Generally,
all other classes of assets and liabilities classified within Level 3 that are not included above use the same valuation techniques
and significant unobservable inputs as previously described for Level 3. The sensitivity of the estimated fair value to changes in
the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in the preceding table.
MTL
- 84
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
The
following tables summarize the change of all assets (liabilities) measured at estimated fair value on a recurring basis using significant
unobservable inputs (Level 3):
Fair
Value Measurements Using Significant Unobservable Inputs (Level 3)
Total
realized/unrealized gains (losses) included in net income (loss) (1), (2)
$
5
$
3
$
—
$
44
$
21
$
45
Total
realized/unrealized gains (losses) included in AOCI
$
(42)
$
6
$
—
$
—
$
—
$
—
MTL
- 85
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
9.
Fair Value (continued)
______________
(1)Amortization
of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities
are included in net investment gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss)
for net embedded derivatives are reported in net derivative gains (losses).
(2)Interest
accruals, as well as cash interest coupons received, are excluded from the rollforward.
(3)Items
purchased/issued and then sold/settled in the same period are excluded from the rollforward.
(4)Items
transferred into and then out of Level 3 in the same period are excluded from the rollforward.
(5)Changes
in unrealized gains (losses) included in net income (loss) and included in AOCI relate to assets and liabilities still held
at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net embedded
derivatives are reported in net derivative gains (losses).
(6)Comprised
of U.S. and foreign corporate securities.
(7)Investment
performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate account
liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure,
these changes are presented within net income (loss).
(8)Embedded
derivative assets and liabilities are presented net for purposes of the rollforward.
Fair
Value of Financial Instruments Carried at Other Than Fair Value
The
following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than
fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income and payables
for collateral under securities loaned and other transactions. The Company believes that due to the short-term nature of these excluded
assets, which are primarily classified in Level 2, the estimated fair value approximates carrying value. All remaining balance sheet
amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
The
carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy,
are summarized as follows at:
The
Company’s long-term debt outstanding is comprised of a surplus note, which bears interest at a fixed rate of 7.63% and was repaid
in cash at maturity in January 2024. The outstanding balance of the surplus note was $107 million at both December 31, 2023
and 2022.
Payments
of interest and principal on the Company’s surplus note are subordinate to all other obligations and may be made only with the prior
approval of the insurance department of the state of domicile.
Interest
expense related to the surplus note, included in other expenses, was $9 million for each of the years ended December 31, 2023, 2022
and 2021.
11.
Equity
Statutory
Equity and Income
MTL
prepares statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska
Department of Insurance. The National Association of Insurance Commissioners (“NAIC”) has adopted the Codification of Statutory
Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting
and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state
laws and permitted practices. Modifications by the state insurance department may impact the effect of Statutory Codification on the statutory
capital and surplus of MTL.
The
state of domicile of MTL imposes risk-based capital (“RBC”) requirements that were developed by the NAIC. Regulatory compliance
is determined by a ratio of a company’s total adjusted capital, calculated in the manner prescribed by the NAIC (“TAC”),
with modifications by the state insurance department, to its authorized control level RBC, calculated in the manner prescribed by the
NAIC (“ACL RBC”), based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios
are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective
action commences is twice ACL RBC (“CAL RBC”). The CAL RBC ratios for MTL were in excess of 410% and in excess of 370% at
December 31, 2023 and 2022, respectively.
Statutory
accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy
benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on
a different basis. The impact of these prescribed accounting practices was ($10) million and ($23) million on the statutory
capital and surplus of MTL at December 31, 2023 and 2022, respectively, compared to what capital and surplus would have been had it been
measured under NAIC guidance.
MTL
- 87
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
11.
Equity (continued)
In
addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant
assets not admitted by MTL are net deferred income tax assets resulting from temporary differences between statutory accounting principles
basis and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not
give recognition to purchase accounting adjustments.
Statutory
net income (loss) of MTL, a Nebraska domiciled insurer, was $411 million, $232 million, and $185 million at December 31, 2023,
2022 and 2021, respectively. Statutory capital and surplus was $2.5 billion and $1.9 billion at December 31, 2023 and 2022, respectively.
All such amounts are derived from the statutory–basis financial statements as filed with the Nebraska Department of Insurance.
Dividend
Restrictions
Under
the Nebraska Insurance Code, MTL is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife,
Inc. as long as the amount of the dividend, when aggregated with all other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory
net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not including pro rata distributions
of MTL’s own securities. MTL will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such two amounts only
if it files notice of the declaration of such a dividend and the amount thereof with the Director of the Nebraska Department of Insurance
(the “Nebraska Director”) and the Nebraska Director either approves the distribution of the dividend or does not disapprove
the dividend within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”
excluding unrealized capital gains) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Nebraska
Insurance Code, the Nebraska Director has broad discretion in determining whether the financial condition of a stock life insurance company
would support the payment of such dividends to its stockholders.
MTL
paid $189 million in dividends to MetLife, Inc. for the year ended December 31, 2023, including amounts where regulatory approval was
obtained as required. MTL did not pay a dividend for the year ended December 31, 2022. Under Nebraska Insurance Code, MTL has calculated
that it may pay approximately $373 million to MetLife, Inc. without prior regulatory approval by the end of 2024.
MTL
- 88
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
11.
Equity (continued)
Accumulated
Other Comprehensive Income (Loss)
Information
regarding changes in the balances of each component of AOCI was as follows:
(1)Includes
($19) million, $27 million and ($17) million for the years ended December 31, 2023, 2022 and 2021, respectively, for the net change in
cash surrender value of investments in certain life insurance policies, net of premiums paid.
Capitalization
of DAC and Amortization of DAC and VOBA
See
Note 5 for additional information on DAC and VOBA including impacts of capitalization and amortization.
Expenses
Related to Debt
See
Note 10 for additional information on interest expense on debt.
MTL
- 90
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
12.
Other Expenses (continued)
Affiliated
Expenses
See Notes 6 and 15 for a discussion of affiliated expenses related to reinsurance and service agreement transactions, respectively, included
in the table above.
Notes
to the Consolidated Financial Statements — (continued)
13.
Income Tax (continued)
Deferred
income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income
tax assets and liabilities consisted of the following at:
(1)The
Company has recorded a deferred tax asset of $4 million primarily related to U.S. state net operating loss carryforwards and an offsetting
valuation allowance for the year ended December 31, 2023. U.S. state net operating loss carryforwards will expire between 2028 and 2043.
The
Company participates in a tax sharing agreement with MetLife, Inc., as described in Note 1. Pursuant to this tax sharing agreement,
the amounts due to MetLife, Inc. included $5 million and $33 million at December 31, 2023 and 2022, respectively.
The
Company files income tax returns with the U.S. federal government and various U.S. state and local jurisdictions, as well as non-U.S.
jurisdictions. The Company is under examination by the Internal Revenue Service and other tax authorities in jurisdictions in which the
Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is
no longer subject to U.S. federal, state, or local income tax examinations in major taxing jurisdictions for years prior to 2017.
14.
Contingencies and Commitments
Contingencies
Litigation
Various
litigation, claims or assessments against the Company may arise in the course of the Company’s business. Further, state insurance
regulatory and other federal and state authorities may make inquiries and conduct investigations concerning the Company’s compliance
with applicable insurance and other laws and regulations.
It
is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. It is possible in certain cases that
an adverse outcome could have a material effect upon the Company’s financial position.
On
a quarterly and annual basis, management reviews relevant information with respect to liabilities for litigation, regulatory investigations
and litigation-related contingencies to be reflected in the Company’s financial statements. Liabilities are established when it
is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.
MTL
- 92
Metropolitan
Tower Life Insurance Company
(A
Wholly-Owned Subsidiary of MetLife, Inc.)
Notes
to the Consolidated Financial Statements — (continued)
14.
Contingencies and Commitments (continued)
Pitt
v. Metropolitan Tower Life, Inc., et al. (S.D. Cal., filed April 10, 2020)
In
this case initially filed as a putative class action, plaintiff alleges that the Company failed to comply with California statutes regarding
lapse notice requirements for life insurance policies issued or delivered in the state. She seeks to represent a class of all past, present,
and future owners and beneficiaries of the Company’s individual life insurance policies in force on or after January 1, 2013 and
governed by the relevant California statutes, where the policies underwent or will undergo lapse, termination, and/or reinstatement
without the Company providing written notice of an actual 60-day grace period, a 30-day notice of impending lapse and termination, and/or
an annual notice of a right to designate at least one other person to receive lapse-related communications. Plaintiff seeks declaratory
and injunctive relief, as well as unspecified compensatory and punitive damages, and other relief. The Court denied Plaintiff’s
motion to certify the class and subsequently dismissed her individual claim. Plaintiff has appealed the dismissal of her claims but not
the denial of class certification.
Commitments
Mortgage
Loan Commitments
The
Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $455 million and $520
million at December 31, 2023 and 2022, respectively.
Commitments
to Fund Private Corporate Bond Investments and Partnership Investments
The
Company commits to lend funds under private corporate bond investments and partnership investments. The amounts of these unfunded commitments
were $1.2 billion at both December 31, 2023 and 2022.
15.
Related Party Transactions
Service
Agreements
The
Company has entered into various agreements with affiliates for services necessary to conduct its activities. Typical services provided
under these agreements include personnel, policy administrative functions and distribution services. The bases for such charges are modified
and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual cost incurred by the Company and/or
its affiliates. Expenses and fees incurred with affiliates related to these agreements, recorded in other expenses, were $133 million,
$96 million and $80 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The
Company had net payables to affiliates, related to the items discussed above, of $44 million and $2 million at December 31, 2023
and 2022, respectively.
See
Notes 6, 7 and 11 for additional information on related party transactions.
16.
Subsequent Events
The
Company has evaluated events subsequent to December 31, 2023, through April 4, 2024, which is the date these consolidated financial
statements were available to be issued and has determined there are no material subsequent events requiring adjustments to or disclosures
in the financial statements.
MTL
- 93
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Dates Referenced Herein and Documents Incorporated by Reference
